Game On

Game On


A well planned two day tour of the north west of England will bring you face to face with some of the key figures in the network reseller market as editor Ian Hunter found out.

Nelson, Lancashire. Cotton mills, open fields and cloth caps. It’s where my father used to live before his father took the family south some 60 years ago. I remember him once telling me, “Nelson is not the end of the world but if you stand on tiptoe you can see where the end starts.”

Today, that is the wrong image entirely – ask Matt Riley, managing director of daisy, the recently crowned leader of the Sunday Times Tech Track 100 for 2005. A visit to daisy is an experience and not to be undertaken lightly if you are an Arsenal FC supporter (which I am not) as the two-floor unit in which they operate is a shrine to the once mighty Manchester United.

There’s the Carrington Suite (training room) the Red Café, Sir Matt Busby Room etc. ad nauseum and always a flat screen monitor in view of any employee showing the Sky Sports channel. It’s open plan, light airy and high tech including the staff chill out room which is kitted out as an Internet Café. I guess good staff are hard to find anywhere and Riley wants to hang on to his as they are certainly getting results for him.

“It was a big thing for daisy to get the office platform right; from here we can grow the business” says Riley. “Today, we are where OPAL was three years ago but now they won’t talk to resellers unless they have a big minutes base.”

 

The Sunday Times Tech Track lists daisy as achieving a 458% growth based on 2002-2004 sales (last reported at £9.0m) from a standing start in 2001 when Riley, a former call-centre software developer at Deutsche Telekom, launched the company with £20,000 borrowed against his home.

“There are only so many ways that you can grow a business,” says Riley, continuing, “We did make an acquisition last summer (TML) and morphed that business into daisy without having to make a big shout about it. It’s no secret however that our financial director, Matt Peters, is ex-Ernst & Young and worked there in mergers and acquisitions. However, organic growth is going well and we are building a strong brand – we need to ensure that any possible future acquisitions do not alienate our resellers.”

Riley sees his biggest competition in 2006 coming from BT, in particular their broadband offerings.

“We see a lot of smoke and mirrors going on with 21CN and believe that their slow pace for introducing their next generation network is only delaying the introduction of VoIP. We see their actions as being defensive. We also don’t believe BT can defend their interconnection charges. Open reach is meant to deliver equivalence; the same price to daisy as BT retail but no one has been in touch with us about lines and from January 1st our existing BT account management team can no longer handle this element.”

 

Caved In

Daisy has three main income streams; fixed line calls made up from minutes and NGN where Riley demonstrates his disdain for industry watchdog Ofcom. “Off the back of user complaints regarding 0870 Ofcom has completely caved in without coming back to the industry to see what can be done. Their horse has well and truly bolted. If you take a travel agent making extensive use of 0870 numbers it is obvious to me that were revenue sharing to cease then the price of their holidays will rise for the customer. Ofcom should have first tried educating the sector on 0870 instead of adopting a knee-jerk reaction.”

Daisy has carrier agreements with Energis/Cable & Wireless, Your Communications, Opal and BT which leads nicely to their second income stream which is wholesale line rental (WLR) where they deal exclusively with BT.

“We have been in this business for four years and believe we are number six in the market. Wholesale is only for the experts as by definition there is little support from the carrier. We do well because we can add value for the channel. Line rental is a wholesale product and you need to know the questions to ask. Likewise, wholesale broadband, where we deal with Tiscali.”

The third daisy income stream is mobile. Here daisy is a Vodafone SP and provide a fully managed service for resellers and here too daisy is looking to the future and has a growing business for mobile PDAs with focus on the BlackBerry range.

 

New Resellers

Daisy is looking to add another 100 resellers to their customer list by early 2006 – how?

“We have now created good brand awareness in the channel but it is our ability to offer resellers something they can’t get elsewhere that proves vital,” says Riley adding that “product set, knowledge, good service, being easy to deal with all contribute towards more resellers looking to daisy. We also get a lot of resellers ‘crossing over’ from one market to another. For example, mobile communications resellers taking on our fixed line services and vice versa.”

Riley clearly has an eye on the future but seems to be aware that resellers will go at a pace that suits them.

“We see a time in the not too distant future where flat rate or bundled services will dominate the market. Having an ‘all you can eat’ product for £x a month that includes mobile, fixed line, broadband and line rental would appear to be the way ahead.”

Looking ahead to the opportunities for VoIP Riley recognises the need for resellers to own the lines and broadband going into their customers.

“If you own the lines then you have more chance of being in a position to sell more services to your customers – including VoIP. We will be looking to partner with a local loop unbundler, offer a QoS grade broadband and most likely the Polycom IP phone.

“The channel model is however very PBXcentric and is a barrier to VoIP so we anticipate the need to be able to provide resellers with upfront commissions to ease the transition from PBX. However, I see 2006 as being the year in which resellers see many of their traditional sales for PBX and minutes being lost to VoIP providers. Early entrants into the VoIP market seem to have struggled, for example, Inclarity and Level 3 but I think we are set for an interesting year.”

 

Times 100

without banging his head so I asked ‘how has topping the Times Tech Fast Track list changed the company?’

“It has certainly raised the profile of the company and given our resellers a boost in terms of having confidence in their supplier. For our staff it has been a big reward for all their hard work.”

 

Comes In Threes

Like daisy, Manchester-based Your Communications has three main income streams according to Sales Director Andy Lockwood who is responsible for two out of the three.

The United Utilities owned Your Communications has made no secret of the fact that they are looking to be sold. “It seems that today if your company is not for sale then there must be something wrong” says Lockwood

Like many others in the industry, Your Communications is facing pressure on margins as the price of minutes continues to plummet and other technologies such as VoIP put further pressure on operations.

Outgoing United Utilities CEO John Roberts was reported as saying last month, “We

have recognised for some time that consolidation of the telecoms sector has been overdue, and we are now seeing evidence of deals being done. [It is] our view that the interests of our telecoms business are best served by its participation in the current round of consolidation in its industry through a sale process.”

Meanwhile, the three Your Comms income streams are retail, wholesale and mobile with Lockwood looking after the first two.

Retail has three parts; network partners where other carriers use their north west-based fibre network for capacity and termination, a reseller team for calls, secondly, lines and broadband and finally an Intelligent Network team offering premium rate services via service providers such as scratch cards and adult services.

“Overall, this operation is going well,” says Lockwood, “it is challenging in terms of the price perspective as prices must have fallen by at least 30% in the last twelve months and by the same amount in the previous year. Price reductions are a symptom of where we are in the market. Carriers have double digit sales growth targets to hit where double digit growth does not exist – we have to sell more minutes but each minute is worth less. There are not enough slices in the pie for everyone and the price erosion spiral is causing consolidation in the market.”

 
Where Is The Exit

“This must come to an end at some point,” continues Lockwood, “Resellers are enjoying the best deal on minutes’ margins they have ever had by hawking their business from carrier to carrier but the future of customer retention lies in providing a range of services and not just cheap minutes.

“VoIP is just around the corner and some resellers will get caught out by not being ready for that opportunity. VoIP will be carried over broadband and resellers need to be selling broadband now; they need a strategy to capture lines and broadband and then migrate traffic to VoIP.”

Your Comms says that resellers should also look at inbound services such as 0800, 0845 and0870. “We believe that Ofcom will progress plans to end revenue sharing on 0870 lines this quarter and give the market a year lead in time to cease the service as it stands today. Our advise to customers is to stop and think about that now and determine their marketing and numbering strategy. A good 08XX number that has been promoted widely is an asset.”

Your Comms sees an intelligent network (IN) as the ability to intelligently route calls regardless of number called and time of day and have a new web-based platform where customers can decide their strategies then build that network by drag and drop meaning a skills-based routing plan could be implemented in 5-10 minutes.

“Differentiation is the key to success. Making changes to call centre routing used to take a week – we can do it on the fly now. Take a company having national numbers that operate locally and terminate in local regional call centres. However, at certain times of the day or week they may want to shut these centres down and route calls to another centre. It is an area of our operations that will receive greater focus in 2006.”

Looking ahead Lockwood sees too many ‘me too’ resellers in the market. “Most resellers have less than a two year horizon and need to understand the changing role of communications. With enterprises today looking at VoIP SMEs are lagging behind. This is because with larger companies the features and cost benefits of VoIP come along much quicker than for SMEs. When it comes to providing VoIP Your Comms will partner with a major local loop unbundler and buy at wholesale for resale.”

 

One Bill

A short drive from Manchester is Alderley Edge, home of Chess plc, a company that started out in 1993 reselling gas and electricity to businesses. Today they are established in the telecoms, mobile, broadband and network solutions, and more recently VoIP through their own national network.

Chief Executive Graham Pollock, “We are a traditional voice and mobile reseller. We decided there was no margin in BT wholesale broadband so built our own network backed off via BT and others. Our strategy is to achieve organic growth and we have in recent times acquired ten companies. The business is going well and our proposition is to provide users with just one bill for lines, broadband and calls.

Pollock places great emphasis on supporting channel partners, “We have six field-based sales staff to help our partners – if they can find the customers we can close the deals.”

“Looking ahead to 2006 we see the big challenge being VoIP and it will be interesting to see who starts to crack the market first. We will have a channel proposition for B2B VoIP and are currently trialling service to a number of customers. The channel needs to make the proposition compelling for users to move from PSTN and we are pleased that by having our own network that we can offer QoS.”

Chess is not standing still nor stopping at the ten acquisitions they have made so far and say that a ‘few more are in the pipeline’.

“Smaller resellers are coming under increasing margin pressure and without VoIP they are dead in the water. Many are looking for an exit from their business. Every acquisition is however different as people come into and exit the market for different reasons. When we bring a company into Chess we make the point of talking to each of their customers personally within the first eight weeks and continually review their rates – 60% are on long-term contracts and therefore we gain their trust, stay with Chess, buy more products and refer us to other companies. Our reputation in the market is very important and in the last 12 months we have actually increased commissions to our channel partners.”

Chess has never really focussed on NGN so their potential loss of 0870 revenues is very small, “It will however destroy some people’s business so why doesn’t Ofcom just make 0870 a premium number now.”

 

OFCOM Fudge

Pollock believes that the recent settlement Ofcom made with BT is a fudge. “Openreach came to see me yesterday. BT engineers really do need to become openreach engineers and not be aware of the difference between a BT retail and Wholesale customer but BT Retails still have direct access to openreach engineering time slots. In meetings with openreach I find their personnel very defensive – it is still a ‘them and us’ situation and they act like a wounded monopoly – but, it is still better than it was. BT should have been split up as the respective regulators did for gas and electricity.

The challenges as I see them for 2006 are BT and the economy. BT can get in the way of doing business – for example they ran out of ISDN routers last month which delayed all our ISDN2 orders. I think the economy for 2006 should be OK so the major challenge ahead I see is in getting VoIP going and at that point it is definitely game on!”

 
CHESS – www.chesstelecom.co.uk
DAISY – www.daisycommunications.co.uk
YOUR COMMUNICATIONS – www.yourcommunications.co.uk
 

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