Posted: 04/1998
By Debera Bell-Beam
IXC Communications Inc. claims "Telecommunications has a new highway," and that may well be true. One thing is certain, however: This Austin, Texas-based provider is once again paving the way.
In less than six months on the job, telecom veteran and IXC President and CEO Benjamin L. Scott has wrought changes that include an aggressive business reorganization teamed with innovative strategies that target new technologies and sales channels while supporting the old.
"IXC has been, for the last several years, a company with a very clear mission," Scott says. "And that was to construct the next really high-capacity, high-capability, high-technology network in this country. Now, we're just on the verge of actually delivering that asset. We needed to have a change in the structure of the business to support the change in focus. There's an old saying in business school that structure follows strategy."
So anyone who asks Scott, "What's new?" better be prepared to sit awhile.
It's part of walking the talk, says Richard Stolp, IXC's director of marketing communications, who explains that going public--which IXC did in 1996--changes a company.
Among perhaps the greatest challenges, he says, is building an internal culture.
"You've got to have more than heroes," Stolp says. "There is a difference between entrepreneuring your way through business and running a large company. There is a definite change of attitude."
Scott was brought in to make that transition, and IXC has changed much more than its attitude. From its pure wholesale background, the carrier supplies voice, data and multimedia transmission services. Its offerings include private line, broadband and switched and dedicated inbound and outbound calling products, as well as calling card and debit card services. More are on the way, and in the meantime, a new retail division reclassifies the carrier's carrier.
IXC boasts a new fiber network near completion and the newest of technologies to face the onslaught of new competitors it expects. IXC and its new chief are ready to tackle the competition nationally through coast-to-coast wholesale, retail and merging markets distribution channels, along with international strategies that include plans for a European fiber network.
"We're still a niche player. We're not trying to be everything to everybody," says John Fleming, IXC's president of emerging markets. "We're not going to be America's next long distance company. IXC is not going to be a brand name that will bring you the Hallmark Hall of Fame. The niche is going to be the network. The network asset is what we're going to use to drive our products and services."
History
Begun as a microwave technology company in 1992 from the amalgamation of cable service providers, IXC's first turn along the telecom highway was as a carrier's carrier that sold strictly wholesale capacity.
Network build out began in 1994, and IXC went public two years later. Along the way, IXC has grown exponentially, with revenues increasing 106.5 percent to $420.7 million in 1997 from $203.8 million in 1996. Moreover, employee ranks have swelled from 505 at the end of 1996 to an expected 850 by the end of this year.
Evolution is in the air once again as IXC adds retail and data services to its mix to become an advanced data services carrier.
The early battles have helped shape a company that apparently embraces change.
Fleming has been with IXC since it was owned by cable company Times Mirror Communications Inc. in 1986.
"Then a little company called MCI (Communications Corp.) came along, and we did the first telephony agreements with MCI in the mid-70s and turned the system from a one-way simplex system into a two-way telephony, duplex system," Fleming recalls. "We fought for our frequency and our spectrum and were able to get that successfully and tie the network together coast-to-coast."
Two other companies that predate IXC were part of the early days, cable service providers Communication Transmission Inc. (CTI) and Communications Transmission Group Inc., which was a combination of Times Mirror and CTI. IXC was formed out of Communications Transmission Group Inc. in the summer of 1992. The people and assets then became IXC.
The Great Capacity Shortage
"What we saw in 1992 was that we had a digital radio system and some limited fiber optic networks, and a lot of leased fiber optic around the country," Fleming says. "It was the beginning of what we term the Great Capacity Shortage, which we still live in today. It progressively got worse until you couldn't get circuits from anybody on certain city pairs, no matter who you were.
"We knew we had to do something. We knew we weren't going to build any more digital radio, although we like it--it's full and it's a good backup system," he says. "Spectrum was also in short supply."
IXC had limited capacity and no future growth, Fleming says. "We knew the market was going to explode, certainly with every PC that was being sold, every modem that was being put out. A lot of people didn't see that coming. Then, we had that funny little thing called the Internet. When it became private, providers had to buy DS-3s to transport it."
So, IXC embarked on a campaign to expand its fiber network. But first, the company needed money.
"We actually were the first to go out to the public market and raise our hand and say, 'There is a capacity shortage,'" says Fleming, who was involved in those early road shows.
"We were laughed at. Laughed at," he says. "I've never been so embarrassed in all my life. Wall Street thought fiber was infinite, and it really didn't cost much. We said no, it costs a whole bunch of money, and the other networks can't support America's network needs. It was a very hard sell."
Ralph J. Swett was president and CEO in those days. Today, he remains chairman of the board.
"Ralph and his team did a lot of the really hard work in terms of selling the financial community on the need for fiber capacity," Scott says. "Today, when you talk to Wall Street about the need for fiber capacity, and all the things IXC represents, there's already a ready market because they see it. Back then, they didn't see it. So it was a much tougher job. I constantly tell Ralph, 'Thank you for doing a lot of the heavy lifting in terms of getting us positioned.' My job is to just come in and make sure we take advantage of the tremendous opportunity."
New Leadership
Scott walked in with a wealth of experience. He served as president and CEO of PrimeCo Personal Communications LP in Dallas, the personal communications services (PCS) joint venture by Bell Atlantic Corp., NYNEX Corp., US WEST Corp. and AirTouch Communications Inc. Prior to PrimeCo, Scott was president and CEO of Bell Atlantic International Wireless. He also has more than 20 years with AT&T Corp., the last three as president and CEO of AT&T Canada.
Fleming says Scott brings big company expertise to IXC at a time critical to the company's growth.
"You certainly can't have the same organization at $50 million that you have at $500 million," says Fleming. "The trick is to keep your entrepreneurial spirit, because that drives the revenue. We've been very successful in doing that, and we don't want to become an AT&T. That's not the model you want to emulate."
Scott says repeatable success is crucial as a company makes its way into maturity.
"One of the things about entrepreneurial companies is that you have very committed people," Scott says. "You have a lot of personal initiative and personal accountability and, frankly, a fair degree of personal heroics in accomplishing your objectives.
"The difficulty is, as business grows, that is not a consistently repeatable process. So what you have to do as you grow is put in the tools to allow repeatable success on a much broader body of people," he says. "That's what we're about, to take the best of IXC and preserve it, but as we grow--and we're growing very fast now--to put in place the infrastructure that allows the new people to quickly fit into the system and produce successful results."
The business culture has undergone dramatic change, Scott says, but it has been tempered to keep the best of entrepreneurial drive.
"We've spent as a senior team a lot of effort around our core purpose and the key differentiators that will drive the business," he says. "We've literally communicated that to every employee in the company. I personally talked to just about every one of them about it."
Moreover, Scott says, employee involvement creates commitment, not just communication.
"Employees have a right to hear about the business from the CEO," he says. "Then, regular communication about our progress and how we're doing and our strategies, so that they understand firsthand what we're trying to do and where we're trying to go."
The intent, Scott says, is to involve employees in the process so they feel some ownership and, therefore, commitment.
Network Build Out
Today, IXC offers commercial-grade OC (optical carrier)-192. IXC plans originally called for one OC-48 for the existing traffic.
"We are now working on our ninth system," Fleming says. "The map always changes. We'll be putting in routes and new cities for some time to come."
The latest figure is more than 20,000 digital miles in service by the end of 1999, which Fleming categorizes as a conservative estimate.
Mike Vent, executive vice president of network operations and engineering, says all that remains of its Los Angeles build out is a 200-mile stretch. The company's build out in New York was set for activation by the end the March.
New York to Houston and Houston to Dallas is expected to by activated by the end of July, with a Florida-into-New York route anticipated in the future.
"With completion of our network into Los Angeles and New York--and the launch of our new OC-X high-speed and high-capacity of products--we are well-positioned as the first-to-market provider of the nationwide network services required for advanced, high-bandwidth-intensive products and services," Scott says.
The Network Strategy
Redefining the company has included planning for the future, which Scott says will be defined in part by packetized services.
"There's been a lot of discussion recently of voice over IP (Internet protocol) as an exciting new application," Scott says. "We believe that the future is absolutely based on packetized services, and that's true not just for voice, but fax, data and video." Scott adds that IXC also intends to address "huge data opportunities."
He developed a three-stage network strategy toward that end:
1. Core transport or architecture, used to transport information along the fiber network. "Basically, our strategy is one of an optical network," Scott says. "WDM (wave division multiplexing) and DWDM (dense WDM) technologies are being deployed to maximize transport capability over this fiber network. We utilize a SONET (synchronous optical network) standard on our basic network, and we are implementing packet over SONET as our basic transport mechanism or our backbone network."
2. Access or edge technologies, used to accumulate and place traffic on the network from the outside world. "Access technology today is probably the most challenging aspect of network architecture," Scott says. "We believe that ATM (asynchronous transfer mode)/frame relay present very promising technologies for access. We look at the major ISPs (Internet service providers) today, and virtually 100 percent of them use frame relay as their access technology to manage traffic between their subscribers and their backbone network. In addition, we intend to support cable modems, different digital subscriber line implementations, software-defined network (SDN) and last but certainly not least, existing PSTN (public switched telephone network) interfaces. At this point, we're managing over a half billion minutes a month on our network. Clearly, the existing PSTN access technology needs to be supported and migrated to the packetized future."
3. Network management process, used to ensure reliability of the total network solution. "We just implemented a new network management center in Austin that uses the state-of-the-art in network surveillance and management technologies," Scott says. "We have the ability to manage traffic and routing here at our center. This is what allows you to provide reliable provisioning of services to your customers; to assure efficiency in your operation and, therefore, low cost; to assure maintainability of your solution to your customers; to assure survivability. Clearly, in this day and age, survivability for mission-critical applications is critical to customers. We not only have SONET routing technologies at our fingertips, but we have routing technologies and services that allow us to route for service outages over networks."
Scott says, "Ultimately, our backbone network is going to be a packetized network. IP will be an important protocol, but it's not going to be the only one."
So, he has restructured IXC to take advantage of basic and emerging network architecture and IXC's approach to the marketplace by creating three sales divisions: wholesale or carrier services, retail and emerging markets.
IXC Communication Inc.'s Significant Achievements Since 1997
|
Setting Sales
Wholesale or carrier services offer continued support for carriers and resellers with emerging opportunities in cable companies, ISPs, utilities, competitive local exchange carriers (CLECs) and others as additional sources of traffic. It continues to be the bread and butter for IXC.
"Wholesale will continue to grow," Fleming says. "It's brought us this far, and we think we can bring a lot more revenue out of it. It also gives us the volumes of business that we need to get the economies of scale to keep our network costs down."
Dave Thomas, president of IXC's retail business division, says the move to offer retail services, "shouldn't really be a surprise to anyone." He likens pure wholesale as playing on only half the field.
"It is in our minds a natural part of the company's evolution moving forward," Thomas says. "No one can predict what changes are going to take place in this industry. You have to be able to take advantage of the opportunities to move into new markets as they present themselves."
The target market is small- to medium-sized business customers. A series of joint ventures and acquisitions have jump-started the division, including the acquisitions of Telecom One Inc. and Network Long Distance Inc. and IXC's joint venture with UniDial Communications Services LLC.
"This is where we're able to utilize our architectural structure to its best advantage," Scott says. "Dedicated access for these customers onto our network in packet format allows them to have integrated, low-cost and highly reliable services."
Scott says IXC also has considered the consumer market and dial-around service. However, the company says the technology is not scaleable, and the increased seven digits has a potential impact on consumer use, but the application is interesting and one IXC has tested and will continue to watch.
Finally, emerging markets will focus on partnerships with international communications providers and others.
IXC has entered a joint venture with Telnor AS, Norway's national telephone company, to provide local services to 11 European companies. IXC also is in the process of putting in a switching facility in London and working on its second one in Frankfurt.
"We're leasing circuits from various carriers in Europe, and we're going to resell the capacity," Fleming says. "Much like IXC had been the carrier's carrier, we envision a similar role in Europe."
But IXC also is contemplating a European fiber optic network. The company is likewise interested in Canadian and Far Eastern operations.
"You have to do that just to go forward, because international is just part and parcel now of the communications business," Fleming says. "You've got to be there, because it drives your domestic products."
IXC will, however, limit further investment in Mexico in the short term, with the expectation that conditions will improve in the long term. MarcaTel is the company's joint venture there. The move is similar to one made recently by MCI Communications Corp.
"We continue to believe that Mexico is a very good long-term opportunity. The issue is the regulatory environment down there right now is one that does not offer significant opportunities for any of the carriers," Scott says.
So, Fleming says, instead of direct sales, IXC will use agents, a strategy that has been successful for other carriers in Mexico in the past.
Other emerging relationships include the cable industry, which for IXC is like coming full circle. "We've taken advantage of that and met some old friends," Fleming says. "The cable guys have realized they can be a switchless reseller, too. And, they don't have to invest a whole lot of money."
IXC has signed some major cable contracts that will develop into some very healthy revenue streams, says Fleming, citing relationships with cable service providers Adelphia, Hyperion and Ashley.
Two New Business Units
Scott also has added two business units that focus on product definition, development, management and marketing with the intent to improve its customer divisions.
- Traditional switched and private line is launching the latest product announcement in the OC-X product line. Instead of selling it as raw capacity, IXC has created a product to include such services as collocation, network management and channelization.
Carriers will have access to OC-3 (155.52 megabits per second--mbps) service--about 100 times more capacity than a T1/DS-1 connection and 3.5 times T3/DS-3--in major cities along IXC's nationwide fiber optic network. The OC-X private line service also offers OC-12 (622.08 mbps) and OC-12c access on customer request, as well as turnkey local distribution, installation and scaleable collocation.
Valerie Walden, senior vice president of switched and private lines, says ISPs are the primary target market.
"Instead of just putting the pipe in the ground and saying there's availability, we've put together a pretty tight business plan that addresses customer applications, translating that to access onto the network and provisioning, and monitoring that product for the customer," Walden says. "So isn't just, 'OK, here's another OC-7 or OC-12, and you figure out how to get to it.' We do end-to-end provisioning. You have to."
- Packet-based or broadband services also is expected to be important. "It's very easy to see the market's going to evolve to packet-based services because of the efficiency, the flexibility," Scott says. "But if you sit around with any panel of experts and talk about how this thing is going to evolve, the consensus option is, 'Beats the heck out of us.'"
Mergers and Acquisitions
With all the talk of growth, questions arise about IXC's future and its potential to be acquired as well as to be on the buying end, as the company recently has demonstrated.
IXC, however, considers innovative partnering agreements as central to its strategy. For example, IXC negotiated with ISP PSINet Inc. to swap stock for capacity. IXC has committed to provide OC-48 transmission capacity for 20 years in exchange for 20 percent of PSINet's common stock, with a minimum value guarantee of $240 million. PSINet brings to the table managed connectivity services, including LAN (local area network)-on-demand and such value-added services as website hosting. IXC also will package and brand PSINet's dial and dedicated Internet services.
Interestingly--and this is where innovation ruled the day--Scott says IXC opted against outright purchase to preserve PSINet's greatest asset, its management team.
"The real value in PSINet is its experienced management team and its technical talent," he says. "We wanted to build a partnership with that value. If, instead, you go the acquisition or buyout route, you end up losing a lot of the value of the company along the way."
Whether IXC could find itself at the end of another provider's sight remains to be seen--or contemplated openly and in detail.
"We're a public company," says Fleming, who adds little more. "Let's just say we've had discussions with everybody. We have talked to some very major senior players, global players."
There is likely to be more merger and acquisition activity ahead regardless of the direction it takes. But, management can't manage based on what may lie down the road, Scott says.
"If MCI can be acquired, then it's certainly possible for IXC to be acquired," he notes. "But you can't manage based on that. What you have to manage is based on creating value for your customers, value for your employees and value for your shareholders. And if you do that well, regardless of what happens to your ownership over time, you've done your job."
