Colt: Good And Bad

Colt just reported on its 2011 results. Last year we were a bit skeptic about Colt. All went well but no topline growth. Since 2005 Colt has undergone restructuring after reorganization to transform from a traditional voice driven carrier to a higher-end managed services provider by constantly investing in its network and managed services operation. In 2012 they plan to expand their European network to Iceland recognizing that country’s growing appeal for Trans-Atlantic data and communication services.

So much for delivering on planned capabilities and to stay ‘Europe’s leading information  delivery platform’. And yes, there is also some progress in the terms of business result: over the last  5 years they have become less dependent on their voice activities resulting in a stable profit line. However Colt still hasn’t returned to growth: its growing revenue from data and managed services activities do not make up for their declining voice revenue.

Their 2011 financial results show, again, a stable EBITDA (+0.5%) and a slight decline in revenue (-1.9%). In the press release Rakesh Bhasin, CEO of Colt, seems aware that investors may lose their patience after the 6th consecutive year of revenue decline, when he states that “… the hard work of the team in 2011 lays a strong foundation to return to revenue growth”.

There are many reasons for the ongoing revenue decline: this year Colt mentions the 50% decline of the German mobile termination rates, increased competitive pressures and the turbulent economic conditions. In all fairness 2012 doesn’t bode well either when it comes to market conditions and competition will be tough too. Does that mean Colt will not return to growth in 2012?

At the METISfiles we think Colt made two important changes in 2011 to return to growth this year. The first one is the organizational transformation in 2011 aimed at becoming a more customer driven organization. One just may wonder: why so late? Investing in capabilities is great but investing in customers will directly  support the topline. The second decision is to buy growth. In this light we should see the acquisition of MarketPrizm which operates in one of Colt’s strategic vertical markets: financial services. This sector increasingly requires a stable low latency network for their core business communications. With this acquisition Colt has reinforced its market position in one of its key vertical markets. This might very well speed things up.

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About Marcel Warmerdam