A Net darling with global plans

THE MONDAY INTERVIEW: John Sidgmore: UUNet's search for a British partner is good news in a rapidly expanding market

The Internet craze has already made millionaires, even a few billionaires, some of them overnight. Investors, particularly in the US, have snapped up shares in small Internet service companies with near-insatiable gusto, driving prices sky-high and sending price/earnings multiples into the stratosphere.

One of the current darlings, UUNet Technologies, was listed this summer, pitched at just $14 a share. By late last week, the shares had breached the $90 (pounds 57) mark. That was good news for the shareholders of Unipalm, the UK Internet company that UUNet is proposing to buy. The all-share offer was worth about 450p when it was unveiled last month.

By Friday, on the back of the recent rapid rise in UUNet shares in New York, Unipalm was trading at 865p, and the offer had received acceptances from more than 90 per cent of Unipalm's shareholders.

Visiting London recently, John Sidgmore, UUNet's chief executive, looked relaxed and confident - remarkably so for a man trying to run a very young company in a fast-changing, highly competitive sector. "It's not difficult to grow in this environment," he said. "Until very recently, we didn't have to make any sales calls; we were just hiring people as fast as we could just to make sure the phones were being answered."

UUNet's core market is business, where the advantages of easy, secure access to the Internet are increasingly apparent. The company offers a comprehensive range of access options, applications and consulting services, not only directly to business but to other online service providers such as Bill Gates' Microsoft, with which it has a strategic alliance to help roll out the Microsoft Network. Microsoft also has a 15 per cent stake in UUNet, and relies on the smaller company to develop and operate a "large- scale, high-speed" network for MSN users.

Formed in 1987 by computer whiz Richard Adams, UUNet has signed up 4,000 business customers, and had revenues in 1994 of $12m (pounds 7.5m), generating losses of $6.9m. Analysts suggest that the company could be in operating profit by next year. Mr Adams' stake is worth nearly $430m, while Mr Sidgmore has to settle for a mere $110m.

As pleased as shareholders appear to be with the company and its management, there are some potential trouble spots ahead. No one is sure to what degree the Internet will blossom into an invaluable corporate tool. Nor is there agreement about technical standards, inter-connectivity, software compatibility or even security, perhaps the key issue now facing Internet providers.

"We have to be able to make the system secure and reliable," Mr Sidgmore said. It is a crucial reqiurement not only to protect copyright and proprietary information but also to permit service providers to charge for their products. The room for fraud remains huge.

"Security is something on everybody's mind," Mr Sidgmore said. "But there is a tremendous amount of capital going into security-related matters, and I believe that within a very short amount of time, the problems will be solved."

The Internet access world is also a highly competitive one. Direct competitors include access providers such as Bolt, Beranek & Newman, Netcom and PSI. But UUNet also faces a threat from large telecommunications companies such as MCI, which are pushing into Internet-related services.

"Of course I'm worried," Mr Sidgmore said disarmingly. "You are a dangerous chief executive if you aren't paranoid and frightened to death about the competition."

But he suggested that being big is not necessarily a guarantee of success. "Sure there are big companies with large resources such as MCI or Cable & Wireless. But big companies have trouble managing the people issues." He believes that small boutique firms will play an important role in the Internet field, in areas ranging from software development to graphic design, even marketing.

"People often prefer to work for themselves, and don't feel comfortable in a large company," Mr Sidgmore said.

The problem, often, is a clash of styles. Large, hierarchical companies find it difficult to communicate with the young, hyper-technologically minded staff that gravitate to the world of the Internet.

"These guys can be pretty strange," Mr Sidgmore said. "They work odd hours, and work out their tensions in untraditional ways."

Nor do many of the very best Internet software developers communicate very well in a corporate context.

"We asked one guy, one of our very best software developers, to speak to some investors. He promptly fainted. He just couldn't speak in public. But he's brillant, so what are you going to do, fire him? No."

Getting skilled help in a fast-growing business is hard enough as it is. "Techno nerds" are part of the deal. Mr Sidgmore is more a suit and tie man. Formerly a marketing and sales manager at GE's information services division, he left to run Intelicom Solutions, a telecommunications software company, in 1989. The company was bought by Computer Sciences Corporation in 1991, but Mr Sidgmore stayed as president.

Venture capitalists backing UUNet approached him last year to put the company on a more commercial footing.

"People kept asking: 'Why would you do this? Why would you work for this small company?' I took it as a challenge."

An economist by training, Mr Sidgmore is a great believer in the Internet and its future. The growth of the market has been accelerating recently," he said. "It's analogous to the growth of the PC market in the 1980s."

Mr Sidgmore expects growth in Europe to accelerate particularly quickly, and reckons the UK is roughly 18 months behind the US in the Internet development curve. On that reading, he said, "1996 is the year of the European growth spurt".

International growth is a clear priority. The company is planning to spend $65m in the US and Canada this year, taking the number of cities served to 150. Thereafter, Mr Sidgmore said, "we are looking at going out into the world."

In each case, the company will seek partners. "It could be in the form of major contracts, an equity interest or even acquisitions, as we have done with Unipalm." Unipalm, the UK-listed service provider, is UUNet's chosen vehicle for expansion in Europe. "Of all the companies we looked at, Unipalm and we have the most similar structure and strategy. It is a very good fit."

Are there any differences between the way the two companies work? Just one, Mr Sidgmore admitted. "The staff in the UK tend to dress better."

Mathew Horsman

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