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When two-into-one does go

Differing customer needs led Invitel Group to split one company into two. CEO David Blunck says the move is paying off for clients and group alike.

David Blunck, CEO of invitel Group.

If you are a Hungarian customer of Invitel Group, you could be John Smith (or rather Kovács János) from down the road, or you could be a large enterprise, such as MOL. When the telecom markets in Hungary were first privatized, your requirements would likely have been pretty much the same – centered on voice telephony – differentiated only by scale. But as time has marched onwards, residential and commercial customers have grown ever further apart in what they are looking for. It was this divergence that led in June to Invitel splitting up one company into two distinct units. 

“The two sides of our customer base no longer look the same, and that really caused us to have a rethink at the beginning of 2015, when I became CEO,” explains David Blunck. He has been in Hungary with Invitel Group, Hungary’s fourth largest telecoms provider, since 2012, initially as CFO.

The restructuring involved creating two verticals in which all elements, from sales and marketing and customer care to focused operational and IT teams, were contained. As Blunck puts it: “It means a guy in our residential unit’s engineering team wakes up in the morning and he knows he is only going to be serving the residential market. It wasn’t always like that.”

Deciding it was better to figure out how to detach the two units out of the public gaze, the first steps were not communicated externally. “We made the internal reorganization last year and found it worked quite well. We were getting good feedback from our customers, and particularly our corporate customers. Sometimes they just need to talk engineer to engineer; the new set up allowed that interface.”

Happy that the move worked internally and had visible benefits for the corporate customers (Blunck says there would be little reason for residential customers to notice any change, and that seems to have been the case), the company began the process of separating the units from a legal and branding point of view. Invitel handles residential customers, commercial customers are served by Invitech Solutions. Blunck heads both as CEO of Invitel Group.

Good feedback 

“It is still early days, but we have received good feedback from the customers who have recognized that there was substance behind the reorganization, it was not just empty marketing re-branding, but we were right to have the ambition to do it.”

Invitel Group had a consolidated turnover of EUR 150 million last year, split roughly equally between the two units. But the group has up to now lacked the basis for measuring business unit profitability.

“One of the other reasons we split the business into separate legal entities is to give us, internally, greater visibility about where our costs and revenues meet, so we can see where we have the greatest returns and are therefore able to make better investment decisions. The finance team is now busy preparing standalone financials for the new legal entities. We have done our modeling, of course, but are eager to have actual figures to start achieving business benefit.”

So the customers seem happy, and the management is, but what about the staff? How do they feel about moving from one large company to two smaller ones? “That’s a good question. We have been emphasizing that we are all part of Invitel Group. Legally we are now three divisions [there is also an SSC that handles finance and central administration duties], supporting two groups, and we are all part of the Invitel Group family. We have been at pains to emphasize the cohesiveness of the group.”

And the fact remains that, even given their separate identities, the two divisions remain large players on the market. And successful ones, at that. For residential customers, there are two key markets. “We continue to see growth in both core areas, TV services and IT services. Both have ratcheted up, and both play to the strengths of a separated organization.”

Room to grow 

Indeed, considering Invitel started life as a traditional telephone company, TV is playing an ever more significant role. Two out of every three new residential sales in Hungary involve TV in some form, typically three-play (TV, telephone and internet). Invitel says it has a market share of around 5%, partly because it has no residential presence in Budapest. Rather, its strongholds are in towns and cities like Gödöllő, Vác, Szeged and Esztergom. Clearly there is geographical room to grow that footprint, but for now Blunck says the company is concentrating on improving services, and especially connection speed, and that, too, is bringing results.

“A little more than half the network is capable of handling high speed internet. We are now working hard on executing an investment program under the auspices of the EU, known locally as ‘szupergyors’ internet, through which 100,000 homes will be connected in the next two years.” Such investments seem to be paying dividends. “Our country market share is growing, so we believe we have more upside to see here.”

Positivity 

Commercially, too, there seems to be plenty of upside positivity. “Demand for IT projects in general is growing, and people need access to data center services: we have a very strong pipeline of customer requests in that area. Our bread and butter data center service is plain old server hosting, but our enterprise customers are increasingly benefitting from our cloud infrastructure platform.”

Security and reliability are key customer requirements. “We are able to meet all the security requirements of extremely demanding customers such as banks,” Blunck says. And because they can do that, they can offer better services to other clients, too. “We have redundant power supply, fire suppression, 24/7 monitored security. We can offer customers a better product at a lower price than they can do for themselves.”

That’s physical security, but cyber security is also becoming more popular, partly driven by stories such as November’s Tesco Bank hack in the U.K. where some 40,000 customer accounts saw “suspicious” activity, with money stolen from at least half of those accounts. Such attacks are concentrating minds, Blunck says.

“We are finding more and more customers are treating IT security as something that the entire C-level suite needs to look at, and not just the CTO. We offer a comprehensive event monitoring solution which is constantly checking the network, looking for suspicious patterns, which can be defined for each customer.” If that represents the top end of the security spectrum, there are simpler things that can also make a difference, such as making sure servers have the correct patches and that software is up-to-date.

“It’s not sexy James Bond type of work, but it is just as important,” Blunck insists. And for a firm like Invitech Solutions, which can take customer’s data on a single unified journey from hard drive, through local area networks, wide area networks to the data center and the servers, it is a simple and effective way of offering peace of mind.