Colt owner Fidelity Investments brought Rakesh Bhasin from its Japanese operation to tidy up its business structure and streamline the company. Now, with its debt paid off and cash in the bank, he’s ready to invest in managed services while keeping an eye on industry consolidation, he tells Alan Burkitt-Gray
Rakesh Bhasin: consolidation will take place, but
Colt is not for sale
Since Rakesh Bhasin came into Colt as CEO just over three years ago, revenue has gone down. But the company appears to be in a far healthier state financially. The group ended 2009 with no debt and €309 million in net funds — compared with debt of €262 million and cash of just €231 million at the end of 2006.
So what will he spend the cash on? “Our primary focus is managed services — that complements our network assets”.
Will he bid for other companies? Colt is “not an M&A driven company”, he says, warning that “more than 50%” of attempts to integrate businesses fail.
“We’ve been through the dotcom bubble,” he notes, and his philosophy is to prefer building assets to buying them. “Our goal is not to drive growth through M&A,” he says, though adds the inevitable rider that he would look at something if it has a good valuation.
Colt operates in a market where it is “much smaller than the incumbent” in each of the countries in which it operates, but often larger than them outside their home countries.
But we’re in an industry were consolidation seems inevitable. Yes, “consolidation will take place”, he agrees, and so the market will inevitably change. Does that mean that he’s looking around? He refuses to comment as, inevitably, he would, but adds: “There are only one or two companies in my opinion that are close to what we’re trying to do.” And the company is “looking at different components of our strategy”, he adds enigmatically.
On the other hand, Colt operates in euros — it is a Luxembourg-registered company, with businesses right through Europe — and is headquartered in the UK, where its shares are quoted on the London Stock Exchange.
Both the British pound and the euro have fallen in recent months against the US dollar. How has that affected Colt? “There is a degree of impact,” says Bhasin. “But most of our revenue is in euros and a big chunk of our costs is in euros.”
Has the decline in the euro and the pound against the dollar made Colt an attractive acquisition for a US company? Bhasin has heard the rumours — though they’ve been rumbling for years and have never come true. “We are not for sale,” he says firmly. “We are executing and growing in the right area.” Colt is not for sale, he repeats.
It’s clear that Bhasin was brought in by Fidelity Investments — which owns around 60% of Colt — in 2006 to streamline the company’s act. A year before he joined, the debt was €854 million, though it had more cash than it does now, and operating loss was €79 million.
Was it drifting? Bhasin is careful not to criticise the previous management — and, to be fair, Fidelity has been the main backer of Colt since it started in the early 1990s and has appointed all CEOs so far — and he says that “Colt went through the dotcom era and created some very good assets”.
But, there’s a “but” following. “But the company created a very country-centric model,” he says. “It wanted to be the first to get fibre in the ground. The downside of this was the company had multiple countries and structures.”
The company was known across Europe as a pan-European player, “but it had a country-centric P&L and country performance was the main driver”, says Bhasin.
He was already well known to Fidelity when he came to London to head Colt in December 2006. Before then he had spent five years running KVH, a Tokyo telecoms and data services provider also owned by Fidelity. Though the companies are different, he clearly brought some of his KVH experience from Japan to Europe — and he remains closely in touch with the Japanese company, as non-executive chairman.
So when he arrived Colt had assets in 34 countries across Europe — and partners in 100 countries around the world — but still operated as a local competitor in each of those European countries. “We did not do very well in the pan-European sense,” he admits. The company had very good local presence and very good relationships with local companies, but did not make enough from its pan-European network. “It was the way we managed our business,” he says.
Many Europeans grumble that Americans think of Europe as one place, while Europeans know better. Bhasin is Indian-born but was educated in the US with a bachelor of science degree from George Washington University and then went on to work for AT&T for 12 years until he joined KVH. He has recognised the potential of treating Europe as a single market.
“It was a struggle going from one model to the other,” he admits now. He abolished national boundaries and carved Colt into three pan-European business units. One provides wholesale services to other carriers; one is close to Colt’s original core business with small and medium enterprises; the third takes advantage of the cross-border network by serving major enterprises, primarily in financial services.
“These three units are in place,” says Bhasin. The SME unit is divided across each city where Colt has a local network, “but we take a tailored factory approach”, he says.
He’s dropped the country-based P&L approach. “These three businesses operate across Europe, with consistency across Europe.”
And the back office systems have been harmonised too. Previous management before Bhasin had already taken the right step of putting that in India, along with the customer care centre in Barcelona. “These were good decisions,” he says.
But the IT people in India have taken this further. “We have one billing system across Europe, one workflow engine across Europe”, and so on. “Consistency across Europe” is the motto.
The new approach has shifted the focus of Colt’s sales people, he adds. When they sell something to a customer in Frankfurt, because they no longer have a German focus on P&L, they then ask about needs in London, Paris and elsewhere. “And they can deliver the same solution. It’s an integrated, bundled product.”
Colt has a similar technical structure across its network, too, with Infinera equipment for the backbone and kit from Atrica — now part of Nokia Siemens Networks — for the multiservice access platform. “Atrica is deployed in all our cities,” says Bhasin. “Right across Europe we have a consistent platform. We have a much more capital efficient, upgraded network. Most people’s next generation network is our current network.”
There’s another change that Bhasin has created in Colt since his arrival: its name and brand. Until May 2010 it was Colt Telecom — though actually it tended to insist on COLT Telecom, something that went back to its original designation in 1992, when it was launched as City of London Telecommunications.
Now it’s just Colt. No Telecom, no capitals. “Yes, we’ve taken Telecom out of our name,” confirms Bhasin. “We’re in the information delivery business.”
It’s a sign that Colt is simplifying the business, he says. “Telecoms is still fundamental but hosting and cloud services are now a core part of the business.”
Voice — the original core business — still accounts for 41% of the business, but data and managed services take up the other 59%, he adds. Yes, the company has invested for some time in managed services, “but that was not part of the core business” in the past, he says.
Now, that has changed, with a new enthusiasm in the market for cloud services. “Managed services grew 27% last year in a difficult market,” says Bhasin. That includes all three variants of “as a service” that the telecoms industry is now excited about: infrastructure, platform and software as a service.
“Our midrange customers are very keen on cloud. I thought that cloud would take longer to develop.” But the economy means that many groups are talking to Colt about services, “especially in the last six months, and especially CIOs”, he says. “Confidence in the technology has increased.”
The logic is clear, says Bhasin. In the past a company’s internal servers were used at about 10% of efficiency. Now virtualisation means that usage can go to 80%, with cloud taking up the overflow. “IT has been very inefficient historically”, but now even banks are looking seriously at cloud ideas. “They need to make their capital work more efficiently,” he says.
This change in Colt’s approach is part of the business philosophy Bhasin learned in his years at KVH in Japan: “Kaizen — continuous improvement in business,” he says. “You create a culture to improve your quality of service and you empower people on the floor to make decisions.”
He is critical of the approach of his competitors in the European market. “Customers take too much from telecoms providers from the quality of service point of view,” he says. He compares operators’ performance with what is the norm in Japan. “If they say a technician will turn up at 4pm, then the technician will arrive at a minute to four. The expectation of customers is higher than anywhere else I’ve been.”
It may be expected in Japan, yet in Europe operators get away with poor service, he says. “There are a lot of opportunities to serve customers better. When you commit to something, deliver it.”
That’s something that Bhasin has pushed for at Colt. “The teams are responding very well. We track delivery on committed dates. When we commit we deliver — or we are transparent about the actual date.”
How has he done it? “By training, rewarding people, acknowledging success,” he says. “Most people want to do these things.” But why don’t competitors do something similar? “People in telcos want to hide behind processes,” he smiles.
There’s been a culture change at Colt, he believes — and that leads back to the rebranding. It wasn’t just a new, simplified name and a new logo: the old red, yellow, blue and green pennants from the 1990s have been dropped at the same time.
“We first launched the new brand internally,” says Bhasin. “We had some internal proof points,” and only when people accepted that they had achieved those targets was the go-ahead given to introduce the brand to customers.
“It’s about having simple, straightforward values and living those values every day,” he says. “In Colt, the biggest asset a company has is the people, and they responded very well to the changes.”
It really was the case that if the targets were not met, the rebranding would not take place, he emphasises.
Was it hard to persuade the staff to adopt this approach? No, says Bhasin, and he backs this by saying that he kept most of the existing staff with the company after his arrival. “I didn’t have to bring in many new people. Some changed their roles and got more focused. Many of the current team has been with me since the beginning, and I didn’t hire many of them,” he says.
One area did need some attention, he adds. In September 2009 he recruited a new chief financial officer. Stuart Jackson was hired from Acergy, an offshore engineering and construction contractor. “I brought in someone from outside the telecoms industry,” says Bhasin. “Telcos really don’t look at profitability and capacity management.”
Jackson comes from an industry “where capacity management is very fundamental”, he adds: before Acergy he was vice president of the UK operations of NRG Energy, a power generation company.
Tony Bates, a former CFO until he became COO and acting CFO in April 2008, remains COO.
But there are changes afoot. “We’re transforming Colt to an information delivery platform,” says Bhasin. “We need more IT skills than telecoms skills.”
What does he mean by the term “information delivery platform”? Not IT, he is quick to say. “We do not want to be a traditional IT outsourcing company. We are an information delivery platform that has a core data network that connects 16,000 buildings.” Other partners extend the network further.
On this Colt can offer 19 data centres and “a stack of services”, from storage to office tools, he says, based on “shared assets, including data centre assets and server assets”. Colt’s job is different from that of the traditional IT outsourcer — which is “we’ll manage your mess for less”, says Bhasin. “The way we look at IT services is very different.”
But he admits that some customers “will never want to lost their own data centre”, though many are now looking at shared resources. Some “are just not ready” and retain their belief in a need for “a tailored solution for their unique needs”.
Acceptability of cloud services has changed significantly in recent times, he suggests — partly because many people now use their own cloud services, such as Google’s gmail. Services “need to be managed and delivered — and whoever can do this well will succeed”.
Bhasin believes Colt is right to stay focused on the business market. “Other companies in network services face many demands — content to the home, fibre to the home, mobility and so on. So it’s very hard to get focused. We are in the business world, with a customer base of 35,000.” And Colt can offer them “the whole stack of services”.
Colt is expanding its service area in eastern Europe — adding points of presence in Warsaw, Prague, Budapest, Bucharest and Bratislava. Outside Europe “we have ethernet services to North America” including Boston, Chicago, New York and other cities. But apart from that “we want to make sure we’re good in Europe before looking round the world”. The North American links are “to supply our own customers” rather than to look for service with local companies.
Owning your own infrastructure is key. “We firmly believe in Colt and KVH that asset ownership is a competitive advantage”, and he lists fibre, data centres and computing resources among those assets that “you need to own”.
Now, “we’ve got the basics done”, says Bhasin, “and we’re ready to launch into the future”. What does that mean? “Organic and inorganic growth, we look at both,” he says. “We are making sure we execute and that there’s a clear strategy in place. Every single employee understands the strategy.”
Growth? “Colt for multiple reasons did not grow over the last four years,” he concedes. A lot of sectors were “not very profitable” and “we have reduced” them. He’s clearly happier than he was with the current revenue mix.
And ebitda has grown, from €253 million in 2005 to €318 million last year. “It’s been consistently growing. We have no debt now and we are sitting on cash.” GTB
CEO of Colt since December 2006; now aged 47
Indian-born, he left India at 18 to go to university in the US: bachelor of science in electronic engineering from George Washington University
Later education includes the Berkeley Executive Program at the University of California at Berkeley and the Advanced Management Program at the Wharton School at the University of Pennsylvania
Joined AT&T and worked in the US, Singapore and Japan. Roles includes
Global product manager at AT&T in data networks for corporate customers. Later roles in AT&T include VP of new business services for joint venture with World Partners Company, and regional managing director of AT&T Managed Network Solutions for Asia Pacific
AT&T executive director and senior managing director with Japan Telecom Co
Joined KVH in Japan as CEO; remains non-executive chairman
Joined Colt as CEO