Question Marks at Cable and Wireless
By SUZANNE KAPNER
LONDON, May 13 — In the last three years, Graham Wallace, chief executive of Cable and Wireless, has defied critics by transforming a lumbering phone company into a New Age provider of Internet services to large corporations.
Now that strategy — and Mr. Wallace's job — is on the line. With Cable and Wireless's stock price floundering, investors are increasingly calling for a shake-up, including the shutdown of some units and the resignation of Mr. Wallace.
Yet the first of any resignations is likely to be that of Mr. Wallace's boss, Sir Ralph Robins, people close to Cable and Wireless said. Sir Ralph is expected to resign as chairman, perhaps as soon as Wednesday, when the company reports financial results for the year ended March 31. His departure, however, is likely to be attributed more to age — he will be 70 this year — than to the company's travails.
Other boardroom shuffles are a possibility; Robert Lerwill, the finance director, may take a more subordinate role, analysts said.
Peter Eustace, a Cable and Wireless spokesman, declined to comment on the possible management changes. He also gave no sign that Cable and Wireless was preparing for a revamping.
"We believe that our basic strategy is the right one for long-term value," he said.
Investors apparently disagree. Frustrated by Cable and Wireless's worsening fortunes — the company has lowered its financial targets three times in 12 months — they have erased some $9.8 billion in market value the last year. On Monday, the shares closed down 3.75 pence in London, at 199 pence ($2.91).
Cable and Wireless is expected to report a 54 percent decline in earnings, before interest, taxes, depreciation and amortization, to £820 million, for the recently completed financial year, according to a consensus of analysts. Revenue is expected to decline 28 percent, to £5.8 billion.
Among the problems facing the company is how to stem losses at its Web-host unit, Cable and Wireless Global. Mr. Wallace invested heavily to acquire networks in Japan, the United States and Britain, as did rivals. Too much competition and the slowing economy caused prices to plummet. As a relative newcomer to the field, the backbone of Cable and Wireless's services is still in voice transmission, rather than specialized data services, making the company more vulnerable to the downturn, analysts said.
Unlike rivals like Global Crossing and WorldCom, which are struggling with heavy debts, Cable and Wireless is flush with roughly £2.2 billion in cash. Yet rather than throw good money after bad, some analysts said, it should close its Web-host operations in Japan and the United States, where it is too small to compete effectively. Instead, it should focus on Britain, which accounts for 60 percent of the division's revenue.
"In Japan and the United States, Cable and Wireless is subscale and disadvantaged compared with the competition," said Paul Moran, an analyst with Credit Suisse First Boston in London.
Other issues have bothered investors. A Securities and Exchange Commission investigation into the way Global Crossing and other telecommunications companies account for revenue on capacity they sell to one another has raised eyebrows in London. The Accounting Standards Board, Britain's main accounting rule maker, is looking into the matter, though no formal investigation has begun.
Alan Cook, the board's technical director, said it was possible that new rules to take effect next year might prevent telecommunications companies from recognizing such swaps as revenue.
The changes would have an impact on Cable and Wireless's revenue, 4.6 percent of which came from swaps in the 2001 financial year.
Mr. Eustace, the spokesman, said the company was complying with British accounting rules; if the rules change, he said, it will be obliged to follow the new guidelines.
Cable and Wireless's old business, known as Cable and Wireless Regional, which supplies telephone services in Panama and the Caribbean, remains its biggest money maker. That is not a ringing endorsement of Mr. Wallace's vision, said Mr. Moran, the analyst, noting that "if you want to change the strategy, then you change the C.E.O." |
