Climbing the heights with cable

Profile: Graham Wallace; CWC's new chief is ready to take on the media heavyweights, writes Nick Gilbert

When students all over Europe were going on demos in the late 1960s, the man who is the new chief executive of the equally new Cable & Wireless Communications was head down getting his engineering degree from Imperial College. A few years later Graham Wallace qualified as a cost and works accountant.

He still looks the part, in dark suit and white shirt. It is hard to imagine the 48-year old Wallace negotiating cable TV deals with Hollywood moguls. He is a reluctant interviewee: "After this the curtain comes down and I can get back to making some money for the company."

But he knows he cannot expect to avoid the limelight; he is chief of a company which was valued at pounds 4.5bn the moment it made its debut on the London Stock Exchange last week. He has no script to follow; nobody before has been able to offer millions of British customers cable TV plus a full local and long distance telephone service.

"This is a terrific business opportunity to create a new market," says Wallace, headhunted from Granada in February. "I am very excited indeed."

CWC was forged out of a bold, complex merger of Cable & Wireless's Mercury phone business and three UK cable TV companies. After years of trying, Mercury has failed to hobble an increasingly nimble BT. The cable operations had likewise disappointed customers and their North American parent companies. The three have built networks taking cable past 3 million homes, but only 20 per cent have signed up.

It is Wallace's job to turn CWC into a racehorse rather than a camel, the proverbial horse designed by a committee. On his success hangs not only his reputation but that of Richard Brown, the much more flamboyant American boss of parent Cable & Wireless. CWC is Brown's brainchild. The parent still owns 53 per cent of the shares after the share listing.

Wallace has never run a publicly quoted company before, let alone one with a pounds 4.5bn market value. CWC has pounds 2bn in revenues, pounds 4bn of assets, pounds 1.3bn (and rising) of debt and 12,500 (and falling) employees. It has 1.1 million residential telephone customers and 600,000 cable customers. But he is quick to point out that he is no novice at running big companies. "I ran two of Granada's largest businesses, so I have well-rounded skills as a chief executive."

One was Thorn Rentals, his first line management job after moving over from being Granada's group finance director. "We had 2 million subscribers and it was tough competing head-on with Dixons," says Wallace.

Granada chairman Gerry Robinson set him a target to improve the rentals business and Wallace hit it. "Graham is extremely intelligent and very practical," says Duncan Lewis, a former Granada and Cable & Wireless executive. This is the key to Wallace; give him a job and he will do it. Leave the grandstanding, the vision, to showmen like Brown or Robinson.

Wallace also ran Granada's leisure and services division after the Forte takeover - motorway service areas, night clubs, Little Chefs and Welcome Breaks. "That division had pounds 2bn in revenues and 40,000 employees against 12,500 here."

He says he left Granada only because of the challenge of the new job. "I had a terrific 10 years at Granada and no reason to move." But others reckon he was an easy mark for the headhunters. "He knew he was never going to run Granada," says Lewis. When Robinson moved up to chairman he promoted his long-time associate Charles Allen to the chief executive's job in preference to Wallace.

Wallace is thrilled to get the corner office at last, even one as utilitarian and non-showbizzy as its occupant. This is a case of ambition delayed, but finally fulfilled - around 25 years ago the young management trainee at Turner & Newall choose to qualify as an accountant for a reason. "I went into finance rather than engineering because I thought it was the quickest way to the top. It was certainly better paid."

CWC have paid him a pounds 100,000 signing-on fee. He is on a basic salary of pounds 375,000 and will receive a guaranteed bonus this year of at least pounds 170,000. In the next few months Wallace will be granted options of over pounds 750,000 worth of CWC shares.

Part of the money is earmarked for a new home. The grammar school boy from Finchley, North London, long since moved to more fashionable Highgate. Now he has bought an expensive plot, hired an architect and awaits planning permission. He has a passion for opera and football: "I go to Covent Garden a lot and I've had a season ticket at Spurs for years."

Analysts who knew little about Wallace have come away from recent meetings impressed. "Most people thought: 'What's this guy doing here?' But after he started speaking it became evident he has a clear view of what is to be done," says John Tysoe, media analyst at Societe Generale Strauss Turnbull. The challenge is to find more customers and then keep them: "The churn rate - those cancelling - has been appalling at cable and not much better at Mercury," says Tysoe.

CWC is spending over pounds 2bn doubling the cable network so it can reach 6 million potential customers. "We will have 60 per cent of London and all of Leeds and Manchester," says Wallace.

Before the merger, Mercury offered long distance service on its own lines but had to pay BT access charges at each end of the call. "Now we own the local loop as well in our franchise areas," says Wallace. This should help CWC speed up the numbers of customers switching from BT. But BT is not standing still; the day after CWC floated, its much larger rival announced a package of price cuts. That is the kind of nimble marketing Wallace must introduce.

But the real trick is to boost cable TV sales and sell phone services on top. "We absolutely have to capture both the revenue streams," says Wallace. "That way we double our income from the same investment. BT cannot do that and neither can BSkyB."

His target is to increase the share of potential customers who sign up for cable from 20 per cent to what he reckons is a realistic 40 per cent. That would be 2.4 million cable customers by the early years of next century.

It is all down to marketing and customer service; talk about megahertz and bandwidth is not a priority. "The technology is a complete irrelevance to customers as we learned quickly at Granada Rentals," he says.

In going against BT, analysts say CWC has around three years to make its mark in cable and phone services before the regulatory ban on BT offering broadcast entertainment is scrapped. But Wallace also has to fight off Rupert Murdoch. The race is on to introduce satellite digital TV; BSkyB said it would introduce it this autumn, but it looks like they won't meet their target. "Our network will be digitally upgraded by the end of the year and will start soon after that," Wallace says. "We are ahead of them."

The problem is how to fill the channels. Wallace plans to show a selection of pay-per-view films each evening starting at staggered times, a half- way house to the ultimate goal of full service video where viewers can see any movie they want at any time.

But Wallace will have to play an artful game in dealing with the Murdoch camp. Tysoe says CWC hands over far too much revenue to BSkyB for carrying its programmes on cable. "He has got to get a better deal out of Murdoch." Here, Wallace is diplomatic. "We have a lot of common interests. The more customers we have the more they earn from selling us programming."

BSkyB, however, is a big brand name, while Brown decided to scrap the Mercury name and rebrand under Cable & Wireless, a name that conjures up an early 20th century world of transatlantic undersea cables and old bakelite radios.

Wallace says bravely: "I think the choice of name is less important than the way you present it and the values you manage to associate with it. If you were starting a retail business today would you choose the name Marks & Spencer?" Maybe the Brown & Wallace show will prove as successful.