Below is a Q&A interview with Orcon founder Seeby Woodhouse who
this week sold his business to state-owned broadcasting network
operator Kordia. Read what Seeby has to say about nuclear power, local
loop unbundling and taking Orcon to $100 million in revenue.... Sourced from
Griffins Gadgets PG: Congratulations on the sale to Kordia.
SW: Yeah, it’s the end of an era but the beginning of the next phase.
PG: Any sadness losing ownership?
SW:
A little bit. Anyone gets attached to things, whether its spouses,
companies or dogs. I’m the sort of person that believes in branding.
That’s why I chose Kordia, they have absolutely no intention of
re-branding the business and they want to keep it running largely as a
separate entity. Hopefully I’ll be able to look back in a few years and
say, wow, now it’s New Zealand’s second largest or even largest telecoms company.
PG: You said at the press conference you had something like 50 offers for Orcon over the last couple of years.
SW:
It was more like 50 offers since people started getting more
interested, which is more like over six or seven years. Once every
couple of months, someone would come along.
PG: Did Vodafone have a sniff around Orcon?
SW:
It was more that Ihug was for sale. There was a bidding war for Ihug.
They got it and probably wanted to bed it down. I was aware they were
potentially interested in additional acquisitions but I felt if we were
going to be acquired by them, they probably wouldn’t want multiple
brands. The company would have been rolled into Ihug and that wasn’t
something I wanted.
PG: Why was it so important to you that Orcon maintained its identity and structure?
SW:
It’s basically my baby. It would be a different story if someone was to
buy it and suddenly Orcon no longer existed. I’ll still have
involvement in the business for a couple of years as consulting
director. I’m able to take my money off the table now, relax a little
bit, but still have the upside of the business, the challenge and the
things that I enjoy.
PG: Is that a fulltime position?
SW: No, it’s a consulting directorship. The time is variable.
PG: What will you do next?
SW:
I don’t want to make any hasty moves. If I did that, I could
potentially get drawn into something I don’t understand as well.
There’s a temptation when you’re cashed up to invest in silly things
and fritter it away. The thing about Orcon, since I was 15 I’ve been
passionate about business and it was the business opportunity I was
initially excited about. Telecommunications came second. I had a
burning passion in the early days of Orcon for a good five years,
working 16 hours a day solid. If I do anything in the future, I want
something that’s going to get me that excited.
PG: I
looked back at the TV3 interview you did in 2004 which was very
interesting. You weren’t a networking guy, but you were trained as an
electrical engineer?
SW:
That doesn’t teach you much about computers. I didn’t really use any of
my degree. I was also pretty computer illiterate when I started the
company so I had to learn fast. These days I’m tech savvy, I didn’t
even have a computer when I started the company.
PG:
You’ve made some moves at Orcon in the area of content, the deal with
Digirama, plans for IPTV, as this Web 2.0 thing takes off, do you want
to get into the content side of the internet?
SW:
Yeah, in some ways content is easier than access, because you don’t
have to have a load of boxes that physically exist. The advantage Sam
[Morgan] had with Trademe, was that if something grows really fast, you
just stick in more servers. With Orcon, if you want to grow something
fast you need infrastructure. Telecom’s got a worse problem with that
than we do. I’m probably going to sit tight for six months to a year,
take some long holidays, do some travel and not worry about things. If
I have any interest at all, it’s in things like sustainability and
biofuels. Global warming is a big concern of mine. Maybe there’s an
opportunity to make some money but do some good at the same time. Maybe
introduce something like solar energy to New Zealand
that’s actually going to help. It’s something I’m investigating.
Alternatively, if I enjoy being retired a lit too much, I may not do
anything.
PG: You’re 30 now right?
SW: YES, 30.
PG:
It’s interesting how goal orientated you’ve been throughout your life
from when you got your first bank book as a kid through to wanting to
take Orcon to $100 million in revenue by the age of 30. Did you get
there?
SW:
No, the turnover is a bit lower than that, but I think it will only be
a year or two off target. I’ll still be involved with the company by
the time it hits $100 million. But the real issue has been our margins
being squeezed having to resell Telecom’s broadband and LLU happening a
lot slower than was thought. There have been some unexpected
difficulties. Our revenue is still growing pretty fast.
PG:
Looking back to 2003 – 2004, it seemed that Orcon was more willing to
embrace the Telecom wholesale regime than some of the other ISPs who
were a lot more vocal in their criticism of Telecom. Do you think that
gave you an advantage, that you were more willing to play ball with
Telecom than your competitors?
SW:
I don’t think it gave us a huge advantage, but we weren’t so distracted
by regulatory arguments. My attitude is you should make the best of the
situation you have. At that time it didn’t look like we’d end up with
local loop unbundling. Theresa didn’t expect it was going to happen,
let alone myself. I don’t think we got any concessions from them, but
the working relationship was the most amicable and productive of any of
the ISPs. That assisted us a bit, even on small things like fault
resolution. The Telecom guys were happy to work with our guys. We
weren’t going to report faults that weren’t true, we weren’t going to
bitch and moan.
PG: You talk about margins being squeezed. Have the economics of reselling Telecom’s wholesale products deteriorated?
SW:
They’ve always been bad. The issue is that there are less and less
dial-up customers sustaining the ISPs. It’s a global problem. Telecom
has issues with making money out of broadband as well. I’m sure dial-up
is more profitable for telcos than broadband. Someone like Telecom with
toll calling and fixed line rentals, those things are declining.
Broadband revenue is going up to replace those, but Telecom has one set
of revenues going down and another set going up. ISPs have internet
revenue that is profitable being replaced by internet revenue that
isn’t profitable. With LLU telcos like Orcon will get access to the
physical phone lines as well as additional services like IPTV. That
will be fine in the future. The issue at the moment for ISPs is if a
consumer spends $40 a month on a phone line, $20 on tolls and $40 on
broadband, traditional ISPs don’t get to attack much of that and even
if they do, most of the money goes to Telecom in the form of a
wholesale arrangement. Under LLU you might buy the line for $15 and
whack on as many services as you can. Then it sorts to become more
profitable.
PG: You’re getting out at a time which for New Zealand
is the most uncertain. Some of your competitors like CallPlus and Woosh
are banking on WiMax to expand their networks, then there’s the big
investment needed in unbundling. Is that why you chose to exit now with
all that uncertainty ahead?
SW:
The uncertainty was one reason that I chose to exit, but I’d been doing
the same thing for ten years, I need to slow my life down a bit and
have a bit of a change. Also I’ve started to become more interested in
things like global warming. With the uncertainty there’s also huge
opportunity, around unbundling. I’m sure Kordia will do extremely well
out of their purchase. I may not have done so well by not selling
because without sufficient funding you can fall flat on your face. I
was concerned that if the capital started drying up, because Orcon was
always self funding, my wealth forms the company. If the company was
going to do anything it would have to make a profit so we could
reinvest it. That’s been the strategy all along.
PG: So everything was funded out of revenue at Orcon throughout?
SW: Everything at Orcon from day one was funded out of cash flow. It was started with $100
PG: During the first dotcom boom, did you feel a sense of urgency that you had to get capital to take advantage of it?
SW:
At that stage I didn’t understand how a venture capital relationship
might work and the issue is they may only ask for 20 per cent of the
company but not be prepared to pay what you want. They always want a
good chunk of the business and then there are usually effective control
clauses, so even if they only own 30 per cent, effectively they can
remove you as a director. I’ve always been opinionated about what I
wanted to do. I didn’t want to have the risk of bowing down to someone
else and be depressed about it. Whenever a proposal was presented to
me, I was reluctant. I said to myself, I’ll just try and grow the
business as fast as I can, if it grows a bit slower, I don’t care.
PG: Orcon always had a reputation for very good service. How did you instill that culture?
SW:
It comes from all those cheesy sayings, the customer being king, that
type of thing. But it was important for Orcon to differentiate and the
piece of copper you’re selling is largely the same thing, like petrol
stations all sell the same gasoline but they all charge different
prices. They differentiate through branding. I always thought we had to
differentiate in as many different areas as we could and a lot of the
time, ISPs were doing a pretty poor job on service. We made it one of
the things we were going to differentiate on. One technique I employed
early on was that we hired non-technical people like myself for the
call centre rather than geeks. You can’t teach a geek customer service.
There are only a hundred questions that will ever be asked at a help
desk and you can teach someone the answers to those. We got happy,
bouncy customer services people and taught them what they needed to
know.
PG: Did you have any mentors?
SW:
people come and go. There are people who will say, I helped Seeby out.
But not really, I’ve always had a strong vision about where things
should go. Most of the mentors’ advice I’ve had over the years, I’ve
ended up disregarding.
PG: Was there anyone in the telecoms industry you admired as a young businessman?
SW:
The Wood brothers were an early inspiration, because they were in game
a year ahead of me. It was always a case of me having to catch up to
Tim and Nick. They did really well exiting a few years ago and got more
money than Ihug sold for (to Vodafone).
PG: And the successful exit at the peak is the real sign you’ve made it, isn’t it?
SW: It
was certainly planned, choosing Kordia was planned as well. It was
important to be Kiwi owned, there’s no risk of Kordia being taken over
by an Australian outfit. I’m proud of the Kiwi heritage. Obviously,
getting what I thought was a fair price was important. Ultimately I
didn’t necessarily expect, even a year ago, to sell. But I started
thinking, what does this business need? All internet companies are
becoming phone companies and all phone companies are becoming internet
companies. Then they’re all becoming converged media network companies.
Looking at the regulatory environment after the Government’s
announcement after LLU, we did the Siemens deal so we had vendor
finance, but what we were lacking was media expertise and a network. We
were going to have to build the network and invest in media
technologies. Kordia as a network and broadcast type company, had the
two pieces of the puzzle that we lacked.
I
thought either I’m going to have to get a venture capitalist onboard or
load the company up with heaps of debt. Take on a whole lot more risk
where potentially it could fall flat on its face or sell it to someone
who can extract the value. There was the risk that I could try and do
all the stuff Kordia is trying to do, by myself.
PG:
CallPlus has secured US$450 million for its WiMax plans. Maybe there’d
have been an appetite for investment if you’d wanted to go that route.
SW:
I was surprised by the CallPlus thing. I think it’s a real figure, but
it’s probably a line of credit, so it will have to be drawn down over
time and they’ll have to build the network. And its debt funding. If
you borrow $450 million, you’re paying 40 – 50 million a year in
interest. Just because they have $450 million, doesn’t mean they’re
won’t be saddled with debt and crippled by it, in much the same way
Woosh is. They’ve spent $100 million plus building a network and don’t
yet have the customers to sustain it. If CallPlus goes and spends the
US$450 million and only gets 100,000 customers, it will be a bit of a
disaster.
PG: What’s your view on wireless technologies. Are you optimistic that some of these alternative models may work?
SW:
There are a lot of variables. There’s a lot of uncertainty around the
Government’s spectrum auctions. CallPlus has the same concerns.
Wireless technology rests on having the right spectrum available at the
right price. If it goes for a horrendous price and Vodafone and Telecom
pay to block out competitors, it could be a moot point. One technology
doesn’t tend to replace another. When email came along it didn’t
replace the fax machine, when the fax came along it didn’t replace
postal mail. Now we’ve got postal mail and couriers and FedEx, faxes,
email and instant messaging.
The biggest
success will be the company that can offer a seamless solution,
wireless and wired technology, TV and phone calling together. I’m not
just talking about multiple things on one bill, but being able to use
your internet service wherever you are and pay in a consistent manner.
We’re a long way away from that.
PG:
Where you nervous when Vodafone bought Ihug, seeing as Vodafone @ Home
is aiming for one converged device that acts as fixed line and mobile
with seamless switch over?
SW:
I saw it as an advantage but I wasn’t threatened by it. Orcon’s got an
MVNO agreement with Vodafone anyway. We’ll be doing the same type of
services, just in a different way. It just depends what pieces of the
puzzle you have control over and which pieces you don’t.
PG: Did you benchmark the sale of Orcon against the $41 million sale of Ihug in terms of what you were looking for?
SW:
It’s difficult to compare the two. Certainly, in terms of customer
numbers, we’re 80 per cent the size of Ihug. It would have been nice to
get more but I’m not unhappy with the sale price. We have different
ebitda figures and more customers have multiple services with Ihug.
They’ve a more established voice base. I got a fair deal and Kordia
paid a good price.
PG: How do you feel about the fact that your staff is effectively now public servants?
SW: They’re
not really. The Government has very little input into how Kordia is run
apart from maybe appointing the board of directors. It’s certainly not
the case that the Government wanted to do this to create a competitor
to Telecom. They’ve some great products they want to sell like DVB-H
(mobile TV). They haven’t had a lot of interest from the ISPs in terms
of taking some of these services up.
PG: What’s been the reaction to the sale from staff.
SW:
It’s been good, there’s been no tears. People have said it’s the end of
an area, but once they realized there’s no change in job descriptions,
they’re not suddenly Kordia employees, they’ll still be managed by the
same people, there’s no redundancies, they’re okay with it. I’ll still
be popping into the office, I’ll still be around for at least two years
in an advisory capacity.
PG: And Scott Bartlett, your lieutenant, will be the CEO?
SW:
Yeah, essentially I’d already stepped back a bit anyway. With a company
the size of Orcon it’s important to spend a lot of time thinking about
what’s next. You can’t get too caught up in the day to day issues or
you can wake up and find you’ve been going in the wrong direction for
two years.
PG: So the future, alternative energy technologies, are there good opportunities to invest here?
SW: I’m passionate about business, that’s number one, New Zealand
is number two. The thing I’m concerned about is basically if we’re
already past peak oil [production] and some of the wells start to dry
up and the price goes to US$120 a barrel, then New Zealand is at
serious risk of collapse because we haven’t got the densely populated
cities. If you had a global price shock like the 1970s, the countries
that do well will be the ones that have all their population gathered
in one place. With New Zealand,
everything in this country is run on gasoline, you have to have a car,
and public transport is not good enough. We have to stop this urban
sprawl. People need to get into more densely populated areas where
there’s a subway infrastructure. We’re obviously not going to be able
to build that infrastructure in the next five to ten years. If there is
a serious oil shock, New Zealand will be at its mercy, particularly for things like exports.
The only country that will do well is Brazil,
because 60 – 70 per cent of their cars run on ethanol produced by sugar
cane, which is six times more effective at producing ethanol than corn.
New Zealand should be able to produce ethanol technologies and the Maui gas fields.
We should be working on complete energy independence.
PG: You’re moving out of a field that’s complicated enough and into one even more so. Are you going to go on a fact-finding mission to some of these places using alternative fuel sources.
SW:
I’ve been doing a lot of reading. I’ll try and work my contacts, ask
government officials. If a light bulb switches on in my head and I
decide the best thing to do is buy a heap of land in the South Island and start growing sugar cane, that’s what I’ll do.
Solar generation or green homes.
If I can start a company that provides green technology to homes, it’s a way to start.
PG: How’s Orcon Racing going?
SW: It hasn’t been in operation this season.
PG: What happened?
SW:
We didn’t sponsor the car this reason for two reasons – Orcon is
focusing on call to action marketing rather than branding. Potentially
motor racing is going to become a bit un-PC. Because I have
environmental concerns I started thinking gasoline is in short supply,
there’s all this concern about global warming, we don’t necessarily
want to be involved in a sport that in two years time everyone is up in
arms about.
PG: You did a sabbatical a while back right?
SW: Yeah I’ve seen a good portion of the planet. I’ll do some more.
PG: That’s the plan, take some time and explore?
SW: Yeah, I just came back from China
so I’m a bit tired. But there are a lot of things I want to see. If I’m
interested in environmental things, it may give me a better perspective
while I’m traveling. One of the huge un-harnessed technologies is wave
power. The ocean is always moving. If we can have submerged power
generators creating power by the motion of the sea, that would be ideal.
I
get the feeling we need to keep our nuclear material for use in the
future. I don’t think it’s a smart idea to go burning it all up. We may
need it for exploring the stars or powering space ships. It would be
really sad if we saved the planet but in 500 years time we’ve got these
ambitious plans to colonise the stars but were 20 pounds short of
uranium or something.
