You wouldn't think anyone would dare to leave the combined might of Kerry Packer and Rupert Murdoch standing at the altar. But Jodee Rich just did. When the millionaire founder and CEO of Australia's fourth telco resigned suddenly on May 18, he abandoned the media magnates in a leaking skiff with a $900 million loss on their investment for comfort.
Having already injected close to $1 billion in One.Tel, Packer and Murdoch were forced to pitch in a further $132 million to save it from folding, raised through a 1-1 rights issue at $0.05 a share, a whopping $0.27 discount on the going market price. Meanwhile, Rich retreated to his Queensland hideaway - a fitting response from someone who has often used silence to manage his public profile.
For all his prominence, Jodee Rich proves to be an elusive character, guarded by a savage media liaison and an entourage of well-heeled connections that instil fear into the hearts of normally loose-lipped folk. At the mention of his name faces tighten, eyes grow wary and voices lower. Conversations take place in bizarre cryptic half-sentences coupled with knowing looks, nods and smiles.
Rich's role at One.Tel has seen him revisit BRW's list of the top 200 richest people in Australia, weighing in at $220 million in personal wealth. He was, along with joint-CEO Bradley Keeling, one of the highest paid executives in the country and shared a board with Lachlan Murdoch, James Packer and their considerable wad of cash. However, to fully understand the implications of Rich's current position, it is only proper to start at the beginning.
In 1995, a fledgling telecommunications company called One.Tel opened its doors in Australia. It was an exclusive Optus mobile network retailer flogging a new technology at the dawn of a digital era. It had less than $500,000 in its war chest (provided by FAI's Rodney Adler) and Adler's schoolmate, Jodee Rich, at the helm, along with Rich's longtime friend, Bradley Keeling.
Three years later, One.Tel listed on the Australian Stock Exchange with a market capitalisation of $2 million. By the end of 1998 the company had built up a nationally recognised brand with more than 300,000 customers.
The share price was about $0.28 and
rising - fast.
The following year (1999), proved to be a clincher for One.Tel. It gained the support of not one, but both of Australia's media moguls, making Rich one of the few people who has managed to get the Packer and Murdoch camps in bed together. News Limited and Publishing and Broadcasting Limited (PBL) took a 20 per cent stake each in the firm with an initial injection of $429 million, which the company quickly outgrew.
"It was all done with Jodee's typical six-bayonets-charged-with-grenades over-the-top style," says a former colleague of Rich's. "When he puts his mind to things, he goes for the jugular. He is the perfect person in a battle to just go over the top and get things done."
Meanwhile, the company's market value continued to climb. The average share price in the three months leading up to June 1999 was $1.14 and the corresponding market capitalisation was $1.4 billion. By November, shares had climbed to $2.84 each and the company was worth more than $5 billion.
It was also at this time that One.Tel invested heavily to buy mobile telephone frequencies in the radio spectrum for its networks in Australia and Europe. More than half of its two million customers are outside Australia, scattered across Switzerland, France, UK, Netherlands, Germany, US and Hong Kong. In early 2000, Rich moved his family to Paris to chase European opportunities. In Australia, One.Tel commissioned Lucent Technologies to build a national GSM network for $1.15 billion, for which it still owes $634 million.
Then came the crunch. In June/July 2000, One.Tel posted a massive operating loss of $291.1 million. Within weeks of the news reaching the market, investors were snarling over massive $7.5 million bonus packages paid to both Rich and Keeling at the close of the 2000 financial year. By comparison, Telstra chief executive Ziggy Switkowski was paid $1.65 million in the same period.
The Australian Investment and Securities Commission demanded an answer, which - when received - was both shocking and awe inspiring. It was perhaps the first time One.Tel's incredible growth was realised with such clarity.
"Jodee and Bradley and their team have achieved enviable results in a very short time . . . An investment of $10,000 in the company just three years ago is now worth $60,000, a return of around 600 per cent, " John Greaves, One.Tel's chairman at the time, told the Australian Financial Review by way of explanation. "One.Tel has always adopted the policy of rewarding its employees for success."
Investors weren't impressed. One.Tel shares plummeted 10 per cent to an 18-month low of $0.95 and have continued to slide since - all the way down to the $0.20 bracket. For the first time the market saw what One.Tel's competitors and analysts had been warning of for months, something the Packer camp would have discovered late last year, when it installed PBL's number cruncher, Geoff Kleeman, within One.Tel's ranks to monitor the future of its investment.
What did One.Tel really have to offer the world other than a glossy marketing campaign which, according to Professional Marketing (June/July 1999), siphoned off almost 50 per cent of the company's budget at the peak of its customer acquisition drive? Had Rich worked a charismatic smoke and mirrors campaign with the support of some heavy punters?
Rich's entrepreneurial mettle goes back long before he crashed the mega-powerful telco party. His first foray into the BRW Rich 200 was inthe 1980s with software distribution company Imagineering, which he built from the ground up at the age of 20 - fresh out of university. His almost blasphemous technique of cutting across the front lawn of traditional business methods to get to where he wants to go has won him enormous respect amongst his peers, not only for having the guts to do it but more importantly for getting away with it."He doesn't try to hide the fact that he's there to beat you," says one of Rich's peers. "You can be fairly confident that his cards are all on the table and there's none up his sleeve, but he hates people that aren't up to speed with him."
Imagineering became the springboard for today's giant IT distribution house, Tech Pacific, after Rich invested heavily in the latter's foundation. Off the record, many in the industry suggest that setting up Tech Pacific was a means of by-passing exclusive distribution contracts with vendors that blocked Imagineering from signing competitive brands. Despite the move, Imagineering, which turned over $300 million in sales, began to implode under the weight of its huge cost base. In 1990, the company was salvaged by Hong Kong group First Pacific.
Rich sought comfort in his love of flying, running charters around Australia. "It was more of a pride thing than a conscience thing," says a former colleague of Rich's post-Imagineering sabbatical. "Jodee was never very sympathetic to the plight of punters. As far as he was concerned, they went in with their eyes open and had to sustain the risks." In light of Imagineering's demise, the tale of One.Tel smacks of deja vu.
Below the surface
Cool, young, quirky and egalitarian - thus does One.Tel describe itself. And there are other words you could add to that list. "Inexpensive" has been a calling card that has won the telco a consumer network of more than 2.6 million worldwide. However, competing on price point attracts low-end customers and at the end of the day, it's not the number of subscribers that count as much as the amount of revenue a telco can generate through each one.
Another One.Tel element which simply can't be ignored is the point at which "cheap" becomes nasty. On the surface, the company prides itself on its non-hierarchical structure. Directors work at desks side by side with sales reps and call centre operators. There is only one door in the office - the meeting room. They have "teams", not "departments". No-one has a title. Everyone flies economy. But scratch the surface and you'll find a call centre with alleged high employee turnover, dominated by young, inexperienced workers on base salaries sitting next to multi-millionaires who aren't bothered by the economy flights policy because they have their own private jets (Rich owns two private jets, one a $3.2 million Cessna Citation).
Scratch a little further beneath the surface and you'll find exasperated customers who have spent 20 minutes sitting in call centre queues, only to arrive at the wrong division and be placed back on hold for another 20 minutes, businesses issued with incorrect e-mail addresses, and overseas customers left in limbo as the customer service centre fails to respond to their written requests for help.
In today's competitive environment, disgruntled customers quickly move on. But there are new challenges steadily upping the ante for the young telco. The dawning era of mobile number portability (Sept. 25), which will enable users to move between networks, will provide one less reason to stay with a poor service provider. Margins are being squeezed to the point where even Telstra is searching for added revenue offshore. And cash-strapped European carriers that sell mobile-phone time (capacity) to One.Tel have shortened credit terms from 90 or 120 days to just 30 days.
According to media reports, One.Tel's billing system is riddled with errors, sometimes failing to generate bills and compounding already hefty overheads. The telco's situation is being squeezed even more because it doesn't own its local infrastructure (it piggy-backs on Optus), which seriously limits its value-add capabilities. Worse, its "golden handshake" carrier exclusivity deal with Optus is due to expire at the end of 2001, which could see a symbiotic relationship turn cannibalistic.
That is, of course, if One.Tel makes it to December in one piece. The market is split as to whether recent events spell the end for the young telco, but it appears there are only two paths to travel, one of which is a fire sale of its assets. Taking into account the Packers' track record, market analysts tip this option as likely. "If they [the Packers and Murdochs] don't appoint a high profile telco executive to reverse the whole thing, and soon, it's obvious they're going to sell," says telecommunication consultant Paul Budde.
But in today's climate, a piece-by-piece sell off would hurt - there is already an oversupply of mobile networks and even One.Tel's customer base is dubious. Excessive subsidies, including free phones and free family calls which One.Tel used to win market share are luxuries prospective buyers can ill afford. One.Tel's average subsidy of $416 per subscriber is almost double that of Optus' recently disclosed $265 per customer.
However, News and PBL may decide to take the other alternative, which is to turn the ship around. This is certainly the line Rich and Keeling's replacements, Peter Yates (CEO of PBL) and Peter Macourt (deputy CEO of News Limited) have pitched to the ASX. The pair announced a commitment to build One.Tel into "a full-fledged telecommunications provider", a bad idea says Budde, especially for a telco with no engineering expertise.
"They [One.Tel] don't know what they're talking about [when it comes to engineering]. They are, on the other hand, fantastic marketers and there is a space for them here to seek a partnership with the majors," says Budde. "The big telcos have realised they can't be all things to all people. They are great at engineering but terrible at marketing and might look for partners to assist them with targeted branding."
One thing is for certain. Packer and Murdoch have finished sailing on hearsay. As we go to press, One.Tel's books are being raked with a fine-tooth comb and no decision is likely until both parties have weighed their losses. Until then, One.Tel won't tell which path leads forward. Jodee Rich declined to comment for this article