When I visited C&W Optus in May 1999 I made two observations.
– I said that the company had changed completely and was well and truly on its way to becoming the leader of competition in the Australian telecommunications market.
– I also alluded to the fact that C&W in the UK had altered its strategy and had announced that it would focus on corporate business only. I saw this as a potential threat to the integrated nature of Optus’s business operation.
While the people at Optus were very pleased with the first part of my analysis they argued strongly that my second assertion was pure nonsense and that the company would remain integrated. However, I still had a nagging feeling that this would not be the case, so I reported my observations accordingly.
Earlier this year I published another analysis and once more questioned the position of the UK head office. But again Chris Anderson denied any plans for a split. He pointed to the company’s operation in Hong Kong as proof that the UK supported the business models which included retail operations. A few months later, with more and more reports coming out of the UK, it became clear that Optus was fighting a losing battle. A bungled sale of C&W Hong Kong ensued, and it was evident that head-office wanted to get out of the residential business at all costs.
Following this I wrote my article Optus for sale?
I realised I was on the right track when neither Chris Anderson nor the company’s media department phoned me to protest. Also I received several anonymous e-mails from people within Optus saying that they agreed with me but were unable to go public, for obvious reasons.
And now I have in front of me a press release entitled: Optus examines options for growth. This is one of the most masterly spins I have ever encountered. They have announced a review of their structural and strategic options, but my interpretation is that the company has finally been forced to rid itself of its residential businesses.
I am sure that the people at Optus would agree with me that the preferred option would be to keep the company rolling as it is. They are going gangbusters at the moment and this reorganisation could not have come at a worse time. It will undoubtedly distract valuable management attention away from the very successful business they are presently running. It may have been appropriate to conduct such a review in 2 or 3 years’ time – but certainly not now when the company is going so well.
While the effects of the Optus break-up on the industry in Australia are yet to be seen, it will undoubtedly distract attention from competition. Who is going to run the new businesses? Who will be the new owners, or will they initially perhaps be only ‘partners’? If we are lucky we will get strong partners with a longer-term business vision than C&W, but it could also transpire that another overseas company will take, for example, the mobile business aboard and run it largely from their overseas head office – in the final analysis Australia constitutes only a small part of any international business. If this were to happen it would further undermine the already weak position that Australian holds in the global IT&T industry.
My favoured solution would be for Optus to turn its broadband and mobile business into a wholesale business. In that way all its customers would be corporate customers and they would not run retail operations. This should satisfy London. And then, on these (open) networks, other companies can operate as virtual operators. Virgin Mobile and dingo blue are, in fact, already doing this. The broadband network should be an open network along the same lines as TransAct in Canberra.
I am sure that C&W’s argument is that such a model would not be in the shareholders’ short-term interest. However, I would be very surprised if Optus could sell these businesses for their present valuation. These valuations rely on the future earnings of the company within the framework of its current successful style of operations and if they decide to relinquish their integrated model I see the businesses in question plummeting in value. Under such circumstances it is highly unlikely that Optus will get the price for its assets, it wants. While these assets might be worth that money to Optus, others will certainly not put that same value on the company.
It is to be hoped that, in an effort to protect shareholders’ value, the company will opt for the middle ground and establish a wholesale model for both its mobile and its broadband business. I am confident this will be in the long-term interest of the company’s shareholders. The last thing we need from London is another bungled sell-off like the Hong Kong deal. However, I have got the nagging feeling that common sense will not prevail and that the various businesses will be sold at significant ‘discounts’.
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