The great survivor of boom and bust aims a broadside at his rivals

The chief of the telecoms firm may be basking in rising revenues but, as he tells Clayton Hirst, cut-throat pricing is the wrong way for the sector to go
Click to follow
The Independent Online

Bill Allan leaps out of his chair and heads for the whiteboard. The chief executive of Thus, the Glasgow-based telecoms group, is attempting to demonstrate why his business will survive the rout in the industry.

Bill Allan leaps out of his chair and heads for the whiteboard. The chief executive of Thus, the Glasgow-based telecoms group, is attempting to demonstrate why his business will survive the rout in the industry.

Too many companies chasing too few customers means that revenues are falling at many telecoms suppliers - a point underlined last week by negative statements from both Cable & Wireless and Energis.

But Allan believes he can buck the trend. On the whiteboard he carefully draws an x-axis and a y-axis. Next are a J-curve, an S-curve, a straight line and a wiggly line and finally a scattering of arrows. The result resembles a bird's nest, and his talk of things like "converged service solutions" is just as confusing. But somewhere in this tangle of lines apparently lies the company's secret formula. So is it working?

Spun out of Scottish Power in 1999, Thus hitched a ride on the back of the technology boom, briefly entering the FTSE 100 before being dumped when the bubble burst.

But while rival companies have gone to the wall (Global Crossing, WorldCom, 186K et al) and company executives have been ejected from their seats (remember Graham Wallace, Sir Peter Bonfield and Steve Maine?), Thus and Allan have endured.

Today, Allan is the longest-serving chief executive of a major UK telecoms company, something that may be down to his success in growing Thus's revenues every year while others have failed.

"I probably am the longest-serving telecoms exec - and I'm looking good for it," quips Allan, who, admittedly, has a healthy glow after returning from a skiing trip. "If you look at Thus over the past five years, we have bucked the trend. Many of our competitors are in sequential revenue decline. We are showing sequential revenue growth. At the half-year results, it was 19 per cent. If you look at the full year then we are confident we are going to deliver growth again."

It's not all roses for Thus, however. Last year the company's share price was hammered after it was forced to issue a profits warning. The problem was a fall in margins, due in part to intense competition within the telecoms industry for new business customers.

But Allan believes that some of his rivals are not playing fair. He won't name them but some companies, he says, are offering telecoms services at below cost in a desperate attempt to win business.

"Today's market structure is not sustainable. Companies should be price competitive but pricing to make a profit. What I find sad is that there was a great opportunity after the technology bubble burst to make the telecoms sector sustainable and profitable. But no alternative [telecoms] carrier has yet to produce a return on capital employed.

"This is a missed opportunity," he adds. "Instead of dealing with the operational issues - building services and selling them profitably to customers - what we have seen is another round of aggressive pricing to build revenue."

There is, of course, nothing wrong with companies selling services at below cost. But Allan says some of his rivals are engaged in "predatory pricing", which is in breach of competition laws. This is where a company uses its dominance to squeeze rivals through its charges. Allan has instructed his lawyers to build a dossier of evidence to present to the media and telecoms regulator, Ofcom, but he admits that obtaining proof is difficult.

Aggressive pricing, though, is a consequence of the fragmented UK telecoms market. To put it another way, there are too many small telecoms companies in Britain.

Allan predicts that a spate of telecoms mergers is "inevitable" and admits that Thus's future may not be as an independent company. "For the past few years people have talked about us being consolidated. Thus's strengths are its management team, its products, its services and its customers. So if we are involved in consolidation, this will not be because we are a weak, struggling business; we have a lot of positive attributes to bring to any enlarged entity."

Many analysts believe Thus should merge with Cable & Wireless's struggling UK business, to create a genuine rival to BT. "Clearly, there are operational-cost and capital-expenditure synergies to be gained from doing that," says Allan. But he warns that the City should not hold its breath for a deal with C&W: "The two companies are starting from different points. Thus has a business plan we have stuck to. We have weathered the storm, avoided the sins of the industry and have continued to focus on customers and service."

Richard Lapthorne, chairman of C&W, has his own preoccupations, he adds. "Richard has had to deal with a huge number of balance sheet issues. I am sure that at some point he will move from the financial engineering issues to the operational ones."

So when that happens, will Allan be willing to discuss a merger? "I am very open and approachable. I am always very happy to speak to people. I will do what is in the best interests of our shareholders," he says.

At the height of the boom in March 2000, Thus shares hit 844.5p. Today, they are worth 15.5p apiece and you'll be hard pressed to find anyone in the City who believes that shareholders who bought near the peak will ever see a return on their investment. While he can hardly be described as bullish, Allan refuses to rule this out. "If you didn't believe there was a possibility, no one would ever take a company public. All I can say is this: if circumstances favour you, and you take advantage of it, then anything is possible. My job is to make sure it is."

Comments