UK: TELECOMS 3 - THE POWER OF ENERGIS. - A well-connected newcomer has plans to be both BT's main competitor and its biggest customer.

by Malcolm Brown.
Last Updated: 31 Aug 2010

A well-connected newcomer has plans to be both BT's main competitor and its biggest customer.

David Dey, chief executive of the UK's newest telecommunications company, Energis, wants it both ways. He wants to be a third force in telecoms, taking a major slice of business from BT and Mercury, but he also wants to be BT's biggest customer.

This is not quite the paradox it seems. Energis is building the arteries of a new telecoms network - the mainline fibre optic connections between cities and towns - while the 'veins', the so-called local loop networks which run into every house and factory, will be provided, for a price, by others, most notably BT. So the bigger Energis gets, the more it will use BT for the local loop connections.

The company, which is wholly owned by the National Grid Company, will launch its service in spring 1994, initially linking 20 of the country's largest towns and cities.

Energis has had one major advantage over other companies vying for a slice of the telecoms market: because its parent owns the national grid it is able to piggy-back on the network of pylons and overhead powerlines that criss-cross the country. It is, quite literally, winding its fibre optic cables around the existing powerlines.

Because it does not have to dig and bury cables, says Dey, it can build the network four times faster than anyone else could using conventional techniques, and at about a quarter of the cost. 'That's the primary reason why the electricity industry is the natural competitor to BT.' The teams which wrap the cables round the powerlines were expecting to complete 1,800 kilometres by the end of December and anticipate doubling that by next July.

By January 1995 the network will reach nearly all major towns and cities.

Energis is going for the long-distance and international call markets, not local calls where it could never realistically compete with BT, says Dey. By the end of the decade he expects not only to be BT's biggest customer but to have become larger than Mercury. To do that, he says, the company has to differentiate itself very clearly from BT and Mercury.

'If we came in as a "me-too" operator, looking the same as BT and Mercury, offering exactly the same services, then it just degenerates into a price war. We'd get a small market share, five per cent, and that'd be it.' A key difference, says Dey, is that Energis will be customer-driven. Companies will be able, using special software, to enter their requirements on a personal computer and immediately send those demands through the network so that they drive the system directly themselves.

There is very little 'visibility' in the present networks, says Dey. 'If I'm a clearing bank and I want to get a connection between my Bristol branch office and my Oxford branch office I'll have to call BT and they'll give me a quotation and within 20 days they'll put in that circuit for me. On our network the customer will be able to sit at his terminal, click on to Bristol and Oxford, say that the capacity he wants is 65 kilowatts and by clicking again he'll be able to put that capacity in place himself. It will improve his bottom line. If the bank only wants the line for three hours it can put it in place for three hours.' Competitors cannot match that kind of flexibility, Dey suggests.

Energis is essentially a marketing company. It is outsourcing almost everything else. Although it is putting down a completely new network, it only has a couple of people in-house dedicated to building that network. The main work is sub-contracted to Northern Telecom, the Canadian telecommunications equipment supplier.

One of its major assets when the system is up and running, says Dey, should be its connections with the local electricity companies. 'The electricity industry has a customer relationship with every business and every home in the UK.' So Energis will get benefits from the electricity companies. But they should benefit too. 'The demand for electricity is not increasing in this country - maybe one per cent a year - so you've got these very large companies who are cash rich and their core business is not growing. They're very keen to evolve into a new core business.' BT's attitude to Energis is rather schizophrenic, says Dey. 'They say, "If you grow the market, that's great, but if you're just taking business away from us, that's bad." I think we can grow the market and grow the use of telephony.'

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