“It is inevitable that the Telecom Reseller market will change over time; it won’t stay as calls and lines forever. However the period of transition is often the most dangerous in any industry. You need an older generation product (in this case calls and lines) to be the ‘cash cow’ and fund the inevitable cash drain of the ‘new product with exciting prospects’.
In the last couple of years many companies have charged into new products such as VoIP, hosted and SIP without the safety net of a cash cow. Many still have tiny revenues and generate little or no profitability and cash. The banks won’t fund ‘prospects’ anymore and want to see cash generation now. Sadly (but highly predictably) that means that many of the ‘pioneers’ of new products will go bust soon and I predict that by the end of the year we will see a smaller number of much larger, better funded players dominating these markets. AdEPT has deliberately waited until now to launch a business-grade managed-SIP product. We were happy to wait and allow others to go before us and make the expensive mistakes when inter-operability didn’t work.
Is there a future for a switchless reseller when the market is declining? The structure of our sector is very unusual: AdEPT is one of the 10 largest UK resellers and yet our sales are only £29m in a market worth several billion pounds. Our opportunity is still huge; we would have to increase our sales by a factor of 10 before BT would even notice we are here. 99% of the UK’s telecom resellers have sales of under £2m per annum. If your company didn’t make much profit and generate cash in the good times then you are really going to struggle now.
The normal back-stop for a small reseller has always been a potential sale of the business. However, as with the housing market, timing is everything. This year will see fewer buyers as bank funding becomes more difficult to get hold of, and for the few larger players who can raise money, very expensive. Barclays have borrowed money from the Middle East at 14% so we shouldn’t be surprised if the cost of borrowing rises significantly. This will impact on both the number of deals done and the price paid. Buyers will be very choosy about which deals they do.
In every industry there will be winners and losers. There is no such thing as a year when everyone loses. Even when a sector is having difficulties some do well and others struggle. Supermarkets are a good example where Sainsbury’s bucked the trend and reported increased sales over Xmas when most others declined.”