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Sunday, May 1, 2005



[ INSIDE HAWAII INC. ]

Ruley asks for public’s
patience as Hawaiian
Telcom takes off

The Verizon Hawaii successor
needs time to distinguish itself

art

Michael Ruley

» The private equity firm Carlyle Group, which is buying Verizon Hawaii, last year named Ruley chief executive of Hawaiian Telcom, which will be the new name for the dominant local telephone company. Hawaiian Telcom will officially open its new headquarters tomorrow.

» Ruley previously served as president and chief executive of Houston-based telecommunications company NextiraOne LLC, since 2003.

» From 1998 to 2003, Ruley served in senior positions at XO Communications Inc., a Virginia-based telecom that filed Chapter 11 bankruptcy in 2002 after it became saddled with debt. XO emerged under the control of financier Carl Icahn.

Question: Hawaiian Telcom plans to bring back back-office functions moved to the mainland by Verizon. How many employees will you hire?

Answer: It's in the neighborhood of a couple hundred people we're hiring, in finance, marketing, human resources and information technology. Those were provided by Verizon on the mainland. We have to replicate those organizations and size it appropriately for our company, hire and train them.

During the transformation year, 2005, we'll be building up those employees, hiring them, and by the end of the year we should have everybody hired and up to speed.

There's other positions we will be backfilling and hiring that Verizon didn't. That could done in the field, areas there that I'm sure that are potentially underserved. These will all be determined as we start to take over the company.

We will be up to 1,850 employees.

Q: How much is Carlyle investing into the operations?

A: There's the ongoing capital requirements to run the company, and that is to maintain the network, build out the network.

There are some capital projects in 2005 that are one-time.

Restoring the back office is roughly $98 million.

There's also an element of infrastructure investment in Internet protocol product offering.

There are also some one-time events related to network operations centers that were formed inland by Verizon and we're bringing them here.

There's also building support for local customers. That, ongoing, represents in the low double-digits as a percent of our total revenue on an annual basis, approximately $75 million a year.

Q: Does the Carlyle Group eventually plan to sell stock in Hawaiian Telcom through an initial public offering?

A: I think that is probably the most likely outcome of this process. ... I can't predict what the market will do as far as an appetite as far as IPOs in the future. ... It's got a strong heritage and performance; it's got a profitable business, a consistent business. Will that stand over time when we're ready to take it public? I can't answer that.

I think that is the outcome that is good for Hawaii. This is a strong performing business, it's got strong cash flows, a good heritage, we're bringing it back to Hawaii, and a public company will stay in Hawaii. If you believe in the company, you have an opportunity to buy a share of stock in the company. I think that's one of the more likely outcomes of this investment opportunity.

Q: Will the new company be profitable in its first year and next year?

A: Yes. They have been profitable and will continue to be profitable. The company has been profitable and intends on being profitable going forward.

Q: How much revenue do you expect this year and next year?

A: The total revenue will be right under $600 million a year. That's historically what it has been running.

In 2006, on a pro-forma basis, we think there's an opportunity to exploit underexploited areas. We think there's an opportunity to localize the product offering, add more products specific to Hawaii that the community needs and we think we can grow the company in the future.

Verizon Hawaii was an agent for Verizon Wireless, so there's opportunity to grow the wireless business.

And we think there are new products to grow revenue long term, and these are new products in broadband Internet.

Also, we can offer one voice-mail system serving your home and wireless phone.

We want the community to be patient with us in 2005. This is a carve-out from Verizon. We're going to be working very hard at customer service and customer satisfaction. What we will commit to is we will try very hard to not let anybody down, but it won't be perfect.

Q: What's planned for your broadband Internet services? Faster speeds?

A: Absolutely some chances for that. As a matter of fact, in all likelihood we'll be getting greater speeds, depending on where the network is. The great thing about Honolulu ... is you've got relatively short links to customers and the ability to offer better speeds.

Q: Do you plan to raise Internet prices?

A: I don't think we'll have any plans to change those short term. We want to create more value for customers. We want to offer them more choices. We don't have any immediate plans to change the way Verizon has done packages.

Q: Verizon Hawaii recently combined its yellow and white pages into one large phone directory, making it much heavier. Any plans to change that?

A: I've heard all of the comments and some of the comments are about the size of that book. We're still studying that. There's reasons to combine them and reasons for keeping them separate. ... When you separate them there's sometimes an opportunity to not use one of the books as much. One thing it will have is a much more local feel than it has. We're looking to put in some local artwork from the local schools.

Q: Your thoughts?

A: It's a wonderful opportunity to take a well-established company and transform it into a Hawaii-centric organization.

There are lots of interesting ideas on the table about how we create more of a multiple-service-providing company. It's changing and more competitive. It's an exciting time in our industry and an exciting time in Hawaii, I think, for this company, and the new employees that we're hiring.

One thing that I want you take away from the conversation is this is not going to happen overnight. We have a period of time while we'll run on Verizon's systems. We'll have the same look and feel of a lot of product offerings.

Co-terminus with that, we're launching new products this year and next year. We'll be launching our wireless products in 2005.


Inside Hawaii Inc. is a weekly conversation with business and community leaders. Suggestions can be sent to business@starbulletin.com



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