[NISHIOKA] We would like to immediately start our afternoon session.

Cable and Wireless is a company with a great significance and very much an attention-drawing company, of course in London, but also in Southeast Asia. And Cable and Wireless has purchased IDC recently. It is going to be a company very familiar to us. Also, many people are paying a great deal of attention to the future developments of C&W.

Then, Mr. Wallace, please.

[WALLACE ] Minasan, kon-nichi-wa. Good afternoon, ladies and gentlemen. My name is Graham Wallace and I am the chief executive officer of Cable and Wireless p.l.c. The theme for this session is Management Strategy and Competitiveness, and I'm going to talk about one industry, telecommunications, and Cable and Wireless's unique position in that industry.

Now the roots of the telecommunications business lie in the national government-owned public service monopolies of the past. And in these organizations, regulation and government relations were at least as important as the concepts of competitiveness and efficiency. But even in the early days of telecommunications, when Cable and Wireless was called the Eastern Telegraph Company, we were a leader, rather than a follower. By the late 1860s we were one of the first operators of international cables, and this slide shows one of our early cable-laying ships and its crew. And we were the first in the world to run a global telecommunications service as this map of 1872, showing Eastern Telegraph's network, shows.

Now the telecommunications business has always been a business in transition. But the transition of the last 15 years has seen the most dramatic changes in the history of communications. Since the mid-1980s, country after country has opened up its communications market to competition. And the industry has been transformed from a patchwork of interconnected national monopolies to the truly competitive global industry of today.

As well as both liberalizing and globalizing, the industry is also moving from mainly voice-based to massive growth in data and Internet protocol services. It's also becoming much more focused on customers' needs, and new entrants in particular are specializing rather than providing everything to everybody like the traditional incumbent suppliers. Now in particular, the fast projected growth of the data market and its eclipse in growth terms of voice is a major factor in the transformation of the industry worldwide. Now much of this rapid expansion is of course driven by Internet and related usage.

So how is Cable and Wireless developing to meet the demands of this very competitive global telecommunications market in the 21st century? Well, when I took the CEO job at Cable and Wireless, in February this year, I asked a couple of pretty basic questions. The first question was: What are Cable and Wireless's real strengths? Let's look at the breakdown of our annual revenues. About US $15 billion in total. Now two factors differentiate us from most of the world's large telecoms companies. Firstly, a very high proportion of our revenue comes from business customers. Now most large telecoms companies, including NTT, will earn around half their revenue from business customers and around half from consumers, i.e., residential customers. But at Cable and Wireless, over three quarters of our revenues come from business customers.

Secondly, we have a unique global spread. Over 70 percent of Cable and Wireless's revenues come from outside our home base in the U.K. Again, most large telecoms companies source most of their revenues, usually more than 90 percent, from their home market and, despite what they say, are just not global operators.

Now the next question I asked, always important in business, is: What do our business customers want? The answer was pretty clear and surprisingly universal around the globe. They tell us they want truly global end-to-end capability. But they also want good local response to their local needs. And they want applications that help their businesses perform better. Now we of course can add value globally for business customers far more so than we can in the consumer market, because business customers' needs around the world are surprisingly similar. And that gives us a real scope of substantial synergies.

So with this background, what are our strategic priorities? Well, they seem to me pretty clear. First of all, we should focus on business customers. Secondly, we should base our future growth on data and IP-oriented services. And thirdly, we must operate globally and in the key business markets around the world. Our competitive advantage at Cable and Wireless results from a unique combination of local coverage in key business markets and operating globally in terms of networks, technology, and product development. So the priorities were decided but the more challenging issue, as always, was on a practical level rather than a theoretical one. How do we get from where we are today to where we want to be?

Well, our implementation plans can be summarized as follows: We're investing in significantly improved network capability to meet our customers' rising needs for low-cost, highly reliable global connectivity and developing applications that really improve our customers' business performance. At the same time, I wanted to simplify our very complex corporate structure and strengthen our financial position. So let me take you through these plans in a bit more detail.

Cable and Wireless is implementing a US $3-billion global network investment program over the next couple of years. In the U.S. we are investing US $670 million to create the industry's fastest, high-capacity Internet network that will fully integrate Internet, data, voice, and messaging communications on one network. We've recently announced the doubling of Cable and Wireless's current network capacity in the U.S., which will allow a 2 gigabit hard drive equal to 2000(volumes of)2,550-page textbooks to be sent from New York to Los Angeles in less than 7 seconds. When completed, in the autumn of 2001, Cable and Wireless's U.S. Internet network will be capable of carrying 9.6 gigabits of data per second and will transmit that same 2-gigabit hard drive from New York to Los Angeles in just 2 seconds. In Europe we're investing US $1 billion to build a high-capacity network covering 40 major European cities. And in the U.K. we are radically upgrading what was in fact the first all-digital network to meet the ever-increasing needs of our customers. We're then in the process of linking those regional networks together to provide the level of reliability and speed that the massive increase in our customers' data traffic is demanding.

Now in putting our global network in place, we create the platform for delivering the next generation of global IP-based applications, which include the whole array of e-commerce services, voice over IP -- technically of course already possible -- messaging, multimedia and web-hosting. Now these are the applications that will help our business customers improve their own performance, and that's what we're in business to do.

Now in order to focus on our business customers, simplify our corporate structure and strengthen our financial position, we have announced a series of corporate initiatives over the last six months. These include several disposals, such as the U.K. mobile phone company, One 2 One; our share of Bouygues, the French mobile business; Cable and Wireless Marine, the ships that lay submarine cables; and the residential cable phone and TV division of Cable and Wireless Communications in the U.K. And the latest news that we announced overnight was the disposal of our minority interests in mobile phone companies in Japan. On the 22nd of September, we sold our shareholdings in the digital phone group, Vodafone AirTouch and we have also completed an agreement with Vodafone AirTouch to sell our shareholdings in each of the six digital TUKA companies, subject of course to the approval of their boards, which is expected to be received shortly. Now this transaction will result in a profit on disposal for Cable and Wireless of US $389 million.

Now altogether, these disposals I've just referred to will not only raise over US $12 billion worth of capital for the new strategic investments I've talked about; they've also made management's task much clearer: reducing the variety of compromises and conflicts that are inevitable in running a more diverse set of businesses, and enabling a much clearer focus on business customers, data and IP. These disposals also help to rationalize the ownership base within the Cable and Wireless group, moving much more towards a one-company approach which could only be made possible by investing in those businesses we control and divesting those that don't fit.

Turning now to strategic acquisitions, a key element in our strategy was to gain a solid presence in Japan by increasing our stakeholding in IDC. But why was that so important to us? -- and it was. Well, Japan of course is the world's second largest economy after the U.S. and, as on the whole GDP is a basic driver of telecom's capacity and revenue, Japan, as you'd therefore expect, has the second largest telecoms market in the world after the U.S. Japan also has the second largest concentration of global corporations in the world. So it was clear to me that if Cable and Wireless wanted to be global we needed to be in Japan, which is why we acquired our controlling interest in Cable and Wireless IDC.

Now Cable and Wireless's acquisition of IDC was not simply a purchase of network assets; we bought an established company with a work force who have earned a high reputation for the best levels of customer service and who have excellent relationships with a blue-chip corporate customer base.

Japan is also the clear leader in the development of the Internet in Asia. And demand projections are pretty impressive, showing Japan's IP network capacity growing by a factor of 50 or 60 over the next five years and maintaining a consistent 50 percent share of Asian IP capacity into the future. Now in response to that market demand, Cable and Wireless recently announced the doubling of its transpacific Internet network capacity to the U.S. to 400 mega-bits per second, and during the course of next year this will more than double again to 1 gigabit per second. So in my view no company can consider itself truly global without a very solid presence in Japan. By acquiring IDC we not only extended the reach of our network and IP applications into Japan, but we also gained an established high-quality company with a high-quality customer base, giving Cable and Wireless a unique competitive advantage in global terms.

And we're also bringing increased competitive advantage to our customers in Japan. On Tuesday this week, we announced some very good news to mobile phone users in Japan. This segment of the market has not been enjoying the benefits of competition as much as it should, and our new overseas tariffs for mobile phone users have set a new benchmark in the Japanese market. Now some of the mobile phone companies' own overseas tariffs are up to 48 percent higher than Cable and Wireless IDC's. And at the same time, no one is offering better value for money in overseas calling from fixed lines, either at home or in the office, than Cable and Wireless IDC.

Now of course healthy competition in the telecoms market depends on effective regulation of the dominant players. Interconnect charges are the highest single-cost element in running a competitive telecommunications business. Dominant, incumbent operators can control the profitability and competitiveness of interconnecting companies by keeping interconnect rates artificially high. In doing so, of course, they also limit the ability of interconnecting companies to pass on the advantages of competition to their customers. So we naturally support moves to reduce interconnect charges in Japan, which currently can be anything up to 4 times more than similar charges in comparable markets in the U.S. and Europe. However, even if the most far-reaching proposal currently under consideration is implemented, interconnect charges here will still be considerably more than they are in the U.S., U.K., and Europe. And the market will need further reductions if operators, including us of course, want to be competitive. Now I don't say this as a disinterested party; it's key to our competitiveness in Japan and key to the benefits that we want to bring to our Japanese customers.

Now returning to my main theme, having put the backbone of our strategy in place, don't expect that it will stop there. You can expect to see from Cable and Wireless a rapid expansion of our networks, products and services, not only in the traditional voice market, but also in the exciting new world of data and IP. And you can expect to see a rapid strengthening of our capability to offer global products and services based on our major network hubs in Europe, the U.S., Japan, and the rest of Asia.

So, returning for a moment to the subject of my talk, management strategy and competitiveness, I trust that you now have a clear understanding of where Cable and Wireless is going. As I said earlier, our strategic priorities are to focus on the needs of business customers. Our future growth will be based on the rapidly growing markets of data and IP. And we will operate globally with a strong, local presence in the key business markets of Asia, Europe, and North America. And by providing our customers with this unique combination of strong local support and global capabilities, we establish a true competitive advantage, not just for Cable and Wireless, but also for our customers both here in Japan and around the world.

Today I've explained the importance of Cable and Wireless IDC and the Japanese market within our global strategy. I hope that I've also shown you that the implementation of Cable and Wireless's strategy is on course and is well prepared for the competitive challenges of tomorrow's global telecommunications markets. Thank you for your attention. Domo arigato gozaimasu.

[NISHIOKA] Thank you very much, Mr. Wallace. Now we'd like to entertain questions from the floor addressed to Mr. Wallace. But if I may, as a moderator I should like to kick off by asking you a question using the moderator's prerogative.

Cable and Wireless has made inroads into Japan by acquiring IDC. In addition, MCI WorldCom is acquiring Sprint amounting 30 trillion yen. So this is another piece of reorganization. So in the global market, this kind of sizable acquisition, not only in the U.S. but in Japan too, it seems that this wave of reorganizations, sometimes very blood-shedding fight, shall I say, is going on. Do you think it will continue further, to the ultimate?

[WALLACE ] I think what we're seeing at the moment in terms of acquisition is inevitable in this industry. And it's inevitable for two reasons. One, there are massive economies of scale in telecoms in any network business by increasing volumes. The reason there is so much activity, however, is because of the nature of the industry. Acquisition activity was effectively suppressed for the first 80 years of this industry, because telecoms companies were primarily owned by governments, and therefore no acquisition activity could take place. So whilst in the oil and the banking industry, consolidation and acquisitions has been going on for many years, in telecoms it's really only started over the last ten. So you're seeing a concentrated period of acquisition, a lot of which is really catch-up from the fact that acquisition was suppressed for most of this century. But I think it will continue. The economies of scale from consolidation are huge; the cost of network investments are similarly enormous and the benefits, therefore, of acquisition are very substantial. So it will continue.

[NISHIOKA] Thank you very much. Maybe I could entertain some questions from the floor. Yes, please.

[QUESTION] Thank you for your valuable presentation. I have learned a lot from it. I have one question. I am wondering how C&W and Internet telephone company differentiate in business. So I guess, I personally believe both of them have some competitive edge, but I didn't know how your company and Internet phone company differentiate clearly.

[WALLACE ] I think there are a number of areas which makes us different, some of which I referred to in my speech. We do find that business customers around the world, when we ask them what they want, give us exactly the same answer. It doesn't matter if we ask them in New York or in Tokyo or in Sydney or in London or in Hong Kong, and they do want a telecoms supplier that has global capabilities. And what surprises me often is that you get that response not just from the big multinationals, which you would expect, but from quite small companies, because nowadays small companies can behave like large companies through the power of the Internet. But they must have a telecoms supplier that can supply them with global capacity. And I think that's the key difference, and that's why we're different, in Japan, to NTT, who are of course a very powerful and very strong company but have very little international capacity or competitiveness. And while in the U.K. we take market share from BT, because, again, we have global capacity that our customers want, that the national PTTs don't have. We've been global for over 100 years. And that's what makes us genuinely different.

Now that is more of a competitive advantage now, as many industries go global, than it's ever been. So that's the key one. Obviously we think we're better at service and customer care, but all telecoms companies will tell you that. Our big difference is that global capability combined with local presence.

[NISHIOKA] Thank you. Any other questions?

[QUESTION] Thank you very much. Jean-Pierre Lehmann from IMD. I'd like to ask you in the context of the theme of this particular conference, which is in search of a management standard for the 21st century, and the session particularly that you are addressing, which has the title of Proposals for a Japanese Corporate Renaissance. What quite concretely do you see Cable and Wireless bringing to the Japanese environment in terms of management, in terms of new ideas, at a time when there's so much reflection going on in this country in view of the current context? Thank you.

[WALLACE ] Thanks. Let me answer with a very specific item first, and then move on to your more general question.

Competitive telecoms markets are a source of competitive advantage for nations. I honestly believe that one of Japan's issues over the last ten years has been that while the rest of the world has deregulated its telecoms markets and encouraged competition, that has not happened to the same extent in Japan. That means you do not have some of the innovative telecoms services we see in the U.S. or Europe, and you are paying too much -- all you businessmen in this room -- for your telecommunications services. (a clap of hands) That was the NTT representative, I assume.

And that, I think, genuinely has been a source of national competitive disadvantage. And if you look at the innovations, particularly in e-commerce that are happening in the U.S. at the moment, Japan will not be as competitive as it clearly should be without sharing in those innovations, and the only way it will share in those innovations is with true competition. And true competition requires in telecoms fairly aggressive regulation of the incumbent. It doesn't work otherwise, as is being proved in Europe and the U.S. So that's my very specifically and I increasingly believe telecommunications will be a source of competitive advantage to your businesses, whether it's using networks to sell to your customers, whether it's using intranets to communicate to your employees or using secure internets to connect to your suppliers. Those will lower costs in all areas and improve service levels. And if you don't get onto that approach, then you will suffer both within Japan and globally.

Just on a more general point, I think, as you see and I hope from this presentation, we in Cable and Wireless truly have a global view of the world. This is truly a global industry, telecoms. Some industries claim to be global, but aren't. They're a series of national markets. Telecoms is truly a global industry. And there are an increasing number of industries which are. And I think one thing we will bring to Japan together with competitive telecoms prices and services is of course the ability to help Japan connect at low cost and high speed to the rest of the world. These networks genuinely kill distance. There's a famous book in the U.K. called The Death of Distance. That's what these networks do. That means you can communicate around the world instantaneously. These signals travel at near the speed of light, of course, on fiber optic. So that's what I think we can bring to Japan, a global perspective.

[NISHIOKA] Thank you very much. We still seem to have some more time. So if there are some other questions, we'll be happy to entertain.

Mr. Fukushima, please.

[FUKUSHIMA ] I am Glen Fukushima with Arthur D. Little. I worked at AT&T for 8 years, and so I'm fully in agreement with your observations about the need for telecom deregulation in Japan and the fact that Japan can fully benefit by having further deregulation.

My question has to do with the fact that there was considerable attention in Japan to your acquisition of IDC. I'm wondering if you could tell us whether you were surprised by the outcome, first of all. And secondly, what do you see as your biggest challenges over the next, say, three or four years? You had mentioned the dominant carrier problem, the interconnection charge problem. But in addition to those problems, which I think all foreigners as well as Japanese companies that are not the dominant player face, what are the major challenges you face and also what targets or goals have you set for yourself over the next three or four years?

[WALLACE ] First part of the question. No, I wasn't surprised that we were successful, but I was delighted. We set out to be successful. We had lots of advice through the process from all over the world, saying we would not be successful. I like that sort of advice; it always makes me even more determined to be successful. So I was delighted, not surprised, that we were successful in acquiring a controlling interest in IDC.

In terms of challenges, apart from the ones that you referred to of inter-connect, which I'm sure will be sorted out and will need to be sorted out if Japan is to be truly competitive in this marketplace, one of the key challenges we face actually around the world -- and it will be the same in Japan -- is this move away from being a voice-based business, which relied on international traffic, into the new world of data and IP. It requires a very different mentality. We call it in Europe a ponytail mentality. There aren't many top telecoms executives who have ponytails. We've recently acquired several business ISPs in Europe, and we've acquired a few people with ponytails, because the IP arena, in terms of developing applications, needs smart young people who are prepared to be innovative and creative. And I think our biggest single challenge worldwide is attracting, retaining, and motivating those sorts of people.

Goals? Our goal is to be the number one global provider of data and IP-based services to business, and I think we're well on the way. But that's our goal. I don't mind being number two.

[NISHIOKA] That was a comment with great confidence. Thank you very much. And if there are more questions? Yes. You'd be the last person that we can entertain, unfortunately.

[QUESTION] I'd like to ask one more question. From your presentation, personally I think superior customer satisfaction is one of the key factors to success. So are there any principles for superior satisfaction to other telephone companies? And if so, could you explain specifically, please?

[WALLACE ] Customer satisfaction is of course fundamental to success, as it is in most businesses. We have a slogan within Cable and Wireless which I encourage all my executives to live, which is: Think customer. We must always put ourselves in the customers' shoes and understand their problems. And one thing we've done this year, which is a big change for us, is that for the first time the bonuses of our top executives around the world will be based not just on financial performance but on customer satisfaction. And there's no better way I know of focusing senior executives' minds on customer satisfaction than reflecting it in their pay. And that's what we've done for the first time in Cable and Wireless this year. And that's a good lesson, I think. Put what's important into people's bonuses, and they'll pay a lot of attention to it. I would say that's what we've done.

[NISHIOKA] Thank you very much. I think it's just about the time. We'll have to let Mr. Wallace go. Thank you very much.