Fighting Talk: Hawke’s Bay telco challenges big duopoly

Keith Newman talks to the executive team at feisty local telco NOW about humble beginnings and getting match fit to take on the Goliaths of the communications world.

A flyweight wireless internet provider that began life in a Hastings laundry a decade ago has morphed into a muscular full-service challenger, in training to take on heavyweights Vodafone and Telecom across the middle and lower North Island.

Onekawa-based NOW, with a local track record for innovation in wireless internet, broadband over copper and fibre optic-based business solutions, wants to step into the ring and duke it out for a bigger slice of the $5 billion prize money.

Chief executive Hamish White is bullish and verging on bolshy when he talks about his home-grown telco contesting the 81% market share of incumbent duopoly Telecom and Vodafone.

The company which changed hands, beefed up its systems and capitalised for growth a year ago, wants a larger slice of annual Kiwi spend of $3 billion on fixed line and $2 billion on mobile services.

White insists the old world Goliaths built on analogue foundations have way too many employees and overheads and “are headed for a train wreck” at a time when the business and regulatory stars are lining up for a new wave of competition.

Because Telecom no longer own the infrastructure, it’s subject to the same constraints and gross margins as its competitors. That makes it more vulnerable to nimble players like NOW with its fully scaleable digital platform and focus on fibre.

White suggests the DNA of incumbents is to preserve existing revenues and margins. “We’re already bringing down the price; when we offer services and slash 20% off the bottom line they’ll have to follow kicking and screaming.”

NOW will firm up its mobile offerings this year with value-added deals for businesses, and ultimately domestic customers, reselling the services of Vodafone or Telecom.

Humble beginnings

NOW had its genesis in June 2002 when technical director and 20% shareholder Sam Deller; inventor, visionary and self-taught telco whiz, returned from working with MCI WorldCom in London, and saw a yawning gap in the local market.

Along with his own innovations he sourced leading-edge technology to build a scaleable IP-based network ahead of launching wireless internet provider Airnet. Brother Ben Deller, involved in sales and marketing from day one, says Sam is without peer in voice and telco engineering and could see where the industry was heading.

With a group of backers, Airnet took on its first customers and moved into premises at Whakatu, guaranteeing 4Mbit/sec speeds to businesses, some rural customers, and those Telecom couldn’t reach with its copper-line digital subscriber line (DSL) service.

Connecting wireless customers was expensive and time consuming but the Dellers had their eye on a bigger picture, the transition to full telecommunications carrier.

However, playing with the big boys isn’t for the faint-hearted. For a start, says Ben Deller, the bar is set very high to achieve permission to connect (PTC), with contenders typically spending tens of millions of dollars on consulting and engineering.

Airnet jumped straight to home base. “Sam developed the voice interconnection technology himself and just rocked up with a box under his arm; within a week it was done. He had built the technology that differentiates resellers from phone companies.”

Mini milestone met

From June 2010, Airnet could install equipment directly into telephone exchanges and deliver national voice and broadband data services. In the first month it added 100 new customers to its 500 user base, a milestone that created a great deal of excitement.

However, it soon became clear it didn’t have the customer service staff and technology to cope. Local IT entrepreneur Rod Drury, aware of their dilemma, suggested they meet with former Telecom marketing man, Hamish White at Tank.

“Hamish clearly understood the market so we engaged him to work up a concept of what the company could look like in the future and a strategy to get us there,” says Deller.

Ahead of joining the Airnet board, White pitched a re-brand … ‘Airnet – it’s sorted’ … which resonated with everyone. However the next step, investment in new technology, plus sales and marketing and customer service systems, raised eyebrows.

In order to grow, the company needed to build credibility and robustness, but the board resisted. White offered to resign in January 2011, believing he could no longer add value in this uneasy limbo.

“The reality is you don’t go acquiring all this upstream national and international bandwidth capability unless you’re going to use it.”

Day and night traffic

He says Airnet needed to increase the number of business customers during the day and domestic users active in the evening, “otherwise economically you’re screwed”.

Confident the company had the right ingredients, White, after doing a full work-up on the regulatory, technical and economic drivers, staged what amounted to a takeover.

From Nov 2011 he acquired 65% of the shares, contingent on finding the necessary funding to finance growth and clear existing debt, and began bringing together a star line-up of business savvy board members including Napier businessman Neville Smith, Furnware’s Hamish Whyte and insurance heavyweight Colin Crombie to move the company forward.

After six months of hard slog, they took the kernel of the business and all of its smart technology from Whakatu to larger premises in Onekawa, Napier, and in April 2012 re-branded as NOW.

Under new ownership and with sufficient funding to grow to a methodical business plan they began adding to the 1,000-strong customer base.

Investing for service

All the company’s voice and data systems are now industry standard; after initially working with Juniper it’s also bought in technology from Alcatel-Lucent. “We’ve invested seven figures behind the scenes on enterprise grade network infrastructure and redundancy to ensure we’re rigorous and robust,” says White.

NOW has three levels of support, “all the technical and administrative functions you’d find in any telco,” says Deller. It has 25 staff and expects to grow organically to 45, including call centre staff, by early 2014. The original plan of 200 staff within five years, now seems modest.

White’s so confident in the customer service experience that he refuses to sign people up for contracts on anything other than hardware. “It’s a fool’s paradise if you’re locking people into contracts, if you don’t provide the service they will leave you anyway.”

While the company has the potential to be in profit today, it has chosen to continue investing in emerging opportunities. To do anything less, suggests White, would be to “short change shareholders”.

Handbrake released

Businesses across the Bay are now paying far more attention and teams of door knockers are adding to the domestic uptake, “there’s a buzz and a hum every day,” says Deller.

At times it’s felt like the handbrake is on, now it’s being released slowly. “When we came back after Christmas we found our sales levels for January-February alone were the equivalent of the entire previous year.”

While that blew everyone away, he says the company has to remain focused, and keep “looking 50 miles down the road”.
A close watch is kept on all the metrics including the structure of voice and data plans. “We have a preoccupation with numbers, everything is measured every day,” says Deller.

NOW’s salespeople are business consultants who understand the alphabet soup of ITC acronyms; IP, VoIP, cloud services, next generation telephony and data services, and know how to solve problems.

This year is about product development, working collaboratively with PBX and IT integrators and educating businesses to redesign around fibre to become more efficient and responsive to their customers and suppliers.

Typically that might mean pulling satellite offices into a central hub for data and aggregating phone lines into a single fibre connection, something, most telcos avoid because they lose monthly line rentals, says White.

NOW has had some impressive wins – Hawke’s Bay District Health Board, Pan Pac, and Vet Services (Hawke’s Bay ‘business of the year’); a pervasive presence in the education sector; and relative dominance in the region’s real estate market.

Beyond the Bay

NOW recently went live with First National Real Estate in Rotorua, signalling an important shift. It’s clear the upstart telco is not satisfied with targeting the 3% of the national population that reside in Hawke’s Bay or taking that to 5% by targeting Rotorua. “Why not go for third of the population?” asks White.

He reckons the company will have around 14% of Hawke’s Bay businesses and 10% of the domestic market by the end of 2013 and can double that within five years. “We believe we can attract a 20% market share in any market we choose to contest.”

NOW is currently discussing an accelerated but carefully managed and funded growth plan, for an assault on points south and west, including offices in Tauranga, Rotorua and Wellington within 12 months.

It is already providing voice over fibre services to its local customers and looking to capitalise on the massive awareness of fibre products created by Telecom in the lead up to the Government’s Ultrafast Broadband (UFB) deadline in April.

While the delivery of voice over IP down the fibre is something NOW has mastered, Telecom is still dependent on the old copper lines for voice services. That, says White, with disbelief, has created a problem for 30% of the country, because the resource consent for delivery of cable over the power poles is mostly for one service only.

White is full of fighting talk as he prepares NOW to go beyond the Bay, and confront the incumbents … “They’re inefficient, fat beasts…We don’t have that baggage and legacy, we’re a lean machine.”