Five years of crossed lines at Cable & Wireless

Lord Young, who has announced he is to quit the telecoms giant, will leave an air of lost opportunity at its Mercury offshoot. Paul Vallely reports

In my wallet I carry two symbols of corporate failure. They are my Mercury phonecards - pounds 10 and pounds 2 respectively. Mr Cholmondley-Warner, Harry Enfield's moustachioed cartoon icon of post-war propriety, would be impressed. No one else would be. I carry them like talismans. They seem to work. For less and less do I encounter those strange blue creatures that pass for Mercury pay phones.

So whatever happened to Mercury? Eleven years ago the company was apparently given a licence to print money when it was granted exclusive rights to challenge the monopoly of British Telecom. Yet in the decade that has passed it seems hardly to have dented the market. Last year it was forced to announce it is gradually to shut down the call boxes, lay off 2,500 staff and restructure the business at a cost of pounds 122m. Then last week the man responsible for the new strategy, Duncan Lewis, abruptly resigned himself, with no job to go to.

Mercury is now on to its fifth chief executive in six years. So is it an impossible job, or is its chairman, Lord Young of Graffham - Margaret Thatcher's one-time favourite minister - just impossible to work with?

Things were looking good for Mercury in 1990, when Lord Young took over as chairman of its parent company, Cable & Wireless. Not long before, as Secretary of State for Trade and Industry, he had awarded a mobile telephony licence to Mercury. His appointmentseemed to make sense for C&W, the telecom giant that was once the communications system of empire and which spans 50 countries.

Lord Young went with a can-do reputation. "Everyone else brings me problems, David brings me solutions," Mrs Thatcher memorably said of the man she brought unelected into the Cabinet, ennobling him for the purpose, after being impressed with his performance as head of the Manpower Services Commission.

But not everyone was pleased. Gordon Owen, the chief executive, had hoped for the top job himself. Mr Owen, a capable old C&W hand who was autocratic, energetic and obstinate, began a power struggle that lasted 10 months. "He made no effort to work with the new chairman," one insider said. "The end was inevitable."

One day a friend walked into Mr Owen's office and announced that a headhunter had offered him Mr Owen's job. After 37 years at C&W he went to receive his dismissal with the words: "Right, you've taken my whole life; what's the deal?" The deal was almost pounds 1m and this week, with Mercury in chaos, Mr Owen was maintaining a satisfied silence; he is chairman of the National Grid's telecom outfit, Energis, which is using electricity pylons to support fibre-optic wires to become the third big player in a rapidly expanding telecom market that now has almost 60 firms holding licences.

With Mr Owen gone, Lord Young became an executive chairman. He was hands- on about new business development and as an international front-man but also "dabbling and dipping in and out elsewhere," in the words of one former senior C&W executive, "in a manner which people working for him find difficult".

It was a pattern familiar to senior civil servants at the DTI who, in an unpublished survey, showed they didn't like him. Difficult, abrasive, bullying, shallow, slightly flashy, PR-driven were among the verdicts. Lord Young was shrinking their department but many outsiders shared the view. "Slick and strangely lacking in presence," one said. "He may be the man with solutions, but they don't last," another said. "He has a short attention span," is the judgement of one who has worked closely with him. "He has big ideas but doesn't have the concentration to carry them through."

"It was reasonable enough to change Owen," says James Dodd, telecom analyst with Kleinwort Benson. "He and Lord Sharp, the former chairman, had done a good job but something new was needed to take the company into a new era. You wanted a blue-chip corporate manager." Lord Youngfound one in James Ross, who came from BP as C&W chief executive - "a calm, straight guy who works for consensus," colleagues said. But he has found no one to stay at Mercury.

His first chief executive there, Peter van Cuylenburg, decided that as BT got its act together Mercury was going to need a more specific strategy to compete. "It couldn't be a mini-BT across the board," one former C&W executive said. The man inevitably known as PVC immersed the company in a complete strategic rethink, and after just a year PVC went back to the States.

He was replaced by Mike Harris from First Direct, the bank that had made the most successful current application of modern telephony. "Young wanted someone to market Mercury aggressively," one insider said. Mr Harris was good at that but knew it was not enough. He too introduced a strategic rethink along the lines of "imagine what the company should be like in five years and imagine how we get from here to there". But costs began to rise. "Mike was good front-man for the company," a Young loyalist said, "but he appeared to be less effective on the admin and finance side. His budget caused a crisis of confidence." Mr Harris was moved sideways last year after disappointing results - profits went down by 17 per cent.

In came Duncan Lewis, an ex-BT man "very calm, assured, thinking everything through, putting in place a strategy," said one C&W old hand. The strategy was to wield the axe on payphones, jobs and an awful lot else and concentrate on corporate customers who prefer to deal with one telecom outfit for all their needs. Nine months on, the City began to talk about how he had "turned the company round with some hard decisions". Now, out of the blue, Mr Lewis goes too, to be replaced by Peter Howell-Davies, Cable & Wireless man and boy.

So is it an impossible job? Some analysts say yes. BT was left too dominant, they argue, pointing to its huge powers of information and the breadth of its customer base. And BT was allowed to depress prices where Mercury competed and raise them where it had a monopoly - something Mr Lewis was complaining about in an impassioned City speech the day before his summary resignation.

But other analysts believe that Mercury has just loused up - under-estimating BT's economies of scale, over-estimating its own return on investment and making a number of key errors. They point to its precipitate move to a coinless market in payphones and its policy of free off-peak calls in its mobile phone system. "Free calls in the evening," one analyst said, "secured them quick penetration of the market but people bought phones and only used them for free in the evening."

In the City people asked if the 63-year-old Lord Young was worth his total remuneration package of almost pounds 1m a year. "Mercury was one of the most spectacular investments of the Eighties under Lord Sharp," says James Dodd at Kleinwort Benson. "But it has under-performed dramatically for the past two years. It doesn't reflect well on Lord Young. In the end, a chairman only has one job - to appoint a successful team - that's the only thing he has to do."

Much will turn on the outcome of Mercury's recent pounds 825m investment in the Germany telecom company Vebacom. "It is an enormous gamble when the political and regulatory structure of the German market is undecided," another analyst said. "Mercury has gone critical." It is not the only key strategic decision to be made. One of Duncan Lewis's concerns was that C&W - on whose main board he was offered a place just before he left - is currently trying to do too much. A "federation" is how Lord Young likes to describe it; a "hotchpotch" is Mr Lewis's view.

"There is no doubt that C&W is a house divided," one international analyst said. "It is a schizophrenic organisation - a monopoly operator in many countries and yet the market entrant in others."