Paul Connell (pictured) of Pure Telecom believes you don’t need to own your own network to be a success in the telecoms market: you just need to be obsessive about margin.
Profit, profit, profit. The P word figures prominently in Connell’s vision of what constitutes a sustainable telecoms business. The chartered accountant and director of business telecoms provider Pure Telecom recalls that when he first entered the telecoms market a few years ago, he was taken aback to find that revenue was king and nobody gave a damn about margin.
Now it’s the other way around. “The model has changed considerably since then and all the players, whether it’s BT, Eircom, MCI or ourselves, are margin driven: you don’t take the customer unless you can make money out of them.”
That strategy certainly seems to be paying off for Pure, which has a small but growing presence in the business end of the market.
Last month, the 22-person operation announced that it expected to increase its earnings before interest, tax, depreciation and amortisation (EBITDA) from €411,000 in 2005 to €550,000 this year — a 34pc increase — on expected revenues of €8m (2005: €6.4m).
Bearing in mind that Pure was only set up by Connell and business partner Alan McGonnell in 2002, these are impressive numbers.
So how have they done it? Connell puts a lot of store by the fact that he and McGonnell were never obsessed about owning their own network infrastructure.
Before setting up Pure, Connell was finance director of GTS Ireland, a fixed-line telco that did own its own switch and this experience convinced him that trying to run a network in competition with the market’s heavy-hitters was a forlorn hope.
“I looked at the GTS operation and decided that given the level of overhead involved in running a switch, no matter what we do we’d never make money out of this because it’s like opening up a Spar shop beside Tesco — telecoms is all about economies of scale.”
The alternative was wholesaling network capacity off existing carriers. In theory, the downside of this model is that you are never completely in control of your own costs because the wholesaler can dictate the price. However, Connell feels this drawback, if it is one at all, is far outweighed by the fact that the reselling party is free to concentrate on servicing its customers without the burden of running a network. So this became the business model chosen by Pure.
“The business model wasn’t there to run a small switched operation. At the same time there was 8pc of network utilisation in the country and there still is ample network available. So we do what we do best which is manage customers’ expectations and the carriers we use do what they do best, which is run the network.”
Pure’s main capacity provider is MCI/Verizon but it also deals with Eircom, BT and Magnet. Utilising this capacity, Pure has won contracts with 3,500 businesses, ranging from the smallest to multinationals. Its most recent signing is sports broadcaster Setanta, which is taking its telecoms service plus a 10Mbps broadband line from Pure.
As well as voice and broadband services, Pure offers a number of value-added data services, the newest of which is an online data back-up facility from €39 per month. Connell says that such services are a critical part of keeping customers happy and keeping them with Pure. “The key to making money out of telecoms in Ireland is controlling you customer churn. It’s expensive to acquire a business customer so you must not let them go. You wrap that customer up in cotton wool and you get as many products into them as you possibly can.”
Like that of other resellers, Pure’s business potential is limited only by the size of the carrier networks it uses.
Where voice services are concerned the network goes just about everywhere in the land but broadband is a different story and, in common with most commentators, Connell is dismayed by the state of broadband in the Irish market. “If you’re outside the urban centres or even towns, there’s huge areas of the country which can’t get broadband and, to be honest, never will, unless the government upgrades the entire network.”
Connell feels the only workable solution is for the Government to buy back the network side from Eircom, upgrade in it and then sell capacity to companies such as Pure. “That’s what BT have done in the UK and suddenly they’re making more money than ever and they’ve turned themselves into a fine company.”
Looking to the future, Connell says Pure will focus on organic growth combined with smaller niche business telecoms companies acquisitions to drive the company’s growth. Over the past three years the company has made three acquisitions — Comec Voice and Data, TGT and MCI’s SME (small to medium-sized enterprise) customer base — for an outlay of approximately €1.5m.
Connell says he would like it to eventually be one of the largest in the telecoms market but to get there he has no intention of abandoning his profit-first philosophy.
“My strategy is to make money to build a solid company to get strong and as we get strong we get bigger. I don’t want to be one of the biggest telecoms companies in the State in the next six months but I wouldn’t mind getting to be one of the biggest in the next few years. Let’s grow but let’s grow steadily.”
By Brian Skelly