Telio flattens the playing field
Vonage's impending (and long-delayed) entry into the European market is getting a fair amount of coverage in the States and in the UK (Telecom Markets this week speculates that a deal with NTL may be on the cards in the UK). However, when Vonage arrives, they may find that the market has moved on a bit since they first talked about European expansion a year ago. For example, in the UK market, Gossiptel (www.gossiptel.com) has about 5,000 users and is currently adding about 125 - 150 subs per week to its consumer service with zero marketing spend - but more importantly, the various business units comprising Gossiptel also contain all the components of a successful one-stop white label offering (hosting/managed services, back office, call center, interconnect). I suspect it was a similar asset portfolio which led UK ISP Business Serve just last week to acquire Pipemedia (http://www.pipemedia.com/pressreleases/BusinessServeAcquisition.pdf, which operates the Pipecall service blogged by Andy Abramson on Saturday).
Another area which may prove challenging is pricing. Today Telio, "the little Norwegian telco that could," is to announce a flat-rate calling plan for its subscribers covering calls to all fixed lines in Western Europe and North America, for the same fixed price of NOK159 per month. In other words, for EUR19.50, the monthly price that Norwegians pay just to have an access line in the traditional fixed line world, unlimited fixed line calling is now a reality to something like 400m lines on two continents. When Telio went live officially in February, EUR19.50 covered flat rate calling in Norway alone. This was expanded to all of Scandinavia only in June. So, while Telio pricing has remained constant, the flat rate calling "catchment area" has expanded by a factor of around 114x in eight months. For heavy international callers this must equate to effective annual price erosion of something like 70%, if not more. No doubt the Nordic competition regulators' working group, who today issued a report (http://www.kkv.se/bestall/pdf/rap_telecompetition.pdf) stating that telecoms pricing in the region still has significant room to become more competitive, would cheer such rapid price compression benefitting consumers.
Telio's press release from today again highlights its intention to expand this offer to other consumers in Europe, and we expect this will come both by means of footprint expansion, as well as in the white label arena, where we think a deal may be imminent in Northern Europe. (Incidentally, it is my understanding that a number of private market transactions in Telio equity recently indicate a public market value of EUR25 - 30m if it were a publicly traded company, and that it will be profitable at the net income level this year. Just goes to show what's possible when companies don't burn cash in marketing spend.)
Monday, October 18, 2004
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