INTERVIEW | Wednesday, 29 August 2007

Business as usual

Melita CEO Philip Micallef spoke to Charlot Zahra about the telecoms operator’s situation in the aftermath of its acquisition by GMT Communications Partners in July

What are the most important challenges that Melita is facing now?
Melita has in last few years grown rapidly both in terms of services it provides as well as customer numbers. Melita is a very flexible organization where decisions are taken quickly and do not take days or weeks. Melita also provides an integrated one-stop shop service. Although we operate various services our people and systems are geared to provide an integrated approach. As the company grows and expands Melita faces the challenge of preserving this flexibility and integrated approach as we keep on increasing our customer base and roll out new services.

Melita has over the years evolved in line with customer requirements and has become one of Malta’s leading communications companies providing besides television, digital audio, high speed data and now telephony. Melita, will continue providing high value for money entertainment and telecom services by investing in the right technology and the right people. Very few people know that Melita also provides telecom solutions to businesses and we have recently been awarded the Mater Dei “Services to the Bed” contract where we will be providing patients at the new hospital with digital TV, broadband and telephony services at their bedside. Melita has managed to secure some important business customers and feels that this is an area where it can continue to grow. A continual challenge is to provide the latest state-of-the-art technology and services to our customers at affordable prices.

In an environment of rapid change and increasing competition Melita recognizes the need to put the customer at centre of everything it does. Creating a superior customer experience is critical to our success. Melita Cable faces the future with optimism, courage and determination to provide the best to a growing subscriber base

In July, Melita was formally taken over by GMT Communications Partners, taking over from Liberty Global and the Gasan Group after a long due-diligence process. At one stage, an IPO was even considered, so why did Melita opt for a buy-out by the British group?
This question should strictly be addressed to the shareholders of the company and not management. However, as you say both an IPO and a sale were seriously considered. In early 2007 an auction process led by ABN Amro was kicked off and it became evident that Melita attracted a huge interest from various international companies. Like in any auction process these companies competed to acquire Melita and in the end 4 top notch companies were short listed to carry out the due diligence and put in a binding bid. At this stage it was clear that a sale to one of these companies was the way to go.

At the same time, Gasan Group kept a minority shareholding in Melita. Why did the company feel that it was necessary to keep a minimum Maltese shareholding in Melita?
Again Gasan Group would be the best people to answer this question but I can say that Gasan have been associated with Melita from the days the company was still on the drawing board. Gasan have contributed enormously to the success of this company. I compare this relationship between Gasan and Melita now to one of parents who have a son or daughter and has now reached adult age and is leading his/her own life but parents are still available to support, provide advice and help where necessary but to a lesser degree than in a growing up phase. I have worked for nearly twenty years with large international companies in various countries and strongly believe that a local involvement at board level however small that may be is so important for the success of the company. I would also like to add that all four companies that were short-listed in the auction process specifically wanted the Gasan Group to retain an equity in the company.

What are the plans of the new majority shareholders in terms of services offered, management strategies and business focus? What added value has the new shareholding brought into the company? Will there be a major shift from what Melita has been doing since its inception or will the basic outlook remain the same?
The company was sold in July and we are still discussing in detail our future plans but Melita has a five year business plan which it is implementing. Infact this business plan was I would say the main theme throughout the auction process and this plan had a big influence on GMT’s buying price so I do not envisage any major deviations from this plan but just fine tuning. After the sale we have continued in “business as usual mode” with planned investments in our infrastructure, systems, new sports content (Italian Serie A) and new sports tiers and channels, issuing of very successful bundles and starting a High Definition Television Pilot with three hundred customers. We shall continue in coming weeks by adding new channels to our attractive line-up.

GMT’s goal is to be an active partner with management by providing a sounding board for strategic, financial and major operational issues, and by opening GMT’s global network of contacts and relationships to portfolio companies’ management.
GMT’s extensive experience in individual countries in Europe, coupled with Communications sector experience in North America, now provides Melita access to a network of local partners and a wealth of subject matter experts and contacts.
I do not envisage any major shift and the emphasis in Melita’s offering shall continue to be content, ease of use, value for money and integrated approach.

In the past few months, your main competitor in the telecoms sector has adopted a more coherent and aggressive strategy, uniting all its brands under a single brand name, GO. What is Melita’s reaction to this development? What strategy will the company adopt to face this new market reality?
The story at GO is very different from the one at Melita. Melita has always operated as one company and not different companies under one group as our competitors have done in the past. Melita has always been organized in such a way that our technicians, engineers, salespeople, back-office and all staff are trained to provide a solution to all our customers on all the services we offer. We have three brands: Melita Digital, ONVOL and Hello but we operate these services in a unified, integrated, seamless way. For the time being, I see no compelling reason to have one brand name as all surveys carried out show that our brands carry a very good brand equity. What we have done and shall continue doing is investing in important back-office systems like billing, CRM and call-management etc so that a customer can buy all his/her home entertainment and telecom services from Melita as if one service or product was being purchased. The bundles we launched in July have been a success both in terms of new customers as well as customers who previously purchased one service from Melita and now have decided to get all three services (cable TV, broadband and telephony). Our six bundles try to ensure the right offer is targeted at the right customer at the right time for the right price.
Service bundles require aligned processes for everything from order management to billing to customer care. Melita believes that it is this integrated approach which ensures all these processes are aligned with the focus on the customer and not just the brand name.

The latest NSO statistics show that more and more people are migrating to digital television, and the number of analogue subscribers is decreasing. Do you consider analogue cable television to be a dying market or not? Has Melita set a turn-off date for the analogue cable service? If yes, when?
Analogue cable television customers are not increasing and more and more customers are realizing the benefits of digital TV. Digital TV offers new opportunities also in terms of new services like High Definition TV, Video-On-Demand (VOD), Personalised Video Recorders (PVR) and interactive services. On a week by week basis we have more people migrating to digital. We are adopting a phased approach and the target we have set is to migrate all our Family Analogue Customers to Digital by next year.

What impact has the launch of DTTV by Multiplus in 2005 and its subsequent take-over by GO earlier this year had on Melita Cable television subscription figures? In a story on Business Today, GO had claimed that they were fast reaching the 20,000 subscriber mark... Is there room for both services to survive?
Our cable TV subscribers have infact increased and not decreased since the take-over by GO of Multiplus. We have seen a slight churn at our lower analogue tier but this has been more than offset by increase in subscribers at the top-end market segment. This to me proves that some people have TV services from both companies since GO have increased their customers and Melita has too. The problem with competition in TV is that content has now become a “sellers market” with exclusive rights TV holders playing the two companies against each other by means of auctions and tenders and hence pushing the prices up. This is a strange case where competition tends to push prices up as content is a huge component of cost. However, I still think there is room for both services especially if there is a crackdown on illegal satellite viewing of content whose rights have been purchased exclusively for Malta by either GO or Melita.

In the area of fixed telephony, Melita Cable has broken GO’s monopoly with the launch of the Hello last November. How do you describe the launch of Hello? How much has it eaten up from GO’s share?
The launch of Hello has been a great success with customers now having reached the 22,000 mark. The number of calls and minutes is also increasing very steadily. We are averaging about 600 Hello installations per week. This to me proves that when a Maltese customer is offered value-for-money services the response is excellent.
GO commented in a business newspaper that they have hardly lost any fixed line customers. I would not like to enter into a war of numbers and respect their statement but all I can say is that our numbers and revenues in fixed line telephony are extremely encouraging and way above our budget forecasts.

Last Christmas Melita teamed up with Vodafone to offer discounted mobile phone packages. Will Melita be entering similar agreements with Vodafone to offer a quad-band package or will it seek to become a quad-band operator on its own like GO?
Melita is at the moment about to conclude a feasibility study to see whether it should enter the mobile market or not and if yes in what form.. As you are aware there are various ways of providing mobile telephony as happens in many EU countries: simple agreement with a mobile operator as Melita did over Christmas period, reseller of some mobile operator, Mobile Virtual Network Operator as for example Virgin in UK and a fully fledged mobile operator. The feasibility study will be soon concluded, discussed at board level and then a decision will be taken.

In its latest annual report, the MCA complained that the uptake of broadband internet in Malta has not been so strong especially when compared with the EU average. Do you think that broadband internet rates are still relatively prohibitive for households on a budget?
A huge component of the broadband cost is the cost of the international bandwidth. This remains expensive in Malta unlike costs in other European countries. Costs, to be fair, have gone down in the last few years both in broadband and in international bandwidth but the latter remains about five to seven times higher than average European costs. Melita has provided better value-for-money to broadband customers by offering rent-free Hello telephony to all its customers.
In my opinion, few people realize the importance of having market rate international bandwidth prices. Malta is an island and trying to build up a knowledge economy and the success of this depends on our physical telecommunication links with the rest of the world. In many EU islands like Balearics, Corsica, Canary Islands residents and business people of these islands get subsidized transport rates to allow them to travel to mainland Europe. These subsidies are approved by the EU. Malta should go a step further and instead of demanding subsidized transport rates should allocate EU funds to improve our international connectivity. We get funds for roads, why not get funds for an ICT highway to Europe?

What has been the major milestone achieved by Melita during the past year since you have taken over as CEO at Melita?
This last year has been a very eventful year with many milestones being achieved : launch of fixed line telephony, launch of real true bundles, increase in subscriber numbers and revenues in all areas of operation, acquisition of some important TV exclusive rights, implementing new back-office systems such as a new modern billing system, a fraud management system, an integrated HR system, a new accounting package, a new telephony system, a new call management system etc and all this while management and staff were devoting time to the successful auction process and sale of company. I would like to stress that all this is a result of a team effort and all these milestones were possible thanks to the support and direction of the board of directors, the work carried out by my predecessors in this role, the management team and all the staff at Melita.

What does the future hold in store for Melita, both in terms of new products and services as well as in terms of new investment?
Melita’s future is a bright one and we shall continue rolling out new products and services. The HDTV pilot results will hopefully be encouraging and this will spur us to launch a fully fledged HDTV service later on. Likewise, hopefully the mobile feasibility study will provide us with the roadmap to enter into a completely new sector for Melita. Other innovative services are being diligently studied but we do not want to rush before we are convinced of the economics of any service. We also need to look ahead by preparing ourselves for what I think will be a technical revolution where content will be available on a myriad of devices like PCs, mobile phones, iPods, and other devices. For us it will all be about delivering content the way our customers want to view it.
Melita will continue investing in its network to ensure better highways and better speeds to its customers. Upgrading of our network is an ongoing process. This is part of our 5 year plan together with other investments in information systems and human resources. Melita will also continue to invest in content acquisition to provide the best channels and events to our customers in a rapidly converging marketplace.