The battle between telecoms companies for business customers has been especially brutal in the past six months.
A High Court legal fight between BT and Cable & Wireless Communications set the tone last November, a rash of negative advertising followed and an Advertising Standards Authority investigation into price claims will report in May.
The battle has been seen largely as one between BT and CWC. But last week a third serious contender entered the market – Energis. It has only 1.5 per cent of the total business sector in the UK – a customer base of 15,000.
But it has just made a quantum leap by creating a 100m joint venture, MetroHoldings. This combines the fibre optic network capabilities of Energis’ former parent, the National Grid, with the clout of European heavyweights Deutsche Tele-kom and France Telecom.
The City was in no doubt that this was good news. The Energis share price, which had more than doubled since December’s flotation price of 2.90, increased further and hit 7.39 on Monday. Ironically, the MetroHoldings announcement came on the same day CWC made 1,500 redundancies.
Energis’ maintains it will have five per cent of the international telecoms market, with an estimated value of 1.4bn, by 2001; the City believes it will hold three per cent of the UK market by the year 2000. In teaming up with Europe’s biggest telecoms players it also has pretensions to challenging BT and CWC as a “third force” in the UK.
BT holds about 80 per cent of the total UK business market and spent close to 80m on marketing in that sector last year. By contrast Energis spent 2.5m on marketing last year, including 2m of advertising through M&C Saatchi, plus a press flotation campaign through Dewe Rogerson.
BT has the biggest network, but Energis believes it has the best. The company’s extensive fibre optic network, which stretches to over 5,000km, allows it to carry complex signals at speed. According to Energis, it is a quality BT and CWC have spent 300m, and 400m respectively, trying to emulate.
Energis has a 50 per cent stake in MetroHoldings, Deutsche Telekom and France Telecom have 25 per cent each. The rationale behind the deal is to reduce the substantial cost to Energis of buying local access from other operators, currently costing 40 per cent of its total revenue – 38.8m.
The consortium partners will collaborate on network use. But they will market their services separately. The deal will give Deutsche Telekom and France Telecom a relatively cheap and effective way to enter the UK market.
MetroHoldings will build networks in the UK’s largest cities, where there is a concentration of existing Energis customers. The high-speed network will initially cover London, rolling out to Manchester and Birmingham.
The intention is to cover eight major cities in five years, backed by a the 100m investment, plus an extra 50m for building custom. “This is the battleground,” says a BT source.
A spokeswoman for Energis claims the BT and CWC duopoly is about to be challenged. “Their prices are high and we are going to be very aggressive on price. We’ve nothing to lose.”
One analyst believes Energis will move into the small business sector and eventually the residential market. But for now Energis has an immediate need to create a strong brand within the business community through marketing and customer service. Energis is also poised to take advantage of its international licence – granted in December 1996.
Energis is “young, energetic and relatively small”, says HHCL’s In Real Time managing partner Richard Zucker – the man charged with creating an identifiable Energis brand.
The force behind Energis’ marketing is director of marketing Geoffrey Cheetham. He was previously general manager of marketing at BT and then managing director of business services at TeleWest Communications. His commitment to marketing is confirmed by his creation of a new position – head of integrated marketing communication – filled last week by Gregory Thorpe.
According to HHCL’s Zucker, the reputed 4m brand consultancy budget is a conservative estimate. Zucker’s brief is to develop a distinctive brand, below the line, in a fierce and crowded market but without BT and CWC’s huge spend. There will also be an advertising campaign in business titles breaking this year.
“It doesn’t have the baggage a lot of bigger, more established companies have and its people are very motivated,” reckons Zucker. “I am looking for a resilient, irresistible and remorseless brand.”
BT, however, remains bullish, almost blasé, about the arrival of MetroHoldings. “France and Germany must open up to competition and we want the opportunity to compete and operate in those markets, MetroHoldings makes that easier. Ideally we want BT to have the same opportunity to compete in France and Germany as their companies have here,” says a BT spokesman.