Fear of failure drives telecoms tycoon

FIBERNET chief executive Charles McGregor is still clearly uncomfortable with his wealth. After reviewing the five years in which his company has evolved from a small start-up installing computer networks in offices to an international telecoms venture employing 400 staff, we turn to his diversions.

First he talks of his four children, swimming, tennis and then reluctantly of his love of cars. 'I am a motor car enthusiast,' he says neutrally. When pressed, he admits first to owning a Morris Minor, and then mumbles that he owns an Aston Martin. Anything else? Finally, he admits to two Aston Martins. He laughs sheepishly: 'I didn't want to tell you this. I know how it will read.'

McGregor can be forgiven for some indulgence. It was, after all, only a year ago that his 14% stake in Fibernet was worth £186m. Today, after the collapse of the dotcom bubble, he is still worth £32m.

His reticence suggests a man wedded to the 'traditional values', which he says guide his business. Tall, gaunt, and intense, McGregor, 44, is one of a rare breed of executives who have survived the telecoms meltdown with their reputations intact. Many rivals such as Graham Duncan of Atlantic Telecom and Redstone's Graham Cove have bowed out, with their companies either in tatters or facing an uncertain future.

Fibernet has no borrowings, a comfortable £95m cash pile and a business generating bottom-line profits. It has connected almost 100 of Britain's commercial centres to its nationwide fibre-optic network, and it counts heavyweights such as HSBC and Tesco among its customer base. 'We have grown pretty well organically with a set of key old-fashioned values that are about investing, but as quickly as possible bringing that investment back to repay the money you have used,' says McGregor.

He follows no management guru, citing his father John, a former Barclays director, as the most important influence on his career. 'He taught me what business is for - the creation of value and of wealth for all the stakeholders,' he says. 'I don't know anyone who is more honest and straight in their dealings and he instilled that into me.'

Sacked for poor job

McGREGOR'S roots show through in his dedication to cost control. Fibernet aims to get a return from major investments within two years, insisting on value for money. 'Whenever my father went shopping for any item, he would always go for the deal, no matter what,' McGregor says.

Like father, like son. The multi-millionaire recounts a story about a brush with a Tesco manager over the price of a chicken. 'It was close to the sell-by date. I said to the checkout girl, you won't be able to sell this after today or tomorrow, while all the others will last three more days. She got the manager, but in the end they had no way of giving me a discount. So the manager said, just keep it. I thought I was being reasonable. If they are getting a good deal and so am I, that is all I care about.'

Despite his conservative upbringing, McGregor's business career did not get off to a roaring start. After he left Liverpool Polytechnic with a business studies diploma, his father got him a job He did not enjoy banking and after an unhappy few months he took an accounting post at General Motors. Three months on, he was sacked for - by his own admission - doing a poor job. 'I was in general ledger and I was bad at that,' he says. 'I was in charge of the bank accounts and overdrafts and I kept putting the money in the wrong accounts.'

Being sacked was a humbling experience, yet most important in his career. It taught him the danger of complacency. 'My driving motivation is the fear of failure,' says McGregor. 'I love the job, but unless I succeed all the time, I worry.'

From General Motors he went through a series of sales jobs, one at the old Telephone Rentals, one at Network Technology in America. Returning to Britain, he set up Fibernet in 1986 with a business partner. Their modest ambition was to install computer networks for large corporate customers. Eight years later customers wanted to connect their different offices. Fibernet struck a deal to lease cable laid along canal towpaths by British Waterways. It originally planned to develop the telecoms side with the US firm Sprint. But shortly after British Waterways completed the first section of the network, Sprint pulled out.

Fibernet was left treading water for a year, while it applied for one of the first UK telecoms licences. Despite criticism that it was too small and pursuing a narrow strategy, it won the licence in 1995. The business began on the Alternative Investment Market in 1996, at 90p a share, soaring to £27.76 in the tech boom. The shares soon fell from their peak, not helped by a decision to launch a rights issue, at a deep discount, to raise £77m for expansion into France and Germany.

The shine was coming off the telecoms sector, with many in the City doubting that any of the 'alternative' operators would ever make any money. Having poured in billions, and seeing several of the newcomers heading for bankruptcy, investors took fright. Fibernet shares tumbled 23% on the day of the rights issue, beginning a swan dive that wiped 90% off the group's value by the time it bottomed out in September at 167 1/2p.

'It was a very difficult time, but I would do the rights issue again,' says McGregor defiantly. 'It secured the future of the company.' He says Fibernet, based at Basingstoke in Hampshire, can continue in profit without any further new funds.

Outpacing the sector

INVESTORS are beginning to show more confidence. Since September the shares have nearly trebled, to 480p, outpacing the telecoms sector. It may never recover to the old peak, which even McGregor says overvalued the company.

He thinks the firm will be worth between 15 and 20 times underlying profits two years from now. That would make the shares worth between £7 and £10.

'At the market's peak we were approaching £2bn in value,' he says. 'When your turnover is £18m, you are thinking; this is not right.' Some critics still regard Fibernet as a high risk and are not convinced that it can repeat its UK success in markets where the incumbents, Deutsche Telekom and France Telecom, are much more dominant than BT.

'There is clearly a large opportunity in Germany and France but Fibernet does not have the same local knowledge as in the UK,' says Investec Henderson Crosthwaite's Fraser McLeish. One problem is that Fibernet relies heavily on selling its connections to other telecoms firms and internet service providers, a very competitive market.

But McGregor remains confident. He invites sceptics to look at Fibernet's record. 'Look at our performance and our powerful balance sheet,' he says. 'We have a history.'