In the prior blog entry, I shared thoughts on why we are dividing Zayo into three discreet businesses. The rest of this entry is a letter I sent to Zayo employees explaining the rationale. Note: this email was sent to employees within 10 days of the Zayo/Onvoy closing.
I know there is a fair amount of confusion of the three business unit structure. In the telecom world, people are simply uncomfortable with having separate businesses. Conventional wisdom is that it is more efficient to have one finance department, one NOC, one marketing organization. It seems nearly every functional person will insist that their group needs to look across the entire company.
Berkshire Hathaway is the most successful public company of all time. It is why Warren Buffett is the world’s 2nd richest man. They own multiple businesses. How many people work in corporate? Answer: a dozen.
“Yes but Berkshire is a holding company. They own businesses of all different types. That is why they are separate,” you might be thinking. “Zayo is different. We are one business.”
My answer: GEICO. B-H Reinsurance. General RE. National Indemnity Primary. U.S. Liability. Medical Protective. Homestate Companies and Cypress. Applied Underwriters. Central States. Kansas Bankers Surety. Lloyds of London.
What do these businesses have in common? One, they are all insurance companies. Two, they are run completely separate from each other, each with their own leader, each with their own accounting system, each with their own bank account, and each with their own IT systems. Three, they are all owned by Berkshire Hathaway.
Neutral Tandem just went public this month. The company, which was formed only a few years ago, provides wholesale voice services. Their revenue is about $70M. Their enterprise value is about $700M. Onvoy Voice has about $35M of revenue. To say I’d be pleased with a $350M valuation would be as understated as saying I’d be pleasantly surprised if, tomorrow morning, when I weigh myself like I do most mornings, the scale says 190 lbs.
Neutral Tandem doesn’t own any fiber; they buy bandwidth. They don’t provide managed services to enterprises; they focus on voice services to carrier customers. They have their own NOC; their own bank account and accounting systems, and their own customers. They have a clear business strategy.
What Neutral Tandem doesn’t have is a parent company that stands in the way of their ability to execute. They also don’t have to stand in line to get IT work done because the needs of other groups are a high priority. They will create value, or not, for their owners based on factors in their control.
Will Onvoy Voice have an advantage over Neutral Tandem because Onvoy gets to share a NOC, share a billing system and share a legal staff? I think not.
Substitute Cbeyond/Zayo Managed Services for Neutral Tandem/Onvoy Voice, the same points hold.
Zayo Bandwidth was the genesis of Zayo Group. Zayo Bandwidth’s path to value creation is to stay narrowly focused on being a bandwidth factory. Their implementation task is hard enough on its own; I do not want them bogged down by needing to coordinate systems, processes and corporate resources with two other business units. Over the past few months, I have seen several pure bandwidth businesses that are doing quite well—Hudson Valley Datanet, Fibertech, and Citynet’s Wholesale Unit in particular stand out. If Zayo Bandwidth does as well as these three, I will be thrilled. (Perhaps not as thrilled as if I saw 190 lbs on my scale, but pretty darn close.)
So there it is. That is why we are separating into three businesses. It is for this reason and no other: I want each of the three businesses to have a true leader, a clear strategy and the autonomy to execute their plan. I want each to be fairly judged on its financial results. I don’t want any of the businesses to be encumbered by being part of the same ownership group.
Leave a response (0 so far)
Subscribe via RSS
