There are times in the life of a company when only an outsider can tackle a strategic logjam – not just an outsider to the organisation, but someone who, having no ties to the industry, is able to see through the jungle of issues, identify those that are merely symptoms, and those that cause the disease, and single-mindedly focus on solving the latter. Hellenic Telecommunications Organisation, the Greek telephony incumbent better known as OTE, had reached one of those points when in the spring of 2004, Panagis Vourloumis was called into the driving seat of OTE as the company’s new CEO – the seventh in less than a decade. Many inside and outside the company viewed Vourloumis as another placeholder, an interim CEO whose tenure would last only as long as it would take the Greek authorities to find a more permanent solution to OTE’s woes. A lifelong banker with a prestigious domestic and international career, Vourloumis, then 67, was at an age when most of his peers would rather enjoy their island homes, the company of their grandchildren, and the rewards of a successful career. Instead, Vourloumis chose to reenlist, moving into a large, but Spartan top-floor office, and set out to prove the doubters wrong. Having taken the helm just a few months before Athens hosted the 2004 Olympic Games, he has been running his own marathon ever since, a race against time that has started changing OTE into a completely different organisation.
Many of the issues OTE has faced since the beginning of the decade are no different from those confronting other telecoms operators, particularly incumbents, in mature markets – but they have been exacerbated by the peculiarities of the Greek political and regulatory environment. Throughout the 1990s, the company had built a successful fixed-line infrastructure, reaching 91 percent digitisation by 1999 despite the country’s challenging geographical features. Penetration, while lower than Greece’s partners in the EU, was respectable. And OTE, partially privatised in 1996 and listed in New York and London as well as Athens, was a darling of the stock markets, as one of the most profitable emerging market operators. A late-comer to the wireless game, OTE didn’t take long to catch up – its mobile subsidiary, Cosmote – launched in 1998 – is one of the rare examples of a third entrant turned market leader in the matter of a few short years. And the group had implemented a successful, if costly, geographical expansion into neighbouring southeastern countries, launching mobile operations in Albania, Bulgaria, FYROM, and taking stakes in fixed-line incumbents in Serbia and Romania.
By the turn of the century, however, the game had become more complex. Greece, sheltered from deregulation longer than other western European countries, was forced to liberalise its fixed-line market in 2001, weakening a monopoly that was already suffering from mobile substitution. The country’s telecoms regulator, EETT, adopted a particularly harsh line in its dealings with OTE. The political establishment, which had always had an ambiguous relationship with the company, was reluctant to let OTE adapt to the new rules of the game. And OTE’s heavily unionised workforce needed imperatively new technical and marketing skills which the industry now required. Finally, as Greece joined the euro, financial analysts and investors no longer compared OTE to emerging market competitors, but to the likes of Deutsche Telekom and Telefonica, making the company a less attractive investment.
When Vourloumis joined OTE by the middle of the decade, he was by no means the first to realise that revenues from traditional telephony services had reached their peak, and that new technologies, no matter how popular, would never be sufficient to close the gap. There was only one way to preserve profitability, to cut costs. But while his predecessors, coming to the same conclusion, had focused on marginal expense items, Vourloumis knew that there was no alternative to going after the company’s bloated headcount. As Greek law protects the jobs of OTE employees, this meant tackling political and social issues head on, but there was no sense in taking on this job if the number one problem was not addressed. And perhaps, for the first time, the stars were aligned.
“In Greece in 2004, after a long time, there was a feeling that things could change,” Vourloumis says. “Not for a minute did I think it would be easy, but there was no point in sitting in that office if not for going after what I knew was OTE’s crucial predicament.” Moreover, in one of his early speeches, he noted “To make transformation possible, the most difficult thing is to change culture and habits.”
Vourloumis is nothing if not blunt; he doesn’t suffer fools, or long-winded talkers gladly. Discussions with him are short, to the point, and suffused with common sense – as well as a polite respect for his interlocutors that has disappeared from most executive suites. This approach – coupled with a subtle but firm intimation that there was no serious alternative to the bitter remedies he was proposing – paid off. In the past four years, the company implemented a series of voluntary retirement plans that drove the total headcount of OTE’s Greek fixed-line activities from 18,000 to 12,100, despite the hiring of 1,200 young graduates better qualified for the telecommunications market of today.
To some, however, it appeared that his only strategic path for the company was to cut its fixed-line workforce – similar programmes were carried out in Romania, where union and political resistance was more muted. But cost cutting was clearly not enough. New revenue sources had to be found. A natural area of growth was fast internet, as broadband penetration in Greece in 2005 was less than half a percent of the population, trailing not only all of Europe but many emerging countries as well. Vourloumis declared broadband the top priority, to generate revenues and rebuild OTE’s reputation, and at the end of 2008, OTE will have installed around 1.5 million connections, covering over 90 percent of the country. OTE is already working on its next challenge – fibre-optic broadband.
Reducing manpower by more than one-third while simultaneously installing 1.5 million ADSL connections in just 24 months is an accomplishment that would not have been imaginable until the CEO’s arrival.
In the decade before 2004, OTE’s international and mobile operations had been developed as a series of autonomous entities, fiefdoms whose sense of independence had only been reinforced by the holding company’s focus on resolving the central issues of the Greek fixed-line activities. Others would have rushed an integration of the group to generate ‘synergies’, and the financial markets were increasingly pressing for an OTE buy-out of the minority shareholders in its Cosmote mobile subsidiary – but Vourloumis wouldn’t be rushed. Integration could wait: the priority was to avoid contaminating the fastest-growing and highly profitable members of the group with the ‘state monopoly’ culture still prevailing at parent company level. Only when Greek fixed-line telephony activities had been put back on track did Vourloumis decide to acquire full ownership of Cosmote, a move aimed at facilitating the development of products and services spanning the wireline-mobile divide. Cosmote, which manages all the group’s mobile operations, continues to operate as an independent company.
“The only way to run such a big and complex company is to select good managers and then let them do their job. OTE has a tremendous pool of talent, which must, however, learn to work as a team. In telecom companies that have both fixed and mobile operations, doing one’s job also means being able to cooperate and work for a consolidated bottom line,” notes Vourloumis.
Full privatisation of OTE through participation of a large European telecom operator was the next big thing, supported by both major political groups. Vourloumis soon became a supporter of this view. Over time, he had grown increasingly aware of the inevitability of further concentration in the European telecoms industry, and of OTE’s need for support from a strong international partner to advance its technical and marketing expertise and, perhaps more importantly, to gradually shed the domestic specificities that slowed down its development. At one point or another, each of the main operators of Europe and further afield had knocked at OTE’s door. In mid-2008, Deutsche Telekom succeeded in becoming a major shareholder, with substantial management involvement.
There are not a lot of documents on the desk of the OTE CEO, who clearly favours direct contact as a means of moving things forward. Constant dialogue, preferably one constituency at a time rather than in big multilateral powwows, is a hallmark of his management style. Knowing exactly where he wants OTE to go, he doesn’t mind following the other side’s itinerary as long as it gets them there. Only he knows whether the destination has now been reached or if there are a few more stages ahead – whether he’s ready for his grandchildren or if they will have to wait a bit longer.