As recently as five years ago, there were only local and long-distance telephone services. But look at the phone companies now. Leading the transformation is Canada’s largest public company, BCE, and its CEO, Jean Monty, who has reshaped bell and moved it into being a provider of Internet access, wireless data services, and the owner of a major B2B e-commerce company, and major old and new media. One of Canada’s most successful CEO’s, Mr. Monty outlines his reasons for transforming staid, old Ma Bell and the strategy he will use to reshape the company further. The former CEO of Nortel, Mr. Monty offers his own assessment of the company and the beleaguered telecom sector.
Few transformations in Canadian corporate history are as bold as the one that is reshaping BCE. And, one could argue, few CEOs are as equipped to engineer and successfully complete that transformation as Jean Monty. A strong leader and skilled manager, Mr. Monty has won respect and recognition, first for his accomplishments at Bell Canada, and then later, at Nortel, where he was named CEO of the year by the Financial Post Magazine in 1997.
A native of Montreal, Jean Monty received an MA in economics from the University of Western Ontario and an MBA from the University of Chicago. After several years in the then nascent investment banking industry, he went to work for Bell Canada in 1974. By the time he left to join Nortel, in 1992, he was Bell’s President and CEO, as well as BCE’s executive vice-president. At Nortel, where he succeeded the difficult Paul Stern, Mr. Monty restored both the company’s profitability and its employees’ morale.
Mr. Monty returned to BCE in 1997, when he was appointed President and Chief Operating Officer. He succeeded Lynton “Red” Wilson as BCE’s CEO in 1998, and on April 26, 2000, he succeeded Mr. Wilson as Chairman. Mr. Monty spoke with Ivey Business Journal in early August at BCE’s corporate headquarters in Montreal.
Ivey Business Journal: You’re engineering a very significant transformation at BCE. Could you describe the strategy that’s driving the transformation?
Jean Monty: During the first phase of our evolution, we greatly increased our capabilities in wireless and broadband, to make sure that people could connect to us. Now that we’ve got the basic platform, we can focus on adding services. That’s the next phase of our evolution, which we are in right now. And that’s where electronic commerce and content come in. There’s a huge amount of information on the Internet, but a lot of people, if not the majority, are saying that there’s just too much out there. So we’re determining what segments have a big enough population base to justify investing millions of dollars to set up a service that helps consumers get access to segments of information. We want to package a subscription service that consumers will buy rather than surf the Internet. That’s one manifestation of our evolution.
Another manifestation is to say, “Well, we have to be device-agnostic.” Will the consumer prefer to have that on wireless, a PC or the TV set? We’re going to make sure that we deliver our services over any of these devices. We also want to make sure that our satellite service is part of that whole offering, so that consumers could say: “Jeez, I’ve got all of this stuff, but I’d rather get it all from one place. I can get my satellite TV service, my high-speed Internet service, my wireless services, my traditional telecom services, and I can get information services now too.” We’re looking at how we can bring all of these together so that the customer can have one bill. We are also trying to serve the customer from one source as opposed to having the consumer call three or four different places. These are all the complementary services that really produce the value.
The same thing goes for the business side, where we are enabling customers to get electronic procurement, electronic payment and electronic-learning systems. Hudson’s Bay recently bought an e-learning service from us that will train their sales force and their operations people, saving hundreds of thousands of dollars. All of these become part of the spectrum of services that we really think we can give. And our superior connectivity allows customers to receive these services. So our evolution is very much about powering connectivity with content and commerce.
What we’re searching for—and this has evolved, this was not what we thought three years ago—is a way that will allow us to continue to grow while we deliver value. How can we differentiate our service so that the customer appreciates the value creation, so that the fight in the marketplace will not be strictly a price fight where nobody wins? We need a model where we achieve sustainable growth through sustainable differentiation.
The next phase is really going to be the Internet. No one application is going to be the killer application. I’ve always said that the killer application of the Internet world is the protocol of the Internet, because it’s universal. So having that standard allows everybody to get on and use their creativity to multiply the applications that deliver value for everyone.
You mentioned sustainable differentiation. What are the components of BCE’s sustainable competitive advantage?
First, we start with trust. If you are bombarded by information, and have different devices to access that information, you need to rely on somebody to help you. Our Bell Canada surveys indicate that our customers trust us.
The next component has got to be the expertise that we have in developing these applications—and in meshing this expertise with the trust—in order to make a difference in the marketplace.
People ask, as you just did, “What is your advantage?” I’m not sure it’s an advantage to have all of these things. It’s also a disadvantage, because it’s complex. It’s a lot simpler for us to say, “Let’s do one thing well three million times, but let’s not do more than one thing.” The problem is that when you do that you’re extremely limited and you haven’t got a very broad, addressable market on which to build a business.
For example, look at the long-distance market, where AT&T and MCI are one-product companies, almost. When that market fades away because of technology substitutes—this is what’s happening to long distance—our real competitors become Microsoft, AOL and Yahoo!, and the cable companies, obviously, and Telus. So the complexity of our structure, where we have all of these connectivity devices inside the same family, is a nice position to be in because the consumer says, “I can get everything from one source.” The difficulty of that approach is that you have to manage a multiplicity of devices, a multiplicity of networks, and a multiplicity of architectures that demand that we build bridges between all of them, so that, to the consumer, they all look like one thing. So the advantage turns to a disadvantage if it’s managed improperly.
Secondly, once you’ve said that connectivity is not enough—we’re talking sustainable growth here and the connectivity growth curve will flatten at some point—you have created a capability to sell a value proposition to your consumer, as opposed to strictly saying, “Why don’t you just go to a Wal-Mart or our Bell World stores and buy these connectivity products?” We want the consumer to see that we have a much broader capability than just connectivity. Wireless and data represent about 30 percent of Bell Canada’s business today. Ten years ago, they probably represented less than two percent.
So we’ve undergone a significant transformation already. The next phase of this transformation is to bring electronic commerce and content into the offering. That’s really going to take a couple of years to build that capability, and to get the consumer to realize that we have the capability. Growth will come in two to three years’ time with that base of services.
A few organizations have tried to own the customer and to appear as one “family.” Yet on an operating level, it’s the individual silos that deliver the services and that interface with the customer.
I never believed that you could own a customer. What we’re trying to do is own the customer relationship. For example, you can have an AOL in front of the customer and then us behind AOL. In other words, AOL is between the customer and us. This is the wrong way to build a long-term business. AOL or Microsoft or anybody else would love to have us wholesale our connectivity elements to them. Then they could basically own the customer relationship. In effect, the customer could say, “I don’t need to go to a phone company, I’ve got everything I need from these guys.” So, a small nuance but a very important one to me.
In terms of your point about the silo, this is a huge issue. We’re doing a few things. With respect to connectivity, we’re making sure that managers of the connectivity businesses have their hands in most of the connectivity businesses. For instance, the Bell Group now has the responsibilities for managing mobility. For a while, BCE had that responsibility. We said, “No.” Bell Canada is the right place to have that because there’s an intimate relationship. How can we use Bell’s distribution, its call centres, to sell connectivity? You’re not going to do that easily unless the teams that manage these call centres feel that they have an impact on how that capability is delivered. So we’ve taken care of that.
ExpressVu is under the management of the Bell Canada Senior Team because it is, for now, a connectivity business. In time, it will probably be more of a media business, because managing the menu will be more important than managing connectivity and the expansion of the network.
Another thing we’re doing with respect to the silo issue is building links between Bell and the BCE Emergis team and the Globemedia business. We have built a nucleus of expertise in Bell that understands the e-commerce products and services that they can sell through their channels by looking at what BCE Emergis has done. So BCE Emergis basically uses Bell as a channel, like it’s going to use Chase Manhattan’s Visa card service in the U.S. as a channel. So BCE’s main responsibility is to make sure that there is channel management between Emergis and Bell.
With respect to media, we’ve put together a $70-million fund to invest in different convergence initiatives. That’s prompted a lot of suggestions and a lot of very creative ideas for selling through Bell’s channels or the channels of the other companies. That’s bringing the teams together. So the new-media pieces—whether they’re in broadcasting or specialty channels or The Globe and Mail—are all under the same management team, and it’s bringing these ideas and teams together to work at bettering the brand of each individual proposition.
Point of delivery is very important with an integrated model. How are you addressing this issue?
We now have trained call-centre people to deliver wireless, ExpressVu, high-speed Sympatico services and traditional telecommunications. Over 100,000 customers are being served or sold that way today. A significant amount of training and systems work goes into making sure that the provisioning and billing platforms interface to serve the customer from this one window. But you’re quite correct, the delivery issues here are the biggest nut to crack.
Focusing for a minute on Bell Globemedia, how do you rationalize your acquisitions of The Globe and CTV given the decline of network TV and national newspapers?
We should underline the fact that The Globe has created nine very well-received Web sites, probably some of the best vertical Web sites in the country, for example, Workopolis.com and Globeinvestor.com. We all must understand that it’s very difficult to create Web sites without the traditional media. That’s why so many dot-coms went belly-up; they didn’t have the cash flow, the knowledge resources or the database. To me the idea of saying that “The old media is dying, forget about it, build a new media”…I’m not sure that you can build a new media without the old media. First, you have to brand it.
Secondly, you sell the new media…you see it not only at CTV but also at the CBC, where the anchor desk always refers to CBC.ca. Well, on the CTV broadcasts we’re not referring to Sympatico, we’re referring to some of The Globe and Mail sites. All of this is called cross-promotion, but it’s also the cross-handling of a lot of information, innovation and capabilities. It would be unthinkable for a company our size to build the leading new-media businesses without having the top brands in traditional media to mandate our evolution. Our new-media properties are by far the leading properties in the country. And in a recessionary environment for advertising, our new-media ad revenues are growing by 50 percent. This is not by luck. This is because we’ve put the right properties together.
What indications do you have that national advertisers are buying your proposition?
It’s going very well. We haven’t announced anything yet. We’re waiting for the fall, when we’ll have some very interesting announcements. Everybody knows that there’s a lull before people start to see the value in Internet properties. So to have the leading new-media property is very attractive to advertisers. I think it’s helping us put together these types of advertising platforms that we’re going to announce some time this fall.
Can you substantiate your enthusiasm for your new-media property?
Last year we generated $40 million in revenue from our new-media properties in Bell Globemedia. This year it’ll be close to $60 million. These are not yet billions, but on a Canadian base, that’s $60 million of advertising on new media. There are very few people who come close to that number.
Have there been problems in fitting CTV and The Globe into the BCE family?
Let me first say that we’re quite pleased that the CTV team has held together quite nicely. Fecan [Ivan Fecan, Bell Globemedia CEO] is putting the Globemedia team together quite nicely.
But I take issue with the underlying assumption here. You’re not the only one who’s raising this, so don’t feel bad. But why is a cable company’s management not questioned as to why it should be in content when in effect the only thing they’re doing is connecting customers? They’re doing the same thing we telcos are doing. Why is it acceptable for them to be in content? I find that it doesn’t follow. I think we have a better management history, in the telecoms. Our customer satisfaction is way ahead of the cable companies’ and I think we can manage this a lot better now. I take issue when we are told that we can’t manage what the cable companies can. The facts don’t bear out that statement.
That’s a question I would ask Ted Rogers.
Nobody disputes whether they should own specialty channels or the Blue Jays, or whether they should be in entertainment, all of this stuff. But we’re being taken to task because we want to do something similar with even better capabilities than they have. So I think it should be a lot safer.
I’d like to move from BCE and talk generally about management and leadership. Why were CEOs like John Roth and John Chambers unable to anticipate what hit in the fourth quarter of last year?
The biggest thing is that nobody saw the very drastic change of mood in the capital markets’ propensity to fund business models that were based on very aggressive assumptions for growth in services. When the analysts and investment bankers lowered the aggressiveness of these assumptions, they said, “Holy jeez. We’re investing in these companies based on business models that really don’t sustain the value proposition.” So they pulled a lot of their funding away. When they did that, a lot of the smaller companies that really had too aggressive a business model, to be polite, had to pull off. Most of them went bankrupt. When that occurred, a big chunk of the market that Cisco and Lucent and Nortel were selling to also disappeared. It’s very difficult to think that a John Roth or a John Chambers or a Richard McGinn could have foreseen the change of mood in the Street. And by the way, it’s a lot easier to do Monday-morning quarterbacking on this stuff. It wasn’t only the three CEOs but all the big research groups. I won’t name names, it’s improper. But all the experts in the field were supporting these aggressive models.
Paul Segawa [Sanford Bernstein & Company analyst] appears to be the only guy who said, “Hey, here’s a reality check.”
There were one or two, but everybody else missed it. Nortel was underpriced at $120 so everybody had these models, these overinflated views of where the future would bring us. Everybody was caught. We were caught into all this. Look at the price we paid for Teleglobe.
Many of these people can’t or won’t issue any guidance. As a telecom owner, what does the horizon look like to you?
Right now, we’re still spending a lot of money on capital expenditures. This year, we will spend approximately $8 billion. This is a huge amount of money. It was supposed to be $9 billion and we’re spending $8 billion. It’s not that we pulled back. But last year it was over $4 billion. So we’ve had a huge increase, a little less than what was expected, but a huge increase. We’re going to spend a lot of money next year as well. We’re building out Teleglobe’s network, we’re spending a lot of money on wireless and broadband in Canada, expanding out west. We’re building a satellite infrastructure to serve over a million Canadians on satellite TV. All of these things—and all the portals that we’re building—take a lot of money. The issue is that there are very few people who can do what we’re doing. The capital markets are very skittish about funding an upstart with the same business model that we’re trying to go after, unless you have a cash flow and a sales and marketing capability to deliver on these new services, which is something that we’ve got. We’re not the only ones. AOL-Time Warner is building one hell of a capability here and so is Microsoft and so are the large RBOCs [U.S. Bell Regional Operating Companies]. So, there’s going to be more than one player here, but the upstarts can’t get the funding. That’s a big segment of the market that’s gone. Those guys bought a lot of capacity; we all had to buy a lot of capacity. The more we built newer technologies—with their better-performing capabilities—the more efficient we became in running our networks, the less we needed to spend to buy additional capacity. So with respect to the Nortels or Lucents, it’s very difficult for them to see when that efficiency will be absorbed by our current capacity, or inversely, when our current capacity will be absorbed to the point where we’ll need new capacity. And that’s the difficulty facing Lucent and Nortel.
What do you say to yourself when you look at Nortel today, considering what you did last year?
There were two basic reasons that we spun off Nortel last May. One was the industrial reasoning: We owned 37 percent of Nortel and accounted for five percent or less of its sales. It was impossible to say, “We’re doing this because we can build more value together.” It was really two groups building value through one umbrella and that umbrella was BCE. There were very few links to help the two build value. That was not the case 30 or 40 years ago, when Bell was a significant ingredient in Nortel’s success.
The second reason is that the financial markets were discounting the value of the rest of BCE and basically putting the whole value of BCE on the Nortel block that we owned. We used to call that a holding-company discount. And there was $20 billion worth of hidden value in that. So, these were the two reasons why we did the spinoff. We didn’t do the spinoff because we didn’t like Nortel any more. We did it basically because it didn’t make sense for the fundamental reasons I’ve explained.
Now it so happened that six months, nine months or a year later, you looked back and said, “Jeez, this was a genius thing to have done.” And not only that, we hedged. We kept 60 million shares and hedged 47 million shares. The real reason for the hedge was to give us an assured source of funds to fund the transformation of BCE. We needed $4 billion to get that done, and at around $90 to $92 a share, when we had that $4 billion after tax, we hedged it. It was prudent financial management against the risk of doing the Teleglobe deal, the CTV acquisitions, and the expansion of BCE Emergis. For a while, when Nortel was at $124 a share, shareholders said that we were nuts to have done that at $92 a share. Today they look back and say, “Jeez, these guys are geniuses.” We weren’t. I guess we’ll say as much that we were good managers, that we were doing our job as managers. I still think Nortel is one hell of a property.
From a leadership perspective, what kind of challenge is it to manage companies that are dissimilar?
They’re interrelated, but they are dissimilar. They bring together different capabilities that I fundamentally believe we will need to serve the customer in the services world we’re going into. So that’s the basic precept that I have now. Some people ask: “Do you need to own them?” Maybe in time we don’t necessarily need to own all the pieces, just to build the capability. I’d rather negotiate with myself than with others. In other words, I have a capability in Globemedia that I want to sell through Bell. It’s a lot easier to negotiate with Fecan, John Sheridan [CEO, Bell Canada], Sabia [Michael Sabia, BCE President and Bell Canada Vice-Chair] and myself as part of the same family, than it is to say, “Well, we don’t own Globe media, we’ll negotiate.” But who gets the value? Who gets the transfer price? At what level of profitability? So it needs the creativity, the funding, the nurturing and management of people that we can do a lot better from inside a family. I believe it’s critical to have it inside the same family in order to get the products to market and compete with the other guys. In time, we’ll compete with AOL.
How are you going to compete with AOL?
By being Canadian. We think that that’s the differentiation. I don’t think AOL will ever be able to reproduce the Canadian content that we’ve got. We know for a fact that, at the end of the day, Canadians want to have Canadian information first, as well as world information. But they want Canadian stuff, and being Canadian will differentiate us.
Okay. Thank you very much.