Prime time Talking

Primus Telecommunications is certainly in its prime and promises greater things for the future, as it expands into Europe in the unusual position of being a telecoms company in credit, its legal needs are growing along with its global reach. Kelly Harrison reports

If you happen to have been in the Warwickshire countryside recently you may have noticed a new shady area in which to park your picnic. A new intelstat dish was erected there as part of a large technological park built by Primus Telecommunications. It has been up for only 18 months, but in-house lawyer Ashraf Mohammed says that it gives the US company “a really great footprint into South Asia”. Based in London, Mohammed is the first in-house counsel in Europe and the only qualified lawyer working for Primus.

Originally, Mohammed worked for Davies Arnold Cooper before joining the company commercial department of Campbell Hooper in 1994, where he went on to become a partner.

His involvement with Primus began by chance. While at Campbell Hooper he was involved in the formation of First Telecom, a communications company that was eventually sold for £540m. This experience led Mohammed to establish a telecommunications practice at his firm and introduced him to Primus.

Mohammed handled M&A work for the company and got to know it very well. “It seemed a natural progression to accept when they approached me to move in-house,” he says. That was 18 months ago, with Mohammed actually starting last May, and he has not looked back.

“I often get asked if working in-house is easier,” he says. “The answer is no. There are a lot more issues and a lot less people. It is true that there are no timesheets to fill out but that just means I have to prove my value in a different way – in that sense, there is a lot more pressure. A solicitor in private practice needs to demonstrate eight billable hours of work a day, for in-house lawyers it’s a very different story.”

For Mohammed, the difference between working privately and working in-house goes far beyond the “pressure” issue. “When you work in private practice to a certain extent you can manage your day. In-house you are dealing with the UK and seven other European countries so you never know what will happen.” He cites an example of this unpredictability, saying how last week he came into the office expecting to do some standard UK contract work but instead ended up on a plane to Bonn.

As for his reason for moving in-house, he says: “I was especially attracted to the idea of not being pigeonholed, either to type of work or jurisdiction. There’s such an incredible range of work. It varies from employment law in the UK to buying internet service providers in Spain. It also includes dealing with data protection issues in Germany.”

Mohammed’s involvement in so many different jurisdictions has made him appreciate the importance of maintaining links with local law firms. “I am conscious not to upset local relationships that Primus has with regional law firms,” he says.

Mohammed does not always want to use a City firm, as the hourly rates may not be justifiable. He stresses that smaller firms can come into their own with new specialist topics and so he spreads work between larger and smaller firms, entrusting complex cross-border acquisitions to Clifford Chance.

At the end of last year, Primus boasted approximately two million customers, providing for both commercial and residential needs. On the latter side, the company primarily focuses on customers who make a higher than average percentage of international calls.

Formed in 1994, the company’s blurb rather sinisterly explains that it has been “deploying a global intelligent communications network”. Its objective is to become a leading global provider of international and domestic internet, data, e-commerce and voice services.

Mohammed says: “We are building upon the voice telephony service of the last five years with data services. We hope to develop the latter to the extent that we can offer 50:50 voice telephony and data services.”

The company is a fully licensed carrier in the UK and provides domestic and international long-distance services to residential customers, small businesses, and other telecommunications carriers.

Commuters may be more familiar with the face of Primus known as Planet Talk, adverts for which are plastered all over the London Underground. Planet Talk is one of the services Primus aims at the residential market, offering subscribers cheaper long-distance call charges to selected countries. “The idea is to provide long-distance call services for people and then offer them other benefits, including internet connection, and if they run a business from home, data services too,” says Mohammed.

Primus identifies itself as a “global facilitates-based total service provider”, but although it has a very reasonable grip of the market, it is only just tightening its knuckles as the network expands to Continental Europe. This expansion is part of the process of deregulation that began in 1998. Mohammed says: “Imagine a tidal wave starting in the UK in the early 1990s and spreading across Europe. Deregulation in the UK allowed Cable & Wireless, then called Mercury, to join with British Telecommunications (BT) to create a duopoly of telecommunications services.”

Cable & Wireless was introduced following the 1984 Telecommunications Act. The European Commission was very keen to encourage competition in the utilities services and echoed the act, passing regulations that instructed local governments to open up such markets. Primus seized upon these new opportunities and set up offices throughout Western Europe, most recently in Italy.

Deregulation enabled Primus to provide cheaper voice telephony to customers than traditional public telecommunications operators (PTOs) such as BT or AT&T were either willing or able to.

This increase in competition, together with the general reduction in the cost of voice telephony, meant both the margin of difference and profitability of companies decreased. Many newer companies suffered. Simultaneously, the digital revolution put its own demands on telecommunications companies, forcing new products and services to be considered.

Primus responded by moving into data services. Mohammed says: “We’re living through a revolution and having to manage that change. Many telecommunications companies set up three or four years ago were actually based on a defunct business model concerned with voice telephony. A lot of the newer entrants are filing for Chapter 11 [bankruptcy].”

As the effects of the deregulation wave are felt, Primus is moving swiftly in its shadow, sweeping eastwards. In conjunction with the launch into Eastern Europe, the company is entering the Asia-Pacific region and Latin America. Mohammed says that essential elements of the company’s strategy include “building a base of retail customers with significant international communications usage, and growing through selected acquisitions and joint ventures. In short, probably the same as other companies.”

He adds: “We want to provide a one-stop shop for internet, data and voice services. We don’t want customers to need to go elsewhere.”

In the past, Primus has aimed to grow through selected acquisitions and joint ventures. While this remains within the company’s general strategy, the present market means that they are not particularly worthwhile.

“A number of companies which could have been considered as our competitors 12 months ago are now in a situation where they are stripped for cash and may be filing for Chapter 11 or similar administration,” says Mohammed. But it is a little ironic that Mohammed himself was originally brought in to deal with these mergers and acquisitions.

It is arguable that the company’s strategy may need to change. “In terms of providing a one-stop shop to small to medium-sized enterprises, we will use either the provisions of our indigenous services or partnering,” says Mohammed.

So will Primus echo other telecommunications companies and merge eventually? The answer to this is clear: “For a US company that offers share options to its senior staff, mergers are often the goal. In this marketplace it is a distant objective.”

But can it afford to wait for market conditions to be right? After all, the market is a hugely competitive and often hostile one in which joint ventures have already created companies of Goliath proportions – the Mannesmann and Vodafone merger is an obvious example.

Mohammed is totally unfazed about the company’s prospects of survival and does not feel it needs to worry. “Primus is unique in three ways,” he says. “Primarily, the management is very mature and experienced. The senior managers have already gone through three economic cycles and know what they are doing. Also, we started digital services a lot earlier than most companies and therefore have the competitive edge.”

The third of these factors is Primus’ bank balance. Almost unheard of in this industry and its current market, the company is in credit to the sum of $400m (£278.5m). This makes it secure for at least the next 18 months – a long shelf life for a telecommunications company, giving it extra surfing power to ride both the deregulation and digital revolution waves.
Ashraf Mohammed
Head of legal
Primus Telecommunications

Organisation Primus Telecommunications
Sector Telecommunications and data services
Nasdaq ranking 1,574 as of the end of March
Maket capitalisation currently $81.8m (£57m) ($133.9m (£93.2m) at end of March)
Employees Just over 3,000 worldwide
Legal capability One lawyer and one legal assistant in the UK
Head of legal Ashraf Mohammed
Reporting to European managing director Ali Yazdinpanah, UK managing director David Somen and US chief executive officer Paul Singh
Main location for lawyers London
Main law firms Arnander Irvine & Zietman, Campbell Hooper, Clifford Chance