17 minute read
103–10Focus on France
Michal Heřman, CEO Eurotel
An interview with Michal Heřman, CEO Eurotel
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I would like to go back to the beginning of the 1990s because you were among the “founding fathers” of EUROTEL, a subsidiary company of Český Telecom (Czech Telecom). You worked there for more than nine years. Can you assess this long period of time?
I started the job at the beginning of 1991 and left after almost 10 years, in December 2000. Initially, Eurotel had around 30 employees and no customers. By the time I left, the number of employees had reached nearly 2,000 and customers nearly 2 million. It was a very interesting experience. The early 1990s seem prehistoric from today’s point of view because there was no GSM (Global System for Mobile Communications) at that time. It wasn’t until GSM launched on July 1st, 1996 that the boom really started. Eurotel had about 50,000 customers by then. What I value most is that we started the company from scratch. We had to introduce all systems and procedures–everything that makes a company. We started from 0 and became one of the most profitable and well–run companies in the Czech Republic. Eurotel has always been a market leader, perfectly functioning with a solid basis and I am happy I took part in its building.
What was the main reason you left such a successful company after almost 10 years?
I had been considering various offers and different options for perhaps a year and a half before I really left. Truly, it was not easy to quit such a successful company, but I had been working as CFO for four and a half years and I started to seek new challenges and options for personal growth. Many headhunters were also convincing me that I might be ready to change business branches after nine years and not to stay put in one firm for my whole life. After several offers came, there was the one I could not refuse –the offer from Komerční banka.
The two years you worked in Komerční banka coincided with an interesting period of its transformation and privatization. Do you think this experience was significant in connection with your return to Czech Telecom?
I performed as vice–president of finance in Komerční banka for almost two years. The experience with privatization was undoubtedly great, but I think much more highly of the transfor–mation know–how I gained. Radical transformation had already taken place under the management intended to prepare the bank for privatization, and continued further with the arrival of Societé Generale management. The transformation of Komerční banka is in many respects comparable to the process that is currently under way in Czech Telecom because the bank also cut costs, the number of employees and changed its business model during that time. So this experience was invaluable to me. I have also a high opinion of the cooperation with the Societé Generale management. We still have very good relations.
And then came the offer from Russian Alfa Bank. Why did you decide to leave for Moscow when there is still a not quite standard business milieu in Russia? How can one do business there? Can you describe any specific challenges one has to face?
It was a very interesting offer that brought about the opportunity of working abroad, and I wanted to experience working in foreign milieu. I was a CFO in Alfa Bank with responsibilities for financial planning, budgeting and reporting. From a professional point of view, it was an extremely stimulating experience. I communi–cated in a mix of Russian and English with mostly Russian subordinates but there were other nationalities, too. There is a lot of movement in the Russian business environment. I was tempted by the vast dynamics of market and growth, with balance sheet, profit and loss accounts and numbers of customers growing at a sky–high rate of tens or sometimes even hundreds of percentage points per year. The Russian market embraces around 150 million customers, so one is dealing with different numbers there. What I found abnormal was to have subordinates in nine time zones. I returned because of the opportunity to go back to my telecommunications roots and the challenge to transform Czech Telecom. I had personal reasons, too, because we decided it would be good to live some more in Prague.
How are the Russians as subordinates? Did they mind having a Czech boss, i.e. someone from a country they used to influence and control?
No, not at all. First, it is quite common to have a foreigner working there in top–level bank management and I was neither the first nor the last Czech to work there. Second, there was the advantage of language proximity. When I dusted off my Russian, the language barrier decreased even more. Generally, Russians honor the hierarchy at the workplace, and I worked for a bank which employed dynamic people who were expected to do so. Russians have a very positive attitude toward the Czech Republic. The generation I was in touch with did not perceive the events of 1968 as a barrier, although they, of course, knew what had happened. They like the Czech Republic. They like to go to Prague and Karlovy Vary.
The offer to return to Czech Telecom was, in your words, the “un–rejectable one.” It made you come back from Moscow in order to conduct the company’s transformation. What were the differences between Czech Telecom and Eurotel between the years 2000 and 2004?
First of all, I was returning to Czech Telecom. At the beginning, there was no incentive to go back to Eurotel because Gabriel Berdár, Czech Telecom CEO, made me an offer to prepare, start and manage the transformation of the company. I could see many parallels to the transforma–tion program of Komerční banka. As far as the company’s culture was concerned, I was ready for Czech Telecom. The company was similar to Komerční banka before the transformation in terms of size – Czech Telecom employed well over 10,000 people – as well as similarity of problems for which we found solutions at Komerční banka. The offer to manager Eurotel came later. During the three and a half years since my departure, the firm had naturally developed further – it acquired many new customers, the internal company systems changed, and many new people had been put into middle management. But I was in touch during my whole “out of telecommunications” period, so I had solid information on what was currently going on in Eurotel.
The interim period when you managed Eurotel as an acting CEO took more or less six months. Was it too long? Did you feel any insecurity within the company?
It actually took only four months. Insecurity is naturally annoying for everyone in every situation, so shorter is better for Eurotel, too. It was in everybody’s interest to minimize the interim period. It was a complicated time for Eurotel, since management changed in the company too. By the end of 2003, Eurotel had a 100 percent shareholder for the first time in its history – Czech Telecom. So Eurotel undoubtedly went through a certain period of insecurity, but it is over now. The management can fully focus on its tasks and Eurotel’s performance and the results are highly satisfying.
It had to be a highly demanding period for you personally, too. Your name did not appear on the six names short listed for Eurotel CEO candidates, emerging afterwards among the three “hot” names for the post. How did you perceive this period?
I am not able to comment on the selection process because I was part of it. During the interim period, the most difficult thing for me was to occupy two posts at once, i.e. to continue with the transformation of Czech Telecom, which was in a full swing in the middle of its 18–month time frame, and to be the acting CEO of Eurotel, which was not a part time job, either. To combine these two tasks was highly demanding.
Czech Telecom became the sole shareholder of Eurotel. Do you consider it to be a good step before the privatization of Czech Telecom? The acquisition has many critics, especially in terms of how high the price was, which was paid for the sake of Czech Telecom consolidation before privatization.
Unambiguously, it was a good deal. It was necessary in order to simplify Eurotel’s ownership structure. In terms of privatization, it is undoubtedly a positive factor, and as far as the return on investments is concerned, I am sure the acquisi–tion will be profit–making.
The effort to privatize Czech Telecom goes back to the year 2002 when the government of Miloš Zeman, and later of Vladimír Špidla, canceled the tender because the prices offered were too low. Is there any bottom line price for the sale of Czech Telecom at the moment?
It is a good question, but the management is not authorized to comment on the strategy of the owners or their incentives and make speculations on the results. So I really do not want to comment.
Would you comment on the method of priva–tization the government of Stanislav Gross chose within this tender?
I don’t think that would be a good idea either.
What is your vision of the future of mobile phones?
I am naturally very optimistic. It is a sector which has undergone unbelievable development in the last 15 years. I can observe it in my own eyes as a customer, employee and manager – from mobile phones with the size and weight of bricks to truly miniature devices. One can hardly imagine today’s life without a mobile phone. Mobile phones became a key voice and data communication device because they supply basic demands for effective, high quality long distance communication. The difference between mobile phones and fixed line connections is blurring further and this is one of the reasons why the alliance between Eurotel and Czech Telecom makes sense. Many similar successful synergies can be found around the world. Many applications in development will change the ways of communi–cation radically, including videophones, banking, entertainment, music etc. The mobile phone of the future will become an intelligent tool with increased amounts of data and informa–tion storage capacity. The devices will have increasingly more functions, will become more beautiful, more user–friendly, and perhaps will look different, but will remain an indispensable part of life.
Eurotel already bought the UMTS (Universal Mobile Telecommunications System, third generation network) license for a relatively high price. T–Mobile, the second largest company on the market, paid a similar amount. The third provider, Oskar, recently put in a sharply lower bid. Was the UMTS license a good investment for Eurotel at the time? Do you consider the possibilities UMTS offers to be such a great asset with regard to the way mobile phones are used today?
Looking at current market developments, when many European providers of wireless voice and data services have started or are just about to start operating the networks of third generation (UMTS), I have to say that the license ownership and the fact that we are going to launch UMTS on January 1st 2006 is definitely positive. It is true that the license was bought in times of high UMTS shopping competition all over Europe. It was a good decision to buy it then. The important thing is that the market regulator secures equal opportunities for everyone now. All three provi–ders should be given comparable licensing for a comparable price in order to retain the competitive environment. It would be unfortu–nate if the market regulator sides with one of the competitors with a sharp bargain offer for the same license.
Is the UMTS, in terms of data transfer capacity, significantly more efficient than current two and a half generation networks?
It depends on which type of third generation network you are examining. There are versions offering significantly higher speeds of data transfer than the two and a half generation network we operate at the moment. There are plenty of advantages for the customers including videophones and higher data transfer speed. The entire GSM world will also allocate most financial resources into the R&D of the third generation network devices – mobile phones, terminals and generally into all applications. The mobile phones developed for UMTS will be naturally compatible with GSM, but no one can stop development. The expectations are surely right over the long–term horizon. It might have been blown out of proportion four years ago when some of the providers, especially in Great Britain and Germany, paid truly heavy prices for UMTS licenses.
Aren’t you afraid that the services that will be offered by UMTS are going to have standards that are too high? Is it really going to be something essential and indispensable to the ordinary customer? Will it pay off?
There was no SMS text messaging 6 years ago, and plenty of customers cannot imagine their lives without it now. I think it will be similar with the UMTS applications. The new services will become part of normal standard communication. The adapta–tion cycle can, of course, take time and will rest with the providers – their strategy, prices, coverage and business models. I am convinced that dozens of providers around Europe operating UMTS already have plenty of valuable experience. The education of the market and customers takes place more extensively and the UMTS applications will definitely find their customers.
How often do you change your mobile phone and which type do you have at the moment?
I change my mobile phone regularly, once every six months. I think I have three devices at the moment: the new Nokia 9500 communi–cator, Motorola Razr V3 and a Samsung, perhaps even some more. I am trying to have more mobile phones in my portfolio.
What are your hobbies, besides golf where you allegedly have a very good handicap?
I don't have enough time for sport now, but besides golf, I like skiing, downhill as well as cross–country, tennis and mountain biking in summer. This is the most I can manage due to my schedule.
Are you a car fan? What are you driving at the moment?
I am driving a company car, the Audi A6 Allroad, which I also used to have at Komerční banka, by coincidence. I think it is very good car in terms of a business and family car combination, but I am not a big car fan. The speed is undoubtedly fascinating but I like driving safely, especially with the family on board. My interest in cars does not go over limits and I do not luxuriate in extreme cars.
By Věra Řiháčková ■
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