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Cable & Wireless imitates the Phoenix?
Cable & Wireless (hereafter C&W) is one of the world's longest-lived telecoms brands, having been in existence for roughly 130 years. At their peak in the Spring of 2000, its shares traded at 15 and it was valued at over 40 billion. However, there subsequently began a decline that saw the share price fall to a mere EO.37 in December 2002. Just another TMT company going belly up, much like Marconi? Probably not, since the share price has now risen back above 21. So how did C&W get itself into such a mess and is it rising, like the Phoenix, from the ashes of its discredited strategy?
In the mid-1990s, C&W's major holding was a 54.2 percent stake in Hong Kong Telecom (HKT). In the UK, it operated as Mercury Communications and was the main rival to BT. Between 1996 and 1999, CEO Dick Brown acquired new holdings - 21 in total at a cost of $20 billion including a 49 percent stake in C&W Panama - while also disposing of minority holdings including stakes in Bouygues Telecom in France and most of its East European interests. However, while this shuffling of assets gave C&W a better geographical focus, it failed to address the perception of the company as little more than a collection of widely distributed assets. To remedy this, statements made in mid-1998 gave the impression that C&W did not intend to compete directly with incumbents in the EU, but rather to target business customers and niche markets in the main cities. Further, it would use its international connections to become a global transport company. The main missing link in its global aspirations related to the need for a service provision facility in the USA, and C&W surprised the markets in May 1998 by putting in a successful bid to acquire the Internet backbone business of MCI for $625 million. When the European Commission subsequently insisted on the sale of MCI's entire Internet operation as a condition for authorising the WorldCom merger with MCI, C&W secured the retail businesses as well, paying $1.75 billion in all.
Dick Brown commented at the time that "we have bought the future". Certainly, C&W had now gained, at a stroke, an...