“Some people perceived us as the bit of the company that Virgin didn’t want… ‘Why isn’t this company the No. 2 already?’ is almost the question to ask
Mark Heraghty, CEO, Virgin Media Business
Faced with poor reputations for service quality and customer care earned by UK cable companies, ntl and Telewest, many people would have shrunk from the job of turning around the newly merged operator, ntl Telewest Business. But CEO, Mark Heraghty relishes a challenge, and he certainly found one. Since 2009 he has steered the company into a far healthier state, so that last year Richard Branson allowed the business network operator to swop its old overalls for a crisp new Virgin uniform. Editor, Jeremy Cowan talks to Mark Heraghty about the ongoing changes.
VanillaPlus: Why did you take on the challenge of Virgin Media Business?
Mark Heraghty: Potted history: I’m Irish, an engineer who went into the oil industry for six years, mostly in the North Sea, got married, had a first child, didn’t want to spend 20 days a month offshore, decided to do something different, and did an MBA. I went into telecommunications in ’92 with Mercury Communications.
Telecoms at the time was fairly unsexy, it was before the big boom and a utility-ish environment. It was before the internet was popularised, data communications was a fraction of the size of the voice business, and in the UK we were still in the early stages of a duopoly. I ended up staying at Cable & Wireless for 12 years, and did everything up to running Europe and the UK.
Then I left and lived in France for a few years before joining FLAG Telecom (now Reliance Communications) as their President of EMEA for two years. But I’d been looking for a reason to come back to London, and wanted the next job I had to be with a company that controlled, owned and operated its infrastructure – particularly the last mile – because that is the last redoubt of the traditional operator, with control over customer access.
Over the last 20 years, value has gone from the international bit all the way back to the closest connection with the customer you can get. In the mid-’90s when I was in a competitive wholesale business – selling to cable operators, ironically – a wholesale voice minute to the US was 54 pence per minute (€0.64), now it’s a fraction of a penny.
I’ve been a supplier to all of the cable industries for many years – Telewest, ntl, Diamond Cable, you name it – and I always reckoned that once it got sorted out (which it did through various stages of Chapter 11 and bankruptcy), if it could find a way to come together, then it could be a real player both in the consumer and B2B areas. If you just look at the industrial logic, my view is you’ll always have an incumbent, there should be a strong No. 2, and then the rest. That tends to be what happens in most asset-intensive industries.
The advantage that we have in Virgin Media is, not only did we come together as one company but we’ve also got a mobile play as well. The coming together of two halves of the UK cable industry – Telewest and ntl – together with Virgin Mobile was a stroke of genius, because it immediately gave you a quad-play that was integrated and fibre-oriented. ‘Why isn’t this company the No. 2 already?’ is almost the question to ask. And with the (Virgin) brand as well, even in the B2B area, it’s critically important.
VP: Where have you got to now with Virgin Media Business?
MH: Coming in, I wanted to do four things: complete the integration, address the weaknesses we had in terms of service quality (and that required some investment that I’ll come back to), the third is to differentiate ourselves (in terms of our product and sales capability), and the fourth thing is to grow the business, particularly the top line.
The business had been flat or declining for a number of years, and it’s fair to say that the majority of our companies (consumer- and mobile-oriented) weren’t quite sure what to do with the B2B bit. It didn’t seem to fit. But I fundamentally believe that B2B and B2C in a fixed cost telecommunication business are very complementary. That was true in the voice world when you had busy hours at different times of the day. In the data world, arguably, it’s even more important. If you look at me as a consumer at home, I have a LAN in my house, I’ve got 7 Macs, my various teenage daughters are on Facebook, YouTube, iPlayer, I’ve got two HDTVs. The amount of content coming in and out of our homes is mind-boggling.
Then we go into school, university or business and do the same sort of thing, but at a different time of day yet over the same infrastructure. So our group has a huge evening peak over our network, yet it’s relatively quiet during the day. There’s a huge opportunity for the business to leverage the fact that it has a different network profile in voice, data and IP. And we’ll be talking about that in a few weeks’ time. All I’m saying for now is that there’s a big advantage in being the B2B part of a company that’s fundamentally B2C.
Integration had largely happened, the final step on that was the (Virgin) brand; we had been left as what some people perceived as the bit of the company that Virgin didn’t want. Genuinely, that was said to me when I arrived. In my first interview for the job, I said ‘Why on earth do we still have the ntl Telewest brand? Shouldn’t it be Virgin something?’ I wasn’t the first person to ask that question, but my timing was just right.
So, one of the first discussions I had when I joined was with Virgin Entertainment Ltd, the owners of the brand, on the re-branding of our company.
VP: What was the reception you got?
MH: Actually, very positive. I was expecting some difficult discussions.
VP: Why were you expecting that?
MH: Because the Virgin brand is consumeroriented, by and large, although we’re not the only B2B company in the Virgin Group; there’s Virgin Cargo and others. They are clearly a large shareholder, but a contract is in place that is very specific on the SLAs that we have to warrant, on our complaints procedures; they are very careful.
It’s right across the spectrum from the provision and assurance of service, to the way in which we handle things when they go wrong, it’s absolutely ‘open book’ with them; we sit down with them every quarter and review all of our operational metrics. We (use) a customer satisfaction company, and have fairly robust discussions around some of the metrics. That does keep us on our toes. It’s one of the big changes, because customers’ expectations have risen considerably now that we’re called Virgin Media Business.
VP: Did you have targets to hit before you could adopt the Virgin name?
MH: Yes, for example, we had a healthy debate around the way in which we handle complaints, how quickly they get closed, and what the response time is. Even on complaint handling there are probably four or five metrics we have to measure and report against, and we have hit targets that in all cases were improvements on where we were.
We give a good level of service, excellent in many cases, not good enough in others. I’m comfortable with where we’re going, but we need to make some improvements.
One of the other problems, if you take 26 franchises which went through various stages of financial difficulty, they come together as one, what you’re left with is not as homogeneous, it doesn’t have the industrial strength, carrier grade capability that you would want (I’m talking about two or three years ago). There was already quite a lot of investment post-merger. But when I first looked at some of the problems we were having, I was insistent that before we started re-branding or changing the focus of our sales activity and growing the business, we needed to make some large investments in the basic capability. In things like power infrastructure in our network, having people monitoring alarms, making sure the alarms are working, the generators have diesel in them, that the generators are tested regularly, that the UPSs work, and the batteries are replaced.
When we did a review what we discovered was not very pretty. Power problems were one of the root causes of downtime in our network and the problems we were creating for our customers. So we spent tens of millions of pounds between last year and this year just on the power infrastructure. And we’ve created a 24×7 team of power engineers sitting in our Network Management Centre whose only job is to monitor the power estate. The minute there’s a power problem or alarm, our contractors are sent to site to fix the power problem before it turns into a network problem.
The number of failures that we had between last year and this year halved. The main reason for that was significant reductions in power-related problems. This had a quick and dramatic effect. I was very enthusiastic (about this investment), but I thought I had a real, deep-seated problem, and it got fixed relatively quickly. It’s one of the reasons our SLAs have improved.
This was a pre-condition for us delivering on the growth plan. Because we deliver services to airlines, hospitals, to 40% of (UK) police forces and 60% of emergency services around the country. A carrier-grade industrial strength capability is particularly important for a business customer. You can argue that nobody’s happy when their TV goes down either, or their broadband doesn’t work, but if you’re a hospital it’s a whole different consideration.
VP: And differentiating the offering in products and sales?
MH: If you pull back and look at the rest of the company (Virgin Media), it focused initially on broadband. Now it focuses on maintaining the broadband leadership position, and increasingly focuses on TV and mobile. We’d like to adopt a similar position. The fibre-based network capability that we have gives us an Ethernet footprint that is better than most, if not all. We launched a dedicated Ethernet, high capacity service, and Ethernet extensions which are different versions of high capacity Ethernet capability, which is what most companies are looking for these days. And we can deliver services that other operators just haven’t done yet, because we already have 186,000km of fibre around the country.
That’s been particularly important, not just for end customers but for operators. We’re a big supplier to other carriers, resellers, mobile operators, systems integrators, as well as our traditional core which has been around the public sector – especially local authorities, emergency services, health and the corporate mid-market.
VP: Over the last few months we’ve heard a lot from the UK government about plans for cost reduction. Does this mean a retrenchment of your business and reduced earnings?
MH: The honest answer is it’s too early to tell for us. But I would genuinely see this as more of an opportunity than a threat, for two reasons. What we’re doing, in contrast to other operators, is providing services which take cost out of the equation. If you look at the contract we signed with Hampshire County Council and the Isle of Wight last year, which is partly a government initiative as well, the whole public sector networking (PSN) concept is around framework agreements with shared services and infrastructure across different parts of the public sector.
In simple terms, you put in one big network and a framework contract that surrounds that, other district or unitary authorities, schools, Primary Care Trusts, can all opt into it if they want to. We’ve tried to ignore the politics of it, agree something that makes sense from an engineering standpoint, and then if people want to opt into it, well and good. PSN is a core part of the government’s ICT strategy, it’s at the core of getting cost out of the business. And if we can do lots of that we’ll be moving forward very strongly.
Hampshire is being held up as a poster child for how local governments can refresh their IT infrastructure, taking huge cost out of their operations. For that reason, I’d argue that we’re
part of the solution rather than part of the problem. And the more that we can do to put in fibre-based, shared infrastructure which different London boroughs, counties or unitary authorities can use, the better. Public sector is still the core of what we want to do.
