article in fin review, page-4

afr article...source of the excitement October 21 2003

Turnaround at PowerTel
Author: Rachael Osman.
Date: 21/10/2003
Words: 1253
Publication: Australian Financial Review
Section: Computers
Page: 36
Source: AFR

After a very public takeover, PowerTel is busy making plans with its new majority owner, writes Rachael Osman.
Having just emerged from a takeover tug-of-war, PowerTel chief information officer Geoffrey Lindner is looking at an eventful future.

``I don't think it is suddenly going to become boring," he says.

In late August his company was taken over by Hong Kong private equity firm Telecom Venture Group after a public stoush with the Roslyndale syndicate, which comprised OzEmail founder Trevor Kennedy , former Optus Vision head Geoffrey Cousins and entrepreneur Sam Gazal .

He is right in the thick of the consolidation of what is known as the ``third tier" of Australia's telecommunications industry.

And PowerTel's new majority owner is in the driver's seat.

PowerTel's fibre-optic cable network, the third-largest in the country, joins a number of other telco assets, including independent cable operators Neighborhood Cable and TransAct, and broadband provider Request in TVG's kit bag.

TVG is also bidder for wholesale carriers IP1 and NextGen and may be considering whether to buy a majority stake in Uecomm , which runs fibre-optic networks around Melbourne, Sydney, Brisbane and the Gold Coast and is considered a natural fit to PowerTel's network.

``I'm sure the great puppeteer in the sky could see a way of putting it all together to create a new force," he says.

Lindner concedes the core of his company's strategy is to extend its network's reach to more customers, be that through partnerships with or acquisitions of other networks, or more investment in digital subscriber line infrastructure, making him the man who has to make such future plans a reality.

``Reach is all important," he says.

And while he says putting such plans into action will involve more than management merely ``waving its hand and saying it all has to happen in a few weeks", it would not be technologically difficult.

PowerTel built its network throughout 1999 and 2000, when ``big dollops of capital", $300 million to be exact, were there to be spent.

Lindner has been the company's CIO since October 1998.

``It was a period of build, build, build," he says. ``We could do things as and when needed, no questions asked."

However, it wasn't all beer and skittles. Lindner says that the early days were filled with enormous pressure to quickly get the entire network, which connects 600 CBD buildings in Sydney, Melbourne and Brisbane as well as linking cities along the country's east coast, up and running.

``It was a large outsourced project with Oracle , and involved pulling together different systems from various vendors," he says.

The core IT systems for handling orders, managing the network, billing and customer care were also assembled at that time.

Which is just as well, because not long after the tech bubble burst and new capital for telco projects was non-existent.

``We have had a pretty modest IT spend ever since," he says.

Since the initial network build, the only other fibre that has been laid has been on an ad hoc basis to potential customers, something that Lindner says costs hundreds of thousands of dollars at the most.

ADSL infrastructure has been rolled out progressively late last year and early this year.

``We did most of the tightening of the screws a few years back," Lindner says, adding the IT department is smaller now than it was two years ago.

Now it is a case of managing rather than building the network and taking on the rest of the market.

``Competition is pretty stiff," he says. ``I think the pressure is on us to do things better and cheaper."

One innovation Lindner hopes will differentiate the company from the competition is a new bill for corporate customers that he aims to have launched by mid next year.

``Billing is a major challenge," he says. ``As a telco you are really auditing the customer's business every month."

As such, businesses with thousands of employees using telco services often end up with extremely long and intricate bills that take too much time to fully check.

``There are just no good telco bills around," he says. Of course, achieving this will require even more analysis of customer's telco usage patterns.

With plans to cut IT and network jobs within other telcos being announced over the last few months, the experience of being in the middle of a bidding war has not been an altogether unpleasant experience.

``To have a couple of suitors chasing us, fighting for supremacy, it gave people in this organisation quite a boost," Lindner says.

However, while he concedes it was definitely a distraction to have a number of due diligences carried out during the working week, Lindner says it didn't disrupt normal processes too much.

``It didn't force us to take our eyes off the ball entirely," he says.

``TVG are experienced holders of telco assets and they have a positive attitude about them."

As at June this year, TVG still had around $375 million in its telecommunications fund to spend.

When it was still battling for control of PowerTel, market observers said Uecomm was another investment option open to it.

It still is. The new majority owner of Uecomm, AlintaGas , has openly stated it does not view itself as the carrier's natural owner.

It is looking for someone to buy the 66 per cent holding in the company it inherited following the recent AlintaGas-AMP Henderson purchase of the stake's old owner, United Energy , earlier this year.

``Such a merger has not escaped [the attention of the PowerTel board] as a viable option," says Lindner of the possible purchase and physical interconnection of the PowerTel and Uecomm networks.

But this rush of activity that PowerTel finds itself part of is in marked contrast to its plight not so long ago.

In March it was conducting urgent negotiations with its bankers, understood to include JP Morgan and CIBC , over the future of its $100 million finance facility with them.


In January it had breached some of the covenants regarding that finance, which had been drawn down to $78.5 million, after not achieving revenue and earnings targets set within them.

It also wrote down its network assets by $106.9 million to $181.1 million around that time.

Macquarie Corporate Telecommunications, which has a strategic alliance with PowerTel, was seen as a possible buyer, as were Primus and Optus, who had greater buying power.

PowerTel reported an earnings before interest, tax, depreciation and amortisation loss of $2.4 million for the 12 months to December 31.

Late last year PowerTel's then 45 per cent shareholder, US company Williams Communications , was still trying to emerge from Chapter 11 bankruptcy.

PowerTel's then chief executive, Grant Butler , said Williams's financial problems had never had any operational impact on PowerTel, but admitted it dented customer confidence in the company.

In July 2002 the NSW government wrote off $13 million in relation to its $70 million investment in PowerTel. It was also involved in legal disputes over the carrier's network connecting Sydney to Melbourne.

An independent expert's report by Deloitte Touche Tohmatsu earlier that year, found that PowerTel was threatened by ``a possible loss of support from key shareholders, investors and analysts; increased competition that may place pressure on operating margins; unplanned capital expenditure; and the dominant market position of Telstra."

TVG has had a long-term relationship with PowerTel, investing $US17 million in January 1997.