Hawaiian Telcom CEO Mike Ruley says investing in new information technology systems and local employees is the key to the company's success.
World’s oldest startup
Hawaiian Telcom is refashioning
itself from a 120-year-old
utility into a 21st century
telecommunications company
When the Washington, D.C.-based Carlyle Group acquired Verizon Hawaii from Verizon Communications Inc. for $1.6 billion earlier this year, the deal prompted an overarching question: Why would a high-powered equity investor like Carlyle buy an old-fashioned phone company with a small market surrounded by ocean.
Nearly five months after the deal closed, the new Verizon Hawaii, which was rebranded this year as Hawaiian Telcom, is beginning to answer the question, showing glimpses of what it might become.
Since May 2, Hawaiian Telcom has started a new wireless phone company and long-distance service, and is rolling out products that leverage and converge its land-line, wireless and Internet systems.
The company has forged partnerships with local media and entertainment companies to distribute homegrown digital content to customers.
And after years during which Verizon Hawaii stood mute while Oceanic Time Warner Cable aggressively marketed its Road Runner cable Internet service as superior to Verizon's DSL service, Hawaiian Telcom is beginning to fight back with advertising poking fun at Road Runner.
Underlying all of this is a $100 million back-office computer system and new customer-support services, which, when completed early next year, will integrate Hawaiian Telcom's systems and provide locally based customer support.
The apparent paradox of a 120-year-old utility company refashioning itself into an aggressive, 21st century telecommunications outfit isn't lost on Mike Ruley, Hawaiian Telcom's chief executive, who has described the company as "the world's oldest startup."
What Hawaiian Telcom has done so far, Ruley said, is just the tip of the iceberg.
"Really next year is going to be the year that we're able to launch many things that the market needs," he said.
Linking up services
When Hawaiian Telcom launched its wireless service this year, the venture seemed to make little sense.Seven of 10 people in Hawaii already had cell phones, Ruley said. And in such a universe, the most simple way to grow new business would be to take market share away from other companies, which likely would mean charging less than competitors: hardly a brilliant strategy for growing profit.
However, Ruley said, Hawaiian Telcom views the wireless service not in a vacuum, but as a way to bring mobility to Hawaiian Telcom's existing wired phone and broadband Internet services. Hawaiian Telcom already is working to blur the lines between wired and wireless.
A case in point is Call Choice, which Hawaiian Telcom plans to introduce early next year. Developed by Call Wave Inc. of Santa Barbara, Calif., the technology links a customer's land line, wireless phone and computer.
As a result, customers can preview calls, transfer calls from their cell to land lines with the press of a button and screen voice-mail messages as they're being left, then pick up a call if they want to take it. All calls are logged on the customers' desktop computers, which signal the users when calls come in and automatically keep a log of calls.
Not only is the new service easy to use, Ruley said, but it also lets customers save wireless minutes by easily transferring calls to their land lines.
"It's all about putting technology behind the scenes and making it usable, understandable and affordable," Ruley said.
This sort of thing, Ruley said, gives Hawaiian Telcom an advantage other local wireless companies can't touch.
"We're the only company that has that existing fixed-line infrastructure," he said.
Ruley envisions a time when people will be able to walk into their homes using a Hawaiian Telcom wireless phone and have the call automatically switched to their land line.
"This," Ruley said, holding up his wireless phone, "becomes a surrogate of our network."
UH partnership
Hawaiian Telcom is also taking steps to connect with locals in ways that go far beyond the company's cute new "Hi" logo and public relations campaign designed to establish the company as the kamaaina telecom.Earlier this month, Hawaiian Telcom announced a partnership with K5 television and the University of Hawaii that gives Hawaiian Telcom exclusive rights to broadcast UH athletic games over the Internet.
For UH, the deal means a global audience for its events, which translates into better ability to reach far-flung alumni, recruits and parents of players, said John McNamara, UH's associate athletic director for external affairs.
For Hawaiian Telcom it's a way to broaden its customer base and offer a premium for Hawaiian Telcom's DSL subscribers, who will receive a free season pass for all of the webcast games.
"We have a lot of customers, and we want to serve our customers," said Guy Souza, director of segment marketing for Hawaiian Telcom. "We want to keep them."
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Although details are still being worked out, Leah Bernstein, president of Mountain Apple, said about 50 songs will be available initially for ring tones, including songs by Israel Kamakawiwoole, Hawaiian Style Band, the Brothers Cazimero, the Beamer Brothers, Amy Hanaialii Gillion and Henry Kapono. The first two ring-back tones available will be songs by Iz and Hawaiian Style Band, she said, although more ring-back tones will come on line later.
Mountain Apple sound engineers are now fashioning the recordings into "master tones," which Bernstein said will "sound like the songs you're accustomed to," but with fidelity limited by the technical aspects of cell-phone speakers.
"It's a whole new world for us," she said. "It's a whole new world for the music business."
She added: "It's exciting to have Hawaiian Telcom come in and want to be part of the community."
Although small, these two ventures represent part of Hawaiian Telcom's future. Ruley describes digital content as the fourth leg of a stool whose other legs are fixed phone lines, broadband DSL lines and wireless services.
"The key is to make sure you have a dedicated large pipe to the customers, then attach mobility to that pipe," he said. "The key is to make sure we have the capacity to homes and businesses to provide that kind of content."
And that leads Hawaiian Telcom to the big kahuna of telecom content: video over broadband as an alternative to cable television. Ruley said it is coming.
"I don't think it's a matter of if for us; it's a matter of when," he said.
Kiman Wong, general manager of Oceanic Time Warner Cable's digital phone division, said the company has long been aware of the potential for the local phone company to begin offering television service.
"We expect it, and we're doing our best to provide the best service we can," Wong said. "When Hawaiian Telcom comes out with something, it will have to be better than ours."
In any case, Oceanic Time Warner is also working to move into Hawaiian Telcom's core business. Already, Wong said, the company offers digital phone service to about half the state's residences and is rolling out service throughout the state.
Back-office transition
Before Hawaiian Telcom can offer any truly revolutionary new services, Ruley said, the company first must create new back-office operations and computer systems. Since the deal with Verizon closed in May, Hawaiian Telcom has been relying on Verizon's systems for billing, order entry, fulfillment, network monitoring and other back-office work.The company has faced not just technical challenges, but also human resources ones: During a time when unemployment is near historic lows in Hawaii, the company has hired 150 new employees for administrative work previously done by Verizon, and the company needs about 50 more.
Ruley recognizes that the transition might cause problems.
"Though we will seek perfection, there probably will be some growing pains," Ruley said this month in a speech to the Hawaii Society of Corporate Planners. "We recognize that we've been in a honeymoon period as people wait to see what we're going to do. I'd like to ask for your continued patience and support as we move through these last months of transition."
But Ruley also said "it will be worth the wait ... for any number of reasons."
As Ruley describes it, the investment in new information technology systems and local employees is the key to Hawaiian Telcom's success. The system, he said, will integrate functions and create new services in a way that couldn't be done if the company were simply to lease services from another firm on the mainland or elsewhere. Local customer service representatives, Ruley often notes, actually will be able to pronounce the names of streets where customers live.
It will all add up to a better experience when customers interact with the company.
Hawaiian Telcom could lease such functions, as many other companies do, Ruley said. But if it did so, he said, "then I'm no better than they are."
The new system, he said, "is a $100 million bet on the fact that we are going to improve the customer experience."
In fact, Ruley said that when he first heard that Carlyle was going to invest in the new system, he was "very interested" in the CEO job.
"That to me showed that the commitment from the board was to invest in this company to make a difference," he said.
Hawaiian Telcom is fighting back against rival Oceanic Time Warner Cable, with a television ad poking fun at Oceanic's Road Runner high-speed Internet service.
Hawaiian Telcom’s TV ad
strikes back at Oceanic
In a television commercial for its popular Road Runner cable Internet service, Oceanic Time Warner Cable takes a thinly veiled jab at Hawaiian Telcom's DSL service.
In the ad, a waitress at a diner gives a fat bubble-tea straw to a customer who has ordered a milk shake. The waitress goes on to compare the fat straw to Road Runner, and DSL to a tiny coffee stirrer.
The conclusion: Cable is fatter and therefore faster than DSL.
For years, Verizon Hawaii let Oceanic Time Warner get away with such publicity without response. Now Verizon Hawaii's successor, Hawaiian Telcom, is fighting back.
In a light-hearted parody of the Oceanic Time Warner milk shake ad, Hawaiian Telcom points out a weakness of cable Internet: Although cable might be fatter and faster than DSL, cable systems are also shared, which means they can slow down in during peak times in particular neighborhoods. In a DSL system, each home has its own line. So, the implication goes, DSL isn't as susceptible to rush-hour slowdowns.
In Hawaiian Telcom's rebuttal ad, the waitress holds up a fat straw and tells a customer at the lunch counter that the fat straw is indeed like cable Internet. But, the waitress points out, cable is shared. Hawaiian Telcom's DSL is like having your own straw, the waitress says, and significantly cheaper than cable as well.
At that point, a different customer at the counter sneezes, and the waitress nods and tells the worried-looking milk shake drinker: "It's always better to have your own straw."
Mike Ruley, Hawaiian Telcom's chief executive, said the commercial is meant to "educate the public a little bit about the distinction between our service and our competitor's service."
"The real issue is it's a dedicated medium versus a shared medium, and that's the kind of distinction we're trying to point out," he said.
In truth, Hawaiian Telcom has had its own problems recently with its DSL service. Congestion has caused service for some customers to slow or fail because a vendor's system has reached maximum capacity. However, Hawaiian Telcom is now switching to its own system and expects to have those problems solved next month, said Ann Nishida, a company spokeswoman.
Kiman Wong, former general manager for Oceanic Time Warner's Road Runner service who now heads the company's digital telephone division, said he welcomes Hawaiian Telcom's humorous comeback, which he said marks a new posture from the competitor.
"As long as we don't take ourselves too seriously, it's fine," Wong said. "It's all healthy competition."
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