Good overview from Upstart published earlier this year:
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LONG SHOTS May 31, 1999
CINDERELLA COMPLEX WILLIAMS' REBUILDING PHASE ISN'T YOUR AVERAGE FAIRY TALE
BY BRIDGET MINTZ TESTA
When prince charming showed up at cinderella's door with that glass slipper, the girl was smart: she tucked her foot right in and went on to live happily ever after.
Although WilTel, based in Tulsa, Okla., was certainly no Cinderella back in 1995, its immediate future did have a touch of fairy tale romance to it. When Prince Charming--in the form of LDDS Communications (now WorldCom)--showed up with an unsolicited $2 billion offer for the entire wholesale telecom company, WilTel went one better than Cinderella. She took the first offer. WilTel didn't. "They ended up selling WilTel Network Systems for about 28 times earnings," says financial analyst John Olson from Sanders Morris Mundy in Houston. "Then they re-deployed the profits from the purchase to buy Transco Energy for about seven times earnings. That was compared to the rest of the market, which was selling at about 15 times earnings. It was a very good deal."
Indeed, agrees Howard Janzen, president and CEO of Williams Communications. "It was an incredible deal. When the first offer came over the wall, they wanted to buy everything at WilTel for $2 billion.
"We didn't want to sell everything. We negotiated for $2.5 billion, kept one fiber, and peeled out Solutions and Vyvx [systems integration and videoconferencing subsidiaries]. Everyone in the industry thought that was incredible. WorldCom used [the acquired facilities] as their core network [while] Williams went out and got bigger in energy and kept the fiber."
What could you do with one fiber, especially with a three-year, non-compete agreement with WorldCom for any tariff-based pure data or voice services? Plenty, it turns out. After all, the fiber had bandwidth ranging from OC-3 all the way up to OC-12.
Janzen: "We could compete in video and the Internet. We had the capacity to do that."
Video was not a new arena for WilTel. Vyvx had been back-hauling broadcasts for shows like the Super Bowl since 1990. Vyvx took control of the fiber, made industry agreements with the major networks to carry their TV transmissions and continued to grow the network.
Then in 1998, the non-compete agreement expired. Unlike Cinderella, when the clock struck midnight, Williams rejoined the dance, re-entering the voice and data business.
Frank Semple, president of Williams Network, the company's national fiber-based wholesaler: "We realized the opportunities were so great that we reorganized to build Williams Network."
Indeed, Williams Network was formed immediately, in January of '98. A month later, the company changed the names of its other two communications units. WilTel and Vyvx became Williams Communications Solutions (based in Houston) and Williams Vyvx Services (back in Tulsa), respectively. Vyvx itself is part of a larger business unit within Williams Communications Network Applications (also in Tulsa). Applications also includes several other subsidiaries (see figure).
That's a lot of divisions for an emerging company. Why did Williams split up into so many units? In a word: autonomy.
While Williams shares a number of important corporate values with other companies, Janzen says it's unique in counting autonomy as its core value.
"One of our keys to success is building strong autonomous business units so decisions can be made fast," he says. "You don't have to check with somebody or get approvals."
On top of fast decision-making, an entrepreneurial spirit and sense of accountability also result from the multi-unit approach. "It's a very effective structure," Janzen says.
However, with so many business units, it would be surprising if they didn't bump up against one another, overlap and, from time to time, conflict.
Surprise: Janzen claims they don't. "We do have overlaps," he says, "but they've never turned into any issues for us. We catch them early, debate them and decide. We try to figure out who has the lead for a business issue--who's got the ball. Is it primarily a Network issue or what? Then we make whoever that is accountable."
But what about the management of this proactive, open debate and discussion? What mechanisms make it possible? The primary informal mechanism is e-mail.
"Williams is an e-mail driven company," Janzen says. "If I want to talk to the CEO of Williams, I use e-mail. Of course, we use face-to-face meetings, too. And we also use our own technology for video meetings."
Formal mechanisms coexist with the informal. Laura Kenny, president of Williams Vyvx Services, explains: "There are a couple of levels of planning. One of these is the business council, which is made up of the heads of the business units. We deal with the day-to-day operational issues and put lots of recommendations forward to Howard's cabinet, which looks at issues on a broader level across Williams."
Both the council and the cabinet meet at least once a month, with the meetings orchestrated so that the council's proceedings feed into the proceedings of the cabinet. "It is an iterative process," Kenny says.
Sounds good. But how does it work in practice? Ask Garry McGuire, president and CEO of Williams Communications Solutions, the unit providing multimedia enterprise networks. "Network signed a 20-year [wholesale] agreement with SBC Communications that's in place now," he says. "Solutions will be exploring opportunities like installation and maintenance for SBC outside their five-state footprint."
This will save SBC the legwork of multiple contracting. Solutions resells SBC services, such as PBX and T-1 services, to its own customers.
"As SBC gets regulatory relief to sell long-distance services, we can sell those services, and they will drive that traffic across our network," McGuire adds. "We try to do the same with anyone Network has an arrangement with."
In turn, Semple says, "Solutions is a retail, full service data and voice business channel. They have a large market share and are very effective, and they need to be focused on that. As they grow and refine that channel, they become more valuable to Network because we have large carrier customers that demand this."
That's one example of business units working together. Kenny cites another, less obvious one: "As [Vyvx] cares for the media industry, there is a tremendous opportunity for products and services that Solutions can bring to the table as well. Think of ABC or Fox. There are opportunities there not just for PBXs but for LANs, WANs and more. There is a big opportunity to be the big single-source provider for all their telecommunications needs to enhance what we already sell to them."
But why would an ABC or a Fox choose Williams Solutions as its provider for such services when numerous competitors are vying for the same dollars?
Kenny: "The relationships we've developed with the media are high-exposure. We can point out that we've just carried our tenth Super Bowl. With all the advertising dollars there, if we missed a beat it would be a tremendous risk. So we have a good, close, high-level trust relationship. Vyvx has provided the foundation for expansion."
The expansion of Williams Communications itself is based on the aggressive buildout of its new ATM-switched network. Founded on the retained single fiber from the WilTel days, that buildout will be completed in 2000, with 32,000 route-miles of fiber. In addition, Williams is acquiring fiber at a rapid pace, whether it's through purchases or swaps.
Semple: "Our vision and mission are building out the next generation platform--our network--on time and on budget, and building a book of business comprising a significant market share. Our goal is 20%, and we're well on our way to that. There are a lot of major companies that are outsourcing backbone network requirements."
A specific example is a two-way deal with WinStar. The broadband wireless carrier agreed to provide 2% of the long-term capacity of its fixed broadband wireless network to Williams Communications, paying Williams $640 million in cash over seven years. In exchange, Williams Communications will provide dark fiber on the Williams network to WinStar, paying WinStar $400 million for four years on a pro-rated basis. Such exchanges or sales of dark fiber are helping to finance the network's growth. Analyst Olson says the company spent $460 million on its network in 1997 and 1998, and will spend another $3.8 billion by 2000.
The 20-year SBC agreement also has a large component of financial assistance: SBC's 10% investment in Williams Communications.
The precise value of that 10% isn't yet determined, but it will be very soon through yet another mechanism for financing the network--a Williams Communications IPO.
But capital isn't the only reason for the IPO. "With Williams Communications buried within Williams Companies, it is difficult to get a good value on Communications, so the IPO will help to value us," Janzen says. "It will also be valuable to have a currency for doing deals in the future."
Or, as no one at Williams can say, while it may be difficult for a telecom company and an energy company to swap stock, it will be a lot easier for two telecom companies to do it.
Olson: "The IPO is coming out in a very hot market for telecommunications stocks. It has some interesting investing credentials because Williams is a known entity in the marketplace. [SBC] isn't going to invest $500 million with anybody but a very experienced operator. This clearly gives Williams Network Services more credibility in the marketplace."
With the IPO and agreements and acquisitions and swaps and renaming, one has to wonder if the eight-arms-to-hold-you business unit strategy will give way to centralization, a concept the market appreciates more.
Olson sees it. "My sense is that this has been such a rapid-growth, free-for-all opportunistic marketplace that people have had to spend money and seize opportunities as they came up. I think that over the next five years Williams will try to streamline their business."
That's not how Williams itself feels, though. Janzen says the multiple-unit structure has worked well for the parent energy company--the Williams Companies. Thus, there's every reason to expect it will work well for the communications side. "You can't have the entrepreneurial spirit buried in a giant company. You need autonomy to drive it. Efficiency and autonomy can sometimes get at odds, so you have to have a balance. In the name of efficiency, you could do away with autonomy, but then you lose those benefits." Like a carriage turning into a pumpkin. |
