Darren Entwistle, the boy king of Telus, buried his mother when he was 12. That was in 1974. Ever since, he has been in a rush-a rush to get things done, to build, to succeed, to leave his mark. In 2004, he lost his father. "I always feel my time is limited," he says. "Maybe it's because my parents had cancer and died young."
Entwistle turned 44 in August. For a CEO of such a tender age, he has accomplished a lot, culminating in September with the plan to convert Telus, Canada's second-largest telecommunications company, into an income trust worth more than $20 billion. Along the way, he reversed Telus's fortunes and humbled BCE, owner of Bell Canada. He has robbed Bell of big contracts and outpaced his rival in most areas that count, especially on the wireless front, where Telus's growth and profits have been nothing short of phenomenal. He has made himself wealthy-he earned about $9.6 million in salary, bonuses and exercised stock options in 2005-and rewarded himself, and his family, with a 40-foot Sea Ray motor yacht. He probably could have any telecom job he wants in North America or Europe.
Yet he is still impatient, still in a rush, still frustrated, because his achievements (in his mind) came too late and with far too much effort. In short, the man is not happy, and hasn't been since the moment he took the job in Vancouver in the summer of 2000. Entwistle doesn't need better press or better investor relations or more money or a bigger boat. He needs satisfaction-but how? "He should be happy," says Charlie Baillie, the former TD Bank boss who is a member of the Telus board. "If he's not happy, he should be, because he's accomplished so much."
It's not an act designed to elicit praise. Entwistle is no bundle of joy, really. "I wouldn't do it all over again," he says.
Thomas Darren Entwistle (the first name never stuck) was only 37 when he arrived at the rather grubby Telus building on Robson Street in downtown Vancouver and punched the button for the eighth floor. He was a complete unknown in Canada, and a true oddity for the CEO of a large company. He looked like a freshman but talked like an elder statesman giving a speech at the United Nations.
Today, he still looks half a decade younger than his age, despite a gruelling work schedule and a penchant for fine red wines and late nights on the town. His speech pattern hasn't changed either. His words are chosen carefully; his sentences are measured. He often responds in paragraphs when a sentence will do. He uses painful words like "inculcate" and "fruition" and "dichotomy." There are frequent pauses while his brain reloads for another explanatory salvo. But there is no monotone. When he gets excited, or wants to drive home a point, his voice booms and fills the room. Your choice is to pay attention or cower.
He is sedate when he talks about his childhood, perhaps out of respect for his parents. Entwistle was born in Montreal in 1962, the son of Desmond Entwistle and Dorothy Greenshields. Desmond was a Bell lineman, one of the guys who climbed poles and strung the phone wires across cities and the country. Darren was the couple's only child. The boy had a normal, unprivileged childhood in a middle-class part of town, playing hockey and hanging out with his family (Dorothy had 12 siblings). Then his mother became ill. Breast cancer became liver cancer and her condition turned terminal. "I used to spend my Saturday nights in Royal Vic Hospital in Montreal," he remembers. "Her death created a big hole in my life. My mother was such a strong individual, physically and mentally."
Darren and Desmond pressed on alone. His father remarried when Darren was 15. By then, the teenager had found some distraction and solace by combining work with schooling. His first job was at a Coca-Cola bottling factory, working the 4 p.m. to 4 a.m. shift and having his share of what he calls "I Love Lucy" misadventures, like falling on conveyor belts and sending bottles flying. Two years later, care of his father, he landed a job that would change his life.
Darren became a Bell installer and repairman. He was given his own truck. He called on as many as nine customers a day, and knew he had to leave them happy-the phone had to work. "It was a great introduction to customer service, inventory control and quality control," he says. "You had to do the job yourself. I found it intoxicating. I had so much independence and responsibility."
He worked at Bell for four or five summers, long enough to help finance an economics degree from Concordia University, completed in 1986. He later added a McGill MBA and a network engineering diploma from University of Toronto. Then it was back to Bell, where his first management job, in Montreal in 1988, was in the dreary department of revenue forecasting. But he just wasn't cut out to be a management softie. Entwistle's stint as an installation grunt gave him a ground-level perspective on the company, and the phone business in general, that many industry executives lack.
Entwistle had a love/hate relationship with Bell. He loved that Bell had constructed a vast phone network that brought Canadians together ("It fuelled my desire to build something"). But he also found the company bureaucratic and stifling ("Everyone had a small fragment of the process"). Owning a fragment wasn't his style. So he worked hard, got promoted and moved to where the action was: Bell Canada International, the company's overseas investment arm. He ended up as director of corporate finance and was part of the team that engineered BCI's purchase of 20% of Mercury Communications, the United Kingdom phone company formed in the 1980s by Cable & Wireless to challenge the phone monopoly held by British Telecom (now BT).
The BCI-Mercury link gave Entwistle his next big break. In 1993, he was "borrowed" by Mercury. In London, he had a string of jobs with Mercury and Cable & Wireless that would plunge him into what was then the world's most competitive telecoms market. In the U.K., quick and brutal deregulation was pitting the established, high-cost landline companies, like BT, against a nimble new breed of digital and wireless competitors. Cable & Wireless was caught in the middle. The experience would hone Entwistle's competitive skills, shape his career and ultimately burn him out, paving the way for his return to Canada. But what a ride!
Depending on what day of the week it was, Entwistle could be anywhere on the planet, because Cable & Wireless was a truly global company. He went to the cable-TV operations in Jamaica. "I asked them about the competition; typically, they shot their competitors, they said," he recalls with a laugh. Other stops were in Australia, Asia and Europe. In 1997 and 1998, he oversaw the massively complicated merger and integration of Mercury with three cable companies-Bell Cablemedia, Nynex CableComms and Videotron Holdings. It was one of the biggest mergers in the history of corporate Europe, and the world's first four-way merger. After that, he led the initial public offering of the new group. "It was a challenging job because I was dealing with four CEOs," he says.
Duncan Lewis, who was head of Mercury in the mid-1990s, says Entwistle was an eternally "frustrated" and "impatient" young executive who was also unusually effective "because he felt the need to prove himself time after time." He saw some shortcomings in Entwistle, though. Says Lewis: "He had the intellectual horsepower and could manage a team. But I think his weakness was that he ultimately wanted to run the whole show and manage the business from end to end."
Sean Collins, the global chairman of KPMG's communications and media practice, who was close to both Lewis and Entwistle in London, agrees that Entwistle was something of a control freak and worked on the "blind assumption that everybody had the same levels of energy and passion" as he himself did. But he also thought Entwistle was just about the smartest young executive around. "He has the exceptional ability to see the telecom industry from a technical, marketing, financial and regulatory angle."
After the four-way merger, Entwistle was tired. Collins says the Canadian was famous for running projects "to the point of personal exhaustion." His love for the nightlife no doubt contributed to the fatigue factor. "He partied all night and worked all day," says an acquaintance who knew him then. "He got very sick once."
Entwistle won't talk about his party-boy reputation, other than admitting to being a regular at posh London restaurants like Tamarind and the famous Belfast gin joint, the Crown Liquor Saloon. But he will admit to some emotional turmoil at the time. He and his first wife, a Canadian whom he had married when he was only 24, split while they were in London. They had no children. His current wife, Fiona, is from Dublin. They met in London-she worked at Bell Cablemedia, one of the merged cable companies, and later at PolyGram, the music company. Their twin children are 7. Fiona, a tall blonde with a friendly smile, is best known in Vancouver for her fundraising efforts for the Canadian Cancer Society.
By 1999 or so, Entwistle was pretty much fed up. At Cable & Wireless, a company that seemed to have no clue what businesses it wanted to be in, or where, he worked for no fewer than four CEOs over five years. At one point, he was instructed to build up the company's European division. Then he was told to do the opposite. "It was stamina-sapping," he says. "I was getting whiplashed-and every person has their breaking point."
He called Spencer Stuart, the executive search firm. The next thing he knew he was on a plane to Vancouver to interview for the top job at Telus. Even though he had been approached by BT, he had pretty much made up his mind to take the Telus job if it was offered. He didn't need any more bosses. He was anxious to be a boss himself. "I could see how I could win if I didn't have someone changing the game on me in mid-course," he says.
Entwistle knew immediately from his British experience what needed to be done to fix Telus, the company formed in 1999 by the awkward union of BC Telecom, the old British Columbia Telephone Co., and Telus of Alberta. To Entwistle, Telus was another landline dinosaur that wouldn't survive unless it crunched costs and learned how to make money in the new digital age. A tall order: It would have to jump into the wireless business, achieve national reach and build a broadband network to deliver high-speed communications and entertainment services to business and residential customers, who demanded convenience and instant gratification.
Filling the wireless hole was Entwistle's first step. In the U.K. at the time, the wireless penetration was about 50%-there was one mobile phone for every two residents-and the figure was rising rapidly (it's now 113%, according to a recent Merrill Lynch survey). In Canada, it was at best 30%. The race was on. "Without wireless, you're dead," he says.
There were only two options: develop a national wireless network organically or buy it and make an instant splash. Entwistle chose the latter. Within six weeks of his becoming CEO, Telus had launched a top-of-the-market, $6.6-billion offer for Clearnet Communications, a national digital phone company. Telus won. For one shining moment, Entwistle was the talk of the industry, the arriviste boy wonder who would shake up the sleepy Canadian telecom market. The old buccaneers, Ted Rogers of Rogers Communications and BCE's Jean Monty, suddenly had a brash, young competitor with a clear strategy: mobility for the masses.
It was fun while it lasted. If Entwistle became a hero CEO in record time, he got to zero just as quickly.
When Telus bought Clearnet, Telus shares were trading at about $40. A year later, in mid-2001, they were half that price, partly because investors thought Entwistle had vastly overpaid. A year after that, they were under $8. The value destruction was awe-inspiring. When Entwistle landed at Telus, the company had $6 billion in annual sales and a gorgeous balance sheet. Assets were $8 billion, long-term debt was a mere $1.5 billion and shareholders' equity was $4.3 billion. The return on equity was a healthy 15% and the bonds were of pleasingly high investment grade. Two years later, Telus booked revenues of about $7 billion on assets of $18 billion and debt of $9 billion. There was no return on equity to speak of, and the debt was downgraded by Moody's to junk status.
Entwistle was a bum, and questions were being openly raised about his competence ("It's time to hand Telus CEO the sack," blared the headline on a Globe and Mail column). Shareholders were in a surly mood, none more than the CEO himself, for the share collapse and the debt downgrade were only two of the many problems that seemed on the verge of tearing Telus apart and sending the baby-faced CEO back to his repairman job at Bell.
Where to start? Various regulatory decisions, such as a price cap on bundled services, had gone against Telus. The company says this eliminated about $375 million a year in EBITDA (earnings before interest, taxes, depreciation and amortization). Telus, which had made virtually no investment in high-speed internet services in the late 1990s, before Entwistle's arrival, was getting clobbered by Shaw Communications in that high-growth market. Costs were out of control because the overlap in operations between BC Tel and Telus had not been eliminated. Jobs would have to go, but the enlarged company's four unions were in no mood to meet Entwistle's demands. Edmonton politicians were angry because the merged company had moved its headquarters to Vancouver after having promised not to leave town (again, not Entwistle's doing, but his problem nonetheless).
Entwistle says he found himself in "the perfect storm-every single factor was stacked up against us." He was angry and frustrated. His family life suffered because of the long hours he put in: He didn't take a single family holiday between 2002 and the spring of 2006. The low point came in December, 2004, when Desmond Entwistle lay dying in the oncology unit of Montreal's Jewish General Hospital. Where was his son? Downstairs in the lobby, on his cellphone negotiating the sale of Verizon's 21% equity stake in Telus. He calls his absence during the old man's time of need the "biggest regret of my life."
Then, after years of fruitless talks, came the inevitable war with the employees. The workers hit the picket line on July 21, 2005 (Telus said it was a strike; the union said its members walked off the job the day before the company imposed its own contract terms). The Telecommunications Workers Union accused Entwistle of trying to break the union and move jobs overseas. Things got ugly. Entwistle says his children's lives were threatened. But almost 3,300 of the almost 5,600 TWU workers in Alberta crossed the picket line-enough to erode the TWU's negotiating position.
The strike lasted until mid-November. Entwistle claimed victory. The new five-year collective agreement, which gives Telus the right to outsource some jobs, eliminate others and hire temporary workers, will save the company as much as $200 million a year. Buzz Hargrove, the head of the Canadian Auto Workers, which has no Telus employees but advised the TWU on strategy, says he thinks Entwistle is an "incredibly bright and tough" boss, "but I think there should have been a lot more effort to find a solution to the problems that divided the union."
The turmoil and heartbreak-the sinking shares, the debt downgrade, the calls for his head, the labour strife, the endless hours away from his family, his father's death-left Entwistle frazzled, but never defeated. He says he never considered quitting. Instead, he pushed himself and his management team harder than ever. ("A very demanding boss" is how Joe Natale, Telus's chief of business and government accounts, describes his CEO.)
Entwistle was utterly miserable. "But I couldn't help but finish what I started," he says. "Maybe it's a personality flaw."
In truth, some of the pressure was coming off Telus by early 2004. By then, Telus's CFO, Bob McFarlane, had ably steered the company through the industry-wide credit crunch, and the shares had come back to life. They started the year at about $25-still well below their price when Entwistle joined the company, but a step in the right direction. The western economy was on fire, thanks to the Alberta oil boom, and the wireless strategy was starting to work its magic: The operating revenue, profits and margins from the wireless business kept improving. In the second quarter of 2006, the operating margins reached a record 46.4%-for every $1 in revenue, more than 46 cents flowed to the bottom line. Some analysts, using a slightly different calculation, put the margin at 50%. Whatever the precise amount, the margins are so fat that Telus, like all the wireless majors, fears some politician will accuse the company of price gouging and demand less expensive service (the prices for Canadian mobile-phone services are higher than those in the United States, but generally less than in Europe).
Of course, things weren't perfect. Telus's huge wireline business, like wireline businesses around the world, was in long-term decline as more and more customers chose the mobile-phone option. Shaw was a formidable rival-and still is-on internet products, and Telus was struggling to find a way to deploy its network to deliver television to the masses. In 2004, Entwistle blew some of his regained credibility with a doomed $1.1-billion bid for Microcell Telecommunications, owner of the Fido mobile-phone brand. Rogers was the winner. The bid was strange, if only because Microcell's technology was incompatible with Telus's. Meanwhile, Telus's Quebec business, which sells data and IP services to businesses, and wireless products to consumers, continued to bleed cash as it struggled to compete in the heart of Bell country.
Then, in late 2005, George Cope, the Telus Mobility boss who came on board with the Clearnet purchase, defected to Bell Canada, where he is president and a contender to replace Michael Sabia as CEO of parent company BCE. That one really stung. Entwistle couldn't understand how an executive who had devoted a good chunk of his career to building Telus and bashing Bell could instantly and shamelessly do the opposite.
But on the whole, Telus was in fine shape and gaining market share in its battle with Bell. Even better, Telus was upstaging BCE on the stock market, thanks to the big bet on wireless and unwavering devotion to network integration and investing in the core businesses. BCE, in the meantime, had diversified into media, through its majority investment (since reduced) in Bell Globemedia, owner of CTV and The Globe and Mail, and was pumping out income trusts-Yellow Pages, Bell Nordiq, Bell Aliant-like so many sausages. Inevitably, BCE would suffer from a holding-company discount and accusations that it had no idea of how to preserve value, let alone actually create value, in a deregulating and competitive market. In the past six years, BCE's average annual return to shareholders, including dividends, has been 1.1%. Over the same period, Telus's average annual return was 8.4%.
What pleased Entwistle most was Clearnet's performance. The acquisition that hammered his reputation and almost sank his company had more than justified itself. Entwistle says the market misunderstood his strategy when he lunged at the company six years ago. "In 2000, Telus had no national wireless presence," he says. "At the time, we could have bought radio spectrum and gradually built a network. Or we could buy a company with spectrum, customers and infrastructure. So we bought Clearnet. It just made more sense. Plus, it came with $800 million of tax losses, which would shield Telus from paying taxes until this year."
By the spring of 2006, Entwistle was not his usual malcontent self. He finally took a vacation. He learned to pilot his new yacht in the waters around Vancouver. He attended the World Cup final in Berlin. While it looked like he was having a bit of fun for the first time since he joined Telus, he was secretly plotting his next big move. When it was unveiled a couple of months later, the market was shocked.
For about a year, Entwistle had considered deals that would add value, add growth potential, not blow his credibility and not veer the company away from its core strategy of delivering voice, data, wireless and entertainment services to customers anywhere at any time. But how? This was little Canada, and there weren't many options. Most of the big strategic moves-Telus's purchase of Clearnet, the Microcell acquisition by Rogers, the Manitoba Telecom-Allstream deal-had already been made.
Telus could simply stay the course and grow organically-that is, slowly and at the risk of testing Entwistle's notoriously thin patience. It could go after Manitoba Telecom, but that company was losing landline revenue rapidly, and its Allstream subsidiary (the former AT&T Canada, specializing in business customers) was in rough shape. It could dabble in the overseas market, but that strategy had ultimately proved disastrous for BCE. What Telus absolutely would not do was diversify into non-core industries such as media production. BCE had tried that too, with predictably lacklustre results. Telus was a telecom company and had no other pretensions.
But Telus didn't have to buy. It could sell. The company had been approached by private-equity gurus who outlined leveraged buyout strategies. One of the contenders was rumoured to be Gerry Schwartz of Onex. Canada's buyout king knocked on Entwistle's door as early as 2001, and revived the idea as recently as this year (Entwistle will not confirm or deny Onex's interest). To be sure, a leveraged buyout, or LBO in Bay Street shorthand, had a certain appeal. Entwistle would certainly be part of the buyout team, and remain CEO, allowing him to get fabulously rich. At the same time, loading the company up with debt to boost the return on equity-the standard LBO technique-would constrain its ability to manoeuvre. Entwistle, who says he has never been driven to be as rich as Croesus, never seriously pursued the LBO idea.
Dead end? Not quite. For three or four years, the Toronto Stock Exchange's hottest sector was the market, whose value had reached $200 billion by September. Firms of every size and description, from energy service players (Precision Drilling) to refrigeration companies (Atlas Cold Storage), were turning into trusts. Trusts are structured to pay no income tax, and pay out almost all of their cash flow to investors, who pay tax on the monthly distributions. Typically, a company's market value rises 20% to 40% when it converts to a trust or announces its intention to do so. Investors love the concept, because the money that the company would pay to the taxman is doled out to them instead. High valuations also reduce any business's cost of capital. In Telus's case, that would reduce the cost of acquisitions or network investments.
Like any executive, Entwistle had a fiduciary obligation to examine the trust option. Telus made no secret of it, if only because the company would become taxable some time in 2006 as the last of the Clearnet tax losses, which were used to offset company-wide profits, were consumed. At the same time, Telus gave absolutely no indication it was hot on the trust idea. After all, trust spinoffs had added no value to BCE.
Analysts did not rule out a trust conversion at Telus, but generally attached well under a 50% probability to the scenario, largely because of the BCE experience. What the market did not know was that Telus had looked closely at BCE and knew exactly what went wrong. The strategy of spinning off trusts while leaving Bell Canada as a corporation created an empire of separate businesses with separate management teams, separate tax structures and fresh pains in the butt, like determining transfer pricing between the various businesses.
If Telus were to convert, it wouldn't take the piecemeal approach. It would be all or nothing.
Telus kept quiet. On Sept. 8, Morgan Stanley downgraded Telus's shares because, it said in a report, the "significant valuation discount for Telus versus its U.S. peers has now disappeared." The report didn't rule out the trust scenario, but it certainly downplayed it. Telus shares dipped that day. Three days later-on the fifth anniversary of the Sept. 11 terrorist attacks-Telus dropped a bomb on the market. All of Telus would convert to a trust, the biggest on the TSX. The shares finished the day up 13.8%, at $59.80, and have climbed a few bucks since then. BCE shares also shot up on the expectation-hope?-that BCE would follow the same strategy (in fact, it did in mid-October).
Two days later, Telus announced it had won a $140-million, five-year contract from the Ontario government to manage its internet protocol data network. The contract had been held by Bell. The following day, Telus broke ground on a $250-million, 30-storey office tower next to Toronto's Air Canada Centre that will become its eastern headquarters. (Telus has approximately 5,000 employees in Ontario and has invested $7.5 billion in the province since 2000.)
It was a good week for Telus and Entwistle, though the man's responses were typically restrained and measured. He said the trust "has positive implications for our competitiveness and our positioning within the industry as it emerges." Translation: BCE and Rogers, watch out. We're just getting started.
Once Telus becomes a trust in early 2007, the guessing game will start all over again. This time the market will pay more attention to any clues, however obscure, about Entwistle's intentions.
Buzz Hargrove and Charlie Baillie have no doubt that the trust conversion is just part of a larger game for Telus, not its end game. "No question in my mind, he will be a major player long into the future," Hargrove says. Baillie is more specific. "He's driven," he says. "He'd like to be the dominant telecom company in the country. He'd love to buy BCE."
Entwistle won't touch the BCE tease, other than to say he doesn't waste precious management time on such "fanciful" ideas. In reality, any such deal is a non-starter in today's environment because regulators would never allow it. But down the road, anything is possible. If the cable companies keep making great strides in internet telephony, as Quebecor-owned Vidéotron has done, and if foreign competitors return to the Canadian telecom market, the regulators just might allow a Telus-BCE team to go up against the cable guys and foreign phone companies. Notably, the revived AT&T, which merged earlier this year with BellSouth, is lobbying the Canadian government to end restrictions on the foreign ownership of telecom networks.
Entwistle could get even more ambitious. Once Telus pushes the growth limits in Canada, he might move into the U.S. market through the purchase of a big player, perhaps as big as Sprint Nextel, the wireless giant with a market value of more than $50 billion (U.S.) and about 50 million customers. Telus's trust status could thwart his ambitions, though. Investors in the United States, where business trusts are virtually unknown, probably wouldn't be keen to take shares in a Canadian trust as payment. "Would he invest in the U.S.? Yes, he has ambitions, but he would not bet the farm on any such deal," says KPMG's Collins.
What is all but certain is that Entwistle has at least one more move in him, and given his drive, it's not going to be some phone business in northern Manitoba. And what is completely certain is that Telus is Entwistle's last job as a CEO. Says who? Says Entwistle. He claims he has absolutely no ambition to run a bigger company, such as BT or Sprint. Been there, done that? "Once you've done a few turnarounds, they become pretty generic," he says.
Not only does he not want to be a CEO again, he doesn't even want to be in the business world. What he really wants to do is teach strategy and leadership at a top-notch university, preferably in the U.K. Remember, he met his wife in London, his children were born there, and he has a British passport. "I'd like to give students the experience and lessons I learned in an extremely turbulent industry and era," he says.
And when will this happen? He won't say precisely, but four years or so would be a good guess. By then, he will have been at Telus for a decade. In this market, where five years is considered a long run for a CEO, a decade is an eternity.
Still, going from a company that threatens to knock BCE out of the No. 1 position to a teaching job at a relatively young age is a truly radical change. But it's one he says he's looking forward to, perhaps because he's never found true satisfaction at Telus. This may be a man who cannot derive emotional satisfaction from any job or accomplishment (as a couple of colleagues, putting on their shrink caps, have suggested). Getting 99% of the way there is a letdown when you're striving for 100%.
Or perhaps he's bitter that he had such a rough run in his first few years at Telus. "Let's just say that when I look at my personal balance sheet, the return on investment is hard to justify," he says. "I just think the things we accomplished at Telus should have been far easier to accomplish. In the U.K., people bet on me. Here, they bet against me. They didn't bet on my potential."
Desmond haunts him, dying upstairs in the hospital while his only child was negotiating a deal that could have waited. Entwistle's surprisingly small and plain office in the Telus tower is dominated by black-and-white photos of his father, some of them taken when Desmond was on the job at Bell.
"If my father hadn't died, I might feel differently," Entwistle says.
Eric Reguly