Call them old-fashioned...
By Kate Bulkley
Monday August 25, 2003
There are two new men at the head of NTL. As they tell Kate Bulkley, their traditional management skills are just what the company needs to return it to profit
When Barclay Knapp was ousted from his post as chief executive of NTL a week ago, the one remaining cable king had finally been forced out of town. The announcement marked the end of an era. Knapp was the last of the original entrepreneurs of the UK cable business to leave his top job. The establishment of a new currency for cable - realism - has taken root and Jim Mooney and Simon Duffy have become the new realism dealers at NTL.
Mooney, who was number two at US cellular operator Nextel, took over as NTL chairman in March, while Duffy, former finance chief at Orange and NTL's chief operating officer since April, took Knapp's position last week.
The rise and fall of the Knapp-led NTL had been the biggest cable story of the past 10 years and, by May 2002, its massively debt-loaded balance sheet had dragged it into bankruptcy. Knapp's days were numbered. It was always unlikely that the man who led the company over the edge with £15bn of debt would command the next phase after a huge financial restructuring, including a massive £10.9bn debt-for-equity swap, was negotiated late last year.
Mooney, an American known as a turnaround guy, and Duffy, a Brit regarded as a hands-on operator, will guide NTL's post-Knapp period, bringing to the business skills that are almost totally opposite to those of the man they are replacing.
"The challenge facing all the telcos right now is how to continue to grow and yet be much, much more efficient about it," says Duffy. "Managers who built companies in the entrepreneurial way focused on footprint and building the brand. These guys are being replaced by rather more old-fashioned managers who may not be the greatest entrepreneurs in the world, but who connect the top line to the bottom line and put the bottom line in the bank."
Duffy is, of course, talking about himself and Mooney. "I've never founded or started a company in my life," admits Duffy. "Basically, I'm a manager and that's what companies such as NTL need these days."
NTL's new down-to-earth duo may have a challenge on their hands, but NTL certainly has plenty of space to grow into. The UK cable industry - of which NTL has a far larger share than its only peer, Telewest - has long been an underperformer. Knapp may have talked plenty of banks into lending him money, but the £9bn of NTL cable infrastructure has generated a surprisingly low number of subscribers. The current take-up rate of NTL's three services is 35.5% - in other words, only 2.7m of the 6.9m homes passed by its cable pipes subscribe. Observers can only speculate as to the sign-up levels Sky could achieve if it were running the cable business.
Mooney and Duffy accept that past performance has been poor. "There is potential to leverage the network that we've already built into other complementary businesses, such as wi-fi [wireless fibre]," says Mooney. "And that's without even talking about our broadcasting business and our business-to-business products. We're already looking at creating a partnership with a wi-fi player that could use NTL's cables to build a wi-fi network."
The consumer business represents 80% of NTL's business and that is where the turnaround needs to take place. Mooney is an advocate of the same old cable strategy as before - the triple play for customers, including a package of TV, broadband and telephone - but the difference is that he wants a transparency of performance about each product that Knapp never believed in.
Mooney wants to drive improved productivity through efficiency, streamlining and better margins. Four hundred jobs have already gone this year, mostly in the business telecom division, and other jobs may go, but there are no plans for "radical surgery" or mass redundancies among the 14,000 workforce. Instead, the kind of personnel changes taking place within the new NTL will involve swapping administrators for sales staff. There are also issues of unnecessary infrastructure duplication in areas such as billing systems and among the three business units. Harmonising billing, for example, began six months ago and will have cost £75m by the time it is completed next year.
"NTL should look like one company, both internally and externally," says Mooney, "yet one would argue that it's still fragmented by the acquisitions strategy. It's a big, messy problem, but to drive productivity and efficiency and to grow the margins, it needs to be tackled."
The only other operational headache is a long-running dispute with Sky over the rates that the cable companies pay for Rupert Murdoch's channels. Cable says that there is no profit margin in the Sky channels, but the regulators have so far backed Murdoch's pricing. Mooney says that he will continue to argue against what the cable industry calls predatory pricing because, without a change, it will be very difficult indeed for NTL to make money from the television side of its business alone.
And making money is something that NTL needs to do more of if its high-cost debt load is to be refinanced. Considering the turmoil of recent months, NTL's last two quarterly results have been remarkably good. This has spurred a rise in the NTL share price since it was relisted early this year. Mooney and Duffy's operational backgrounds will draw them to improve the operating numbers further. Paying up to 17% interest on a large part - about £738m - of a total £4bn debt would hold back any business. In fact, NTL is due to pay about £400m in annual interest.
Speculation on a refinancing of the high cost part of the debt has risen of late because about £55m of debt interest is due in January 2004 alone. "The current business plan is totally funded, but we're not going to sit there with a 17% interest rate and do nothing," says Mooney. "You want to take advantage of good quarterly results and be opportunistic."
The actual shape of the refinancing - perhaps a secondary rights issue or a renegotiation of the interest rates - is not yet clear. One thing that is clear, however, is that, until the balance sheet is sorted out and the operating business improved, there will be little time spent on thinking about a merger with Telewest, which is grappling with its own restructuring issues.
"Putting two things together that are broken will get you an exponentially broken thing," says Mooney. "My job is to fix NTL and whatever happens with Telewest will be dealt with by the owners and their shareholders."
As CEO, Duffy is the man to put the bottom-line strategy into practice, and he believes that making NTL a customer-centric operation is the key, something that he learned at Orange. He knows that Sky is beating him to digital television customers, BT and ISPs such as Tiscali and Freeserve are increasingly breathing down his neck on broadband, and BT and others are also making things harder in the telephony area, with cheaper calls. However, Duffy, who says he was asked by France Telecom's chairman Thierry Breton to enter the race to run its Orange subsidiary earlier this year, chose to come to NTL instead "because it looked more of a challenge".
One of the biggest challenges has been customer satisfaction, but improvements are being made, with 22% fewer calls to customer services than a year ago. "We're getting away from the culture of when customers called in and NTL people tried to pass the problem off as quickly as possible rather than owning the problem," says Duffy. "Customer service rating has improved, but it's not perfect. I don't believe you can tar NTL with the moniker of poor customer service any more. We're not the best, but we're not in the bottom end of the league."
A customer complaint website dubbed Knapp's empire "NTL hell" and while it might take some time for that tag to become a distant memory, at least the tide seems to be turning.