Hugo Eales: We’re looking at a market where
has been a lot of consolidation. Ultimately it’s
question of us delivering
Colt is winding down its IT services business and will be
focusing on its network. But the company’s new
management team has a tough target: by 2017 it has to persuade
its near 100% owner, the investment group Fidelity, that its
long-term business is viable. Otherwise — well, the
future is uncertain.
"This year and 2016 will be critical for us, and
that’s what I’ve said to Carl," says
Hugo Eales, who has been group CFO since November 2014.
"Carl" is Carl Grivner, the executive VP of network services,
who takes over in January 2016 as CEO of the group from Rakesh
Bhasin, the head of the company for nine years. Bhasin is going
back to Fidelity.
Grivner is even newer to Colt than Eales. Until the end of 2014
he was CEO of Pacnet, leaving after Telstra announced its $697
million purchase of the company, which runs networks and data
centres in Hong Kong, Singapore and across the Asia Pacific
Grivner joined London-based Colt in May 2015. His new company
is more than three times the size of Pacnet —
Fidelity’s deal in June to buy the Colt shares it
didn’t own valued the group at £1.73
billion, equivalent to $2.36 billion.
Despite change at the top, there will be no sudden adjustments
to Colt’s five-year plan, which was agreed at the
end of May, says Eales. "We decided to focus on the network and
close down IT services."
That in itself was a remarkable about-turn. What used to be
Colt Telecom was renamed Colt Technology Services in 2010, when
Bhasin told GTB: "Our primary focus is managed services
— that complements our network assets."
Now, says Eales, as he gets ready for the post-Bhasin era, "IT
services was the right thing at the time, but for the next two
to three years the network is the focus."
Colt will wind down IT services "over two to three years", he
says. It is a decision "that had a level of finality. It helps
customers to manage their expectations."
Why? It makes financial sense. "If we can invest the capex in
the network that we would have spent on IT services, the
returns are better. That is the core for us."
The change means no cloud services, though "the networking part
of the cloud is still very important", and a renewed focus on
delivering network connections — and a focus on
cutting the costs by using software-defined network and network
functions virtualisation technology, something in which
Grivner’s old company Pacnet was a pioneer.
"We are investing in NFV and SDN," says Eales. "Carl Grivner
certainly understands the network."
This will help Colt in its three priorities, he explains:
growth, managing customer experience, and efficiency. "This is
a market that typically sees 3-5% a year price erosion," he
points out. Hence the need for efficiency, "but efficiency is
not just cost cutting". The company wants "more volume at the
same time" as "Fidelity do want a return on their investment",
and "if we don’t grow, we don’t
deliver a good customer experience. It’s important
we deliver all three."
SDN should be a key enabler for this, he notes, by allowing the
company to operate with less hands-on management.
Colt has already started its investment in SDN. "We know we
want to go that way, and we have tested it with one or two
customers. We want to ensure [the service] is resilient."
Expect an announcement later in October.
"I do think we have a unique opportunity to be faster.
We’re not the biggest company on the planet. We
can be incredibly competitive in price. [Colt] is a less
And the company will be investing in its sales force in order
to build up business, he says. "Some of them are street
fighters." Colt will be encouraging them with higher
commissions, he says. The aim will be to get better usage of
the Colt network — which reaches 22,000 buildings via
45 metro networks — and reduce the temptation to sign
customers that require off-net connections.
"We might need some capex" to increase the number of on-net
connections, "but 90% [of business] is renewal in this
Behind all this will be hard research to find out which
companies are in each of those buildings, and "that means
knocking on doors" to find out "who won last time".
There’ll be some network efficiencies as well,
says Eales. "Technology has changed so much, and the need to
have multiple nodes in a city has changed. We will look at that
in the long term. We’ll be looking at how that
works in making us leaner and more efficient with the equipment
that is available."
But that’s not the immediate task. The biggest
issue is that "we have a very good execution plan to deliver
against", says Eales. "I’m confident that we have
the right plans for customer experience and efficiency, and the
focus is growth. We will continue to invest in the sales
Meanwhile, though, the company has changed radically since
Eales arrived a year ago, after spending the previous four
years at BT Global Services, a year as CFO of the UK operation,
then three years for all of BT’s international
wholesale and enterprise operation.
When he joined Colt, it was a public company, quoted on the
London stock exchange. In June 2015 Fidelity, which had been a
key shareholder since Colt was set up in 1992 as a metropolitan
network for central London, bid £569 million for the 38%
of shares it didn’t own, offering £1.90 a
Despite some grumbles from a few shareholders they recognised
it was a good offer — Colt’s shares were
only £1.27 in late January 2015 — and virtually
all accepted, helped by Fidelity’s insistence that
it would not increase the offer.
"Now 97.5% of shares are owned by Fidelity," says Eales, and
the company will begin a squeeze-out process to take over the
The change means Eales’s world is different from
what he expected a year ago, as Colt is no longer a public
company. No more analyst meetings, for example, though "they
were fun to do", he says.
"But we are still a separate company, privately owned rather
than publicly listed." Expectations are no different from the
guidance Colt was giving the market when it was still public,
Fidelity had always been the largest shareholder since the
company started. "They kept it together," says Eales.
Will Fidelity still keep it together? Back in June, when it
insisted it would not raise its bid from £1.90, Fidelity
made a curious statement: "Fidelity has committed to holding
its investment in Colt and not to sell or take any other steps
to dispose of its Colt shares to any third party prior to 31
December 2016," it said. "This commitment stands whether as a
consequence of the offer Colt becomes a private company, or
remains as a public listed company should the offer
That’s effectively a deadline, and the new
management knows it. "The Fidelity view is to get it in into
shape and do what [should be done] with it," says Eales, who is
reassured that there is a five-year plan from May 2015.
The plan includes what used to be KVH, a Japanese network
operator that was also owned by Fidelity — Bhasin
headed the unit before he came to London. KVH was acquired in
January 2015 and is now Colt Asia, with operations in Tokyo,
Singapore, Hong Kong and Seoul.
"It gives us a better footprint and the opportunities that come
from it," says Eales. And a network in Asia means Colt will not
need so many off-net deals for its European customers that want
"The market used to say, 'When will we see return on
investment? When will Colt have positive cash
flow?’" says Eales. Now the company needs "to
deliver against what we’ve committed to do, even
though we’re private."
But the end of next year is clearly marked in his calendar.
"Fidelity went out and said there are no plans for a sale
before 2017. We’re looking at a market where there
has been a lot of consolidation. Ultimately it’s a
question of us delivering." GTB