Vanco tells secrets of success

After 20 years in the business, virtual network operator outlines its plans for the next decade, writes Doug Woodburn

Virtual network operator (VNO) Vanco is in an enviable position as it celebrates its 20th birthday this year.
Reportedly bought for £1 in 1988 by chief executive Allen Timpany, UK-based Vanco has grown rapidly to become a profitable £250m firm.

The company now boasts more than 1,000 staff and has amassed relationships with 700 carriers in 230 countries. It claims to be 10 years ahead and 10 times the size of its nearest competition. The firm regularly rubs shoulders with the likes of BT, Verizon and Orange in competition for global corporate deals.

At Vanco’s annual summit in Barcelona last month, Timpany laid out his vision for the next 20 years, boldly predicting that Vanco is destined to become a £2bn company.

But despite the fanfare, Vanco is facing up to the stark reality that its share price ­ rocked by analyst fears over its gung-ho revenue recognition model ­ has bombed by about 80 per cent in recent months. It may be a big fish in a small pond, but some insiders believe even larger predators, such as BT, may be circling.
Timpany was quick to shrug off the share price concerns and vowed that Vanco will remain at the top of the food chain.

“Virtually every technology firm in the past 10 or 15 years has gone through a phase of being out of love with the US or UK market,” he said.

“There are probably a dozen VNOs out there that are five, six or seven years old and turning over $60m (£30m), compared with almost £300m in Vanco’s case. We have a natural place as consolidator ­ as these firms become larger we would seek to acquire them to be the dominant industry player.”

There is no doubt that the VNO model is gaining traction among global firms hunting for alternatives to the more rigid offerings of asset-based carriers (ABCs) such as BT. Vanco claims it can save its clients up to 20 per cent simply by drawing on its links into the ABCs to obtain the best deal on voice, data and mobile infrastructure in each country.

“In a nutshell, you could position us as being the Carphone Warehouse of the business-to-business world,” Timpany explained.

He highlighted a recent contract win with UK restaurant owner Mitchells and Butlers, which had a requirement for 6,000 telephone lines. BT had been its previous provider and in the original audit the firm had 7,000 phone lines.

“It was paying for 1,000 phone lines that were connected to thin air. BT is quite well run and was doing exactly what it was asked, but no one was asking the customer whether those lines were being used,” he said. “We understand all the different infrastructures, all the technology options and we are impartial and not linked to any particular designs, suppliers or prices.”

Although there is no shortage of emerging UK VNOs, Timpany maintained Vanco remains head and shoulders above all local competitors.

“The only one we came across in the UK was Sirocom, but its presence has been damaged by moving into Azzurri,” Timpany said. “It became less independent and I think the VNO model needs to be pure. Azzurri has that uncomfortable combination of not only pushing BT but also supplying equipment.”

Martin St Quinton, founder and director of voice and data integrator Azzurri, which acquired Sirocom in 2006, hit back: “This is just plain wrong. We are completely vendor independent. We have a relationship with BT, but so does Vanco. I agree with Allen that VNOs need to be truly independent, but we are.”

Peter Knight, chief executive of mid-market-focused UK VNO Adapt, claimed Vanco could lose out in the long-term by failing to diversify from its core focus on MPLS networks.

“We see the datacentre and managed services as key to our future and we are in a stronger position than Vanco,” he said. “The big network operators, such as Colt and Cable & Wireless, are no longer just about MPLS networks. They cover more territory and telecoms players must start spreading into that space.”

Vanco has been pushing out growth of about 40 per cent for the past several years and Timpany is confident there is enough white space left to continue this frenetic expansion.

“We think the market size is £45bn per annum, so we are just over half a per cent of that. I do not think the bell-shaped curve will come in until we are maybe up at seven, eight or 10 per cent, so I think this could go on for a long time,” he said.

Barrie Desmond, business development manager at distributor VADition, agreed that the VNO model remains in vogue in Europe.

“European firms tend to outsource a lot more infrastructure and services than US or Asian companies, so the landscape is very good for VNOs. We are also seeing a centralisation of applications and services within the datacentre.”

However, if its share price is anything to go by, Vanco has yet to win in the analyst and investor community. Vanco’s market capitalisation sank to as low as £50m in February as its share price nose-dived to about 80 pence. Back in April 2007, Vanco’s share price topped £5.

Timpany lashed out at investors’ lack of ambition. “The market, particularly in the UK, does not realise how big the VNO opportunity is. There is a short-term view of: ‘we want you to build a high-quality £200m business’. I want to grow a business worth £2bn so I am taking a longer view of the opportunity,” he said.