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"BT is moving from networks to services"

July 17, 2007

Over the last few months, global warming campaigners have found an unexpected ally in the corporate world in the form of Ben Verwaayen, Chief Executive of telecommunications conglomerate bt Group. The 55-year-old Dutch national has jetted around the globe (from The Hague in Holland to Sydney, Australia), in his position as the Chairman of the Confederation of British Industry's taskforce on climate change, to convince his peers of the seriousness of this problem and the need to take urgent remedial action.

Despite the time he spends on the road for this initiative (his minders claim he answers around 200 e-mails a day personally even while he's travelling), Verwaayen has been at the centre of the revival of the 161-year-old, £20.2-billion (Rs 1,61,600 crore) telecom giant that, in 2001, was saddled with over £30 billion (Rs 2,01,000 crore then) in debt and several sceptics had written off.

In the five years that he has been in charge, Verwaayen, a football fanatic who oddly supports Arsenal rather than any Dutch club, has turned around the company, from a creaking provider of telephone and telegraph services (in its original form as Electric Telegraph Company, it was the first outside the us to provide the service) to a new-age communications vendor of networked it enterprise communication services.

The graduate of Law and International Politics from the State University of Utrecht, Holland (he has written a political manifesto for Holland), Verwaayen previously worked with Lucent Technologies, where he left as Vice Chairman of the Management Board. BT has interests in a variety of areas in India, ranging from call centres to its most recent addition, long-distance internet protocol-based communication services after acquiring i2i Enterprise on June 7 this year. Verwaayen visited the country in early June to get up to speed on his company's activities here and caught up with Business Today's Rahul Sachitanand in Bangalore to talk about the evolution of the global telecommunications market and India's role in it. Excerpts:

BT is undergoing a revamp. How will it change the company?

First of all we are a services business, which measures end-to-end. It doesn't help to be good in one part and be hopeless in another. In the services business, the weakest link is the name of the game. You're as good as your weakest link is. You need to ensure that your end-to-end capability is world-class. As you see many people taking advantage of the resource richness and understanding that talent has no passport, you need to incorporate that into your organisation.

We need to ensure to our customers that they get the best possible reach to collaborate, and India is a vital part of the market. What we've announced as part of this process is that we will be the first telco (telecommunications company) in the world without a network department. We're going to build platforms and platform capability. The network is dependent on hardware, which has its own limitations such as time, which means you have to ensure everything works. I would like to transform BT into a company that is based on services and software.

What we've decided recently is to collapse it and networks into a single unit that deals with design and build on one hand and operations on the other and we will do it end-to-end worldwide. In a services company, you need to be close to customers yet provide on a worldwide scale. We want to make sure we're best in class in providing these building blocks to our customers.

BT's revenues are growing at just 3-4 per cent a year.

Yes, that's topline, but if you look beneath those numbers, you will see our global business is growing in double digits but our legacy business is in decline as we predicted it would. If you add the two up, you can see we have a very healthy transformation process. We have 20 quarters of EPS growth and our EBITDA has been growing for nine quarters and even our revenues have increased. We've growth on all the lines that matter. At the same time, we are making the transformation from narrow band to broadband and you can see that's nearly finished. And, now, we make the transformation from networks to services.

Is BT ahead of the industry in making this transformation to a services-based orientation?

(Shrugs, smiles) … Ah, that's a kind of macho statement that others are best (placed to) judge. Everyone says they are ahead of the game. I would say we do what is necessary and it's working really well … it's now time for us to put our foot on the accelerator, because what you really want to have is transformation when you're doing fine; you do not want to wait to make the move because there are no alternatives. I am a firm believer that you take transformation and create another layer of discomfort in what people were doing so far... people outside their comfort zones become creative to recreate their comfort zones, so to speak, and that's what we want to achieve.

You've managed to transform BT's pensions from what analysts once described as a "black hole" into what is today a fast-growing surplus. Are there lessons to be learnt from how BT managed this problem?

What we've done is to take some early action; the whole story of bt is to take action early, on all aspects-we took early action on our deficits, transformation, product innovation and we did the same with our pension funds. We put some extra money in our pension funds and we were helped by the market, but we are now in a healthy surplus.

Why did BT opt for a £2.5-billion (Rs 20,000-crore) share buy-back plan recently? What do you hope to achieve?

One of the things you do when you run a company is engaging your stakeholders. We're very focussed on customer service, on CSR, with the society at large and we're focussed on giving back to our shareholders what they want and what they deserve. Five years ago, we had to go hat in hand and plead for extra money from our shareholders. Now it's time for payback; over the last couple of years, we've increased our dividends substantially, we have reached the two-third payout ratio a year early and announced this £2.5-billion share buy-back. Basically, this is to engage more constructively with our shareholder base.

What is your plan for the Indian market and how important is it for BT on a global scale?

I am delighted we have a licence (for international long distance and national long distance) and we're building capability and a state-of-the-art MPLs (multiprotocol label switching) network here also. We continue to grow our customer base and the people who work directly and indirectly with BT. I think we're already at 20,000 here and that means we have a sizeable chunk of interest in this market, and it's a well-deserved interest, because things are happening here.

If you want to put your money where your mouth is and if you say it's important to collaborate and take advantage of globalisation, then you have to be in India, and we are. It's very difficult for me to give you a number; we've grown from zero to 20,000 in a short span of time. The numbers are a reflection of the importance you give to the market and the business you put here. If I give you a number that's an indirect indication, the more direct indication is that we're partnering with many key players here and we're partnering for the world market, not just for the Indian market.

One of the things that is of utmost importance is the Indian market has become much more open; I believe that India has gained the licence to have self-confidence. Protectionism isn't necessary at all, we will have a flourishing industry due to the internal strengths of people. It's the brains of people in India that make a big difference here. So, the more aggressive India is to put its brains to work, the less help it needs to get from protectionism. There is a market here that is hungry for more and more capabilities.

Why did BT make the acquisition of i2i Enterprise in India and what is your estimate on the size of the market you can serve?

I think this deal is not just good for BT, but more importantly, very good news for our customers. It's great news because what we develop today is not just a way to communicate but a way to collaborate. In a market like India, nothing is more important than allowing the high-quality resource to collaborate with the rest of the world and vice versa. It is not just the ability to say "hello" or send a fax, but to have the ability in real time to work together in a seamless fashion.

The resource you need to enable that is quite diverse, so what you have seen BT do over the last two-and-a-half-to-three years is to invest in capability, not capacity. I2I is clearly a capability play…setting a number (to the size of the opportunity) is making an assumption as to how well collaboration will go around the world. As the world globalises and even more possibilities open up, we feel our estimates for this market are conservative.

Given BT's interest in the Indian market (and legal provisions permitting), will you, one day, buy out your local JV partner Jubilant Enpro?

I have no interest in buying out anybody in India and we have a great partnership here. We are very enthusiastic about our prospects here and we just got started with an absolute winning move. We're very happy with our other investment, Tech Mahindra. They've grown in depth, breadth and in customer capabilities. I am very excited by what they're doing.

BT sold its stake in Airtel six years ago. Given the growth of this market, are you interested in re-entering this space again?

No. You have a good memory because that happened nearly six years ago (laughs) and the world has changed dramatically since then. Today, we are in the converged world; being a standalone telco doesn't make sense. We're in the business of bridging the experience people have at home and in the office. Nowadays, you see more capabilities at home than at work. People want to have the same experience in the palm of their hand that they have on their desktops.

BT invests heavily in R&D-you have a development deal with Sony to provide mobile connectivity to its Playstation gaming console. What is the significance of these investments?

The world is changing rapidly and youngsters want a device not just to game with, but to communicate with others about it. Wi-Fi is a fantastic way to do that. You can integrate all kinds of service capabilities to make a better lifestyle for them. BT, basically, looks to two elements-productivity or lifestyle for people to have something else-I am interested in everything in these two categories.

You're interested in productivity because that's what your boss tells you to do and it's lifestyle because that's what you want to do. If these two things go hand-in-hand, you have a clear winner. In other areas, if you look at fixed-mobile convergence, our fusion product, especially on the corporate side, will allow employees on the move to be extremely productive and have the same security and features as their desktop. That is an exciting opportunity. If you look at it, there are no limits to creativity.

How far are we from true convergence and what are the challenges on this route?

There has been phenomenal progress on this front. If you see, you can design a product using the best brains around the world in real-time. People don't have to move from India to the West Coast of the us to collaborate. This is as important as the invention of the steam machine. What was the big 'so what'? It was the desegregation between human muscle and productivity. In the same way, you don't need physical proximity to participate in a seamless process. That is a massive innovation. This will change the boundaries of the economy and change sectors.

You're closely involved in the global warming debate. Why is that so important to you?

Business leaders must participate in public debate; I believe that you can be green and grow at the same time. Many people see global warming as a threat and the only way out is taxation and regulation. There is also the possibility of creating a market and creating awareness with consumers about the choices they make. Global warming is one of the most complex issues around and I see it as a business risk.

There are many risks that we take action against in the hope, and even the expectation, that they will never materialise. Still, you take action on them. I am not going to debate whether global warming exists or not; I just say it is a business risk, therefore, you need to take action now and take real action. I will be quiet on what we need to do until we have a report on the subject this autumn and by the time I return to India for the World Economic Forum, we should have some plans.

Ben Verwaayen is Chief Executive, BT Group

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