C&W IDC chief upbeat about prospects in Japan

by Julian Ryall

Phil Green makes no bones about it: he’s an optimist.

President and CEO of Cable & Wireless IDC since August last year, the 52-year-old Australian says his company presently controls about 1 percent of the telecommunications market in Japan.

Green spreads his hands wide: “That just means that I have 99 percent of the market as an opportunity for growth.”

But he has good reason to be optimistic that the London-based company will be making more inroads into the industry in Japan.

“In certain products we have a quite significant market share,” he said, pointing out that the firm is the second largest in the hosting sector. “In international voice we estimate we’re No. 2 or No. 3 and that business also continues to grow strongly, and while in domestic voice we represent less than 1 percent of the market, we’ve got an extremely competitive price proposition and the domestic voice business is growing in triple digits.”

The challenge now in the Japanese market and globally, he says, is one of margin management.

“In the past, the telecom industry had the luxury of pricing services well above the true cost of those services,” he said. “In the last two or three years, that has come to an unholy crunch; as competition has increased, it has driven down prices so they have hit the cost floor, a number of companies have gone out of business and more will go the same way.

“Moving forward in this industry is all about having really good value propositions to put to customers, very carefully managing costs and very carefully managing margins,” he said.

Comparing the telecom industry to the sophisticated management margins used today in the airline industry, Green said, “There has been a quantum change in the basic business structure and simply selling very simple products and charging whatever the market will bear, well, those days are finished.”

What Cable & Wireless aims to do is bundle a range of products linking voice, Internet access, security products and hosting a Web site, for example, and market them together at a competitive rate.

“The customer is getting more value for his money and we get more spinoff because we’re cross-selling and effectively better managing everything together,” Green emphasized.

Green was also realistic about the future of the industry, saying that the good times are clearly not just around the corner. “The industry will remain highly competitive. This will be hard work every day of every week,” he said.

“We have to continue to be focused on our customers, be innovative in terms of our products and keep a really close intimacy with what customers need,” he added. “Otherwise, given the speed of change in the telecom industry, more than any other industry, if we drop the ball for six months, the whole industry can have turned upside down.”

The question of regulatory changes is, however, one area that he believes will have to be addressed in the future.

Acknowledging some “very positive” regulatory changes in recent years, including local loop unbundling, he described the decision to increase fixed-to-fixed phone line charges as “disappointing.”

“We see that decision as being contrary to a whole series of consistent decisions which have been designed to stimulate competition and are in the interests of customers,” he said.

Emphasizing the company’s good working relationship with the Public Management, Home Affairs, Posts and Telecommunications Ministry, Green said C&W is still digesting the impact of the decision on its business. He does feel, however, that the ministry will eventually come round to his organization’s point of view.

“We strongly feel that the issue delays some fairly difficult issues in terms of the cost structure of both NTT East and NTT West,” he said, predicting a deepening erosion of the fixed-line business as more people switch to mobile phones and VOIP, or voice over Internet provider.

“Both of these will have a material impact on the business as we know it,” he emphasized. “And that will continue because NTT has so many resources and assets focused on the fixed-lines business that there is going to be a crunch. There is going to be real pressure on to truly address the asset base and cost structure.

“The guiding principle here, in our view, should be first what is best for the customers, both large and small, second, what’s best for Japan — and in any country a significant driver of economic performance is cost of communications,” he said.

But in the final reckoning, situations like this “just represent another challenge,” he said.

“It doesn’t change our fundamental business strategy; it doesn’t mean we’re going to exit voice products,” he said. “Categorically, Cable & Wireless is here to stay. We’ve put a lot of money into our business in Japan; our business in Japan and Asia is an integral part of our global proposition. We’re here for the long term.”