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Hawaiian Telcom

Hawaiian Telcom just lost $30.5 mil. Why are these guys smiling? They believe local leadership can save the struggling company.

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Garret Yoshimi, director of technology infrastructure for the University of Hawaii system

Of course, debating what’s “local” and its relevance in the business community is an old sport in Hawaii. In this case, though, it’s far from academic. When the Carlyle Group announced its intention to buy Verizon Hawaii in 2005, “local” was a catch-word. Bill Kennard, the managing director of the Global Telecommunications and Media group for Carlyle, says, “At that time, we thought we would be able to acquire the company and really reconnect it to its local roots.”

According to Kennard, the local phone business nationwide is a profitable one, with margins between 25 percent and 50 percent. He says, “We thought the [Hawaii] company had tremendous brand recognition and loyalty. We also liked the notion that the incumbent telcom business had this potential to add some services.”

There were missteps, though. Many long-time observers of the phone company thought “local” meant choosing leadership from among the executives at Verizon Hawaii. Instead, Carlyle named an outsider, Mike Ruley, as the company’s initial CEO. According to Scot Long, the business manager of the union representing most of the employees, “The whole premise of Hawaiian Telcom was ‘local, local, local,’ but they were hiring all these guys from the Mainland.” Even so, the prospect of returning the company (and many of its Mainland jobs) to the Islands was supported by the union. “I think our membership, for the most part, was excited when they looked at it,” says Long. “They were excited to have this new group come in, bringing it back to Hawaii.”

But bringing the phone company home turned out to be harder than expected. In February, Ruley abruptly departed and restructuring specialist Stephen Cooper, chairman of Kroll Zolfo Cooper, was named CEO. In May, it was announced that Yeaman, who was then the senior executive vice president and chief operating officer of Hawaiian Electric Co., would take over in June.

In a sense, Hawaiian Telcom is one of the oldest companies in Hawaii—it was chartered by King Kalakaua in 1883—but it really ceased to be an independent, local company after it was bought by GTE in 1967. As a subsidiary—first of GTE, then of Verizon—many of the company’s back-office functions, like customer service, billing and provisioning, were handled in Mainland offices. Various parts of the local network were monitored by Network Operations Centers (NOCs) in at least seven different cities. Moreover, the systems and software used to manage all these operations belonged to Verizon, not the local phone company. Converting Verizon Hawaii into Hawaiian Telcom meant re-creating and integrating all these systems from scratch. “Think about creating a $1.5 billion dollar company with a couple of thousand employees,” Dods says, “And think about putting all the systems in at one time: finance, payroll, accounting, accounts receivable, provisioning. It was a horrible and horrendous job.”

 

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Hawaii Business,October