Survival skills Featured

7:00pm EDT March 23, 2006
Jose Collazo’s bio outlines many accomplishments. His climb up the corporate ladder. His tenure on the company’s board of directors. Even his fluency in Italian and Spanish.

But what’s missing is perhaps his most impressive accomplishment of all — his ability to survive in a changing marketplace.

Collazo, through a variety of roles, has helped Infonet through a maze of turning points since 1970, culminating with his biggest task — British Telecom’s acquisition of Infonet in late 2004, resulting in the creation of BT Infonet.

“We’ve been here a long time,” says Collazo, who became chairman, president and CEO of Infonet in 1988. “We’ve had the luxury of growing over 35 years.”

But the road that led to BT Infonet wasn’t a straight and narrow one.

Collazo joined Computer Sciences Corp. in 1969, and a year later, helped it create Infonet, a data communication service. By the early 1980s, Infonet was faced with its first major obstacle in the personal computer boom.

Infonet had hit $300 million in revenue by the late 1970s but dipped to $10 million by 1984, when PCs were selling fast. The crisis nearly put it out of business, but it expanded its technology, learned from the ordeal and forged ahead.

“We had to learn how to quickly react to change,” says Collazo. “We got out of that hole by refocusing the business on data communications for multinational companies and away from the timesharing-based business model we previously had.

“In 1988, timesharing revenues were $50 million versus $10 million in revenue for our emerging data communications business. We grew that business very well, and eventually, data communications became 100 percent of our business.”

In 2004, revenue for data communications was $622 million. To put that in perspective, Infonet’s timesharing business had reached a peak of about $300 million in revenue in its prime. The process of climbing back to financial success taught Collazo some valuable lessons.

“We have to anticipate problems and anticipate markets,” he says. “Now, we have systems in large enough numbers to deal with that stuff.

“We need to be in as many markets as possible so we’re not tied down to any one market. We’re in 70 countries, and some regions are always moving up when others are moving down. If you have many different products, when one goes down, everything doesn’t go down.”

While surviving the PC boom was a huge hurdle for Infonet, Collazo points to 1988 as the company’s first major turning point. That’s when Infonet spun out of the network services division of CSC.

“Basically, we were looking to find partners to buy CSC’s equity in the company,” says Collazo. “We found six telecom partners, Telia (now TeliaSonera), Swisscom, Telefonica, KPN, KDDI and Telstra. These companies became Class A shareholders and also strategic sales/service partners for us globally.”

The second turning point was when InfoNet went public in 1999. Collazo oversaw the move, and the IPO was the second-largest in U.S. history at the time, raising more than $1 billion.

“We had always generated cash,” says Collazo, “but the market was expanding, and we needed capital. So we turned to the market. It was the only way to generate the capital needed. We only used half of what we needed. When we were purchased (by British Telecom), we still had ($390 million) in the bank.”

The third turning point, and by far the biggest, came in 2004. Late last year, while some telecommunications giants — SBC and AT&T, Verizon and MCI — were tying the knot, Collazo was already on the honeymoon.

In November 2004, three months before those telecoms began joining hands, Infonet was acquired by British Telecom, creating BT Infonet.

“We were the first global value service provider who merged with one of the big telecoms,” says Collazo. “I like to say maybe we started a trend.”

Collazo says the acquisition saved Infonet from being left behind in the telecommunications industry.

“I couldn’t imagine where we would be if we were by ourselves now,” says Collazo.

Not that Infonet was struggling on its own. The company, which provides services including mobile data, network services and multimedia products, reported revenue in 2003-04 of $620 million, with clients including Nestle, Nokia, IBM, Bayer AG, Siemens and Hilton International.

But the company’s small size in a market featuring major global telecoms didn’t allow Infonet to compete on a global scale. So Collazo called British Telecom, one of Europe’s leading telecommunications providers, to see if it was interested in buying Infonet.

“In the beginning, it’s just one-on-one,” says Collazo. “I approached the CEO of British Telecom (Andy Green) and told him why I thought this would be a good acquisition for them. And once he accepted the story, he talked to other British Telecom people.

“Then they had a team of 200 people here doing their due diligence.”

The move gave British Telecom access to some of the world’s largest companies, especially in North American and Asia. For Infonet, the deal nearly doubled its revenue (the final purchase price was $965 million.)

“BT’s focus on outsourcing complemented very well with Infonet’s focus on outtasking,” says Collazo. “Also, while BT was much larger than Infonet, both are customer-centric organizations that recognize the strengths of our human assets.

“While we use different words, our value systems are quite similar — exemplary customer service, commitment to innovation, etc. In that regard, it was a very good fit.”

But after pitching the idea to British Telecom, Collazo still had work to do. He had to convince employees and shareholders it was a wise move.

“We tried to keep (employees) focused on business,” says Collazo. “We didn’t want them to get sidetracked with the stuff that was going on. We have good, loyal employees. But we did explain that this was better for us. It was a smart move on our part.

“The major issue with the stockholders was that they felt the price wasn’t high enough. They thought we should wait for a better time to sell. Our position was that we were getting a premium in the market.”

Stockholders had been faced with possible buyouts in the past but always felt the time wasn’t right. This time, though, they approved the deal. Industry analysts also gave the deal a thumbs up, but some wondered if companies would put all their telecommunications needs into one basket. Collazo says that concern hasn’t been warranted.

“We find that about 98 percent of our customers use us exclusively for the kinds of things we do,” says Collazo. “It’s too costly for companies to divide their global communications needs.”

Although Infonet has experience working with comp anies in other countries and communicating with different cultures, Collazo says the acquisition process can be hard, simply because of the different cultures within companies.

“The key thing is that people need to pay attention to other people,” says Collazo. “People are looking at the same scenario with different eyes. So the point of view on the same thing can be very different. It’s corporate culture.

“The other thing that’s difficult in the service department is to depend on due diligence findings to figure out what to do next.”

For example, says Collazo, British Telecom is a $40 billion company that can put a lot of staff on doing analysis work. A company such as Infonet, although bringing in nearly $700 million, can’t afford to do as much analysis.

“The people on the street have to do it for you,” he says. “We have people in 70 countries, and we’re close to the customers. We get so much input from our customers that that’s our market research.”

As BT Infonet moves ahead, Collazo knows there may be bumps along the way. He likens the situation to a marriage which, in the beginning, needs time for adjustments.

“After the marriage, there needs to be a honeymoon period before you jump into any decisions,” Collazo says. “We’re still learning about each other. This is a complicated business. We’re both very much focused on the customer and we don’t have cultural issues, but it takes time.”

How to reach: BT Infonet, www.bt.infonet.com