UK Telcos Target SMEs for future growth

The Financial Times reports that several of the UK’s telecom operators have identified small business enterprises (SMEs) as a driver for future growth.  At their full-year results presentations this month, both BT Group and Vodafone highlighted small and medium-sized enterprises (SMEs) as one of their top priorities to increase revenues.  There is no dominant player in the UK’s SMEs telecoms market, with Virgin Media, BT Group, Vodafone and Daisy Group among the companies competing for a piece of the market.

“There is a growing trend towards mobility for businesses to access all the systems in their offices from their mobile device wherever they are, which is what attracts mobile providers such as Vodafone to SMEs,” says Mike Cansfield, a telecoms analyst at IDC, the consultancy group.

Last year, Vodafone launched a global advertising blitz to promote its One Net unit, which offers services such as linking landline numbers to mobiles, resulting in the net addition of 500,000 users to the division and pushing its customer numbers above 2m. The marketing campaign resulted in a 2.2 per cent year-on-year increase in revenues from Vodafone’s business-focused enterprise division.  Globally, Vodafone has 34m business customers accounting for about one-quarter of its £43bn in annual service revenue.

“The enterprise market offers attractive growth opportunities. Multinationals and smaller companies alike are looking not only to manage costs but also to move to converged platforms and improve mobile connectivity and productivity for their workforces,” Vodafone says.

Vodafone’s looming £1bn takeover of Cable & Wireless Worldwide is likely to further bolster the group’s UK presence in the sector, piling pressure on smaller rivals such as Daisy, the solely business-to-business telecoms company.  Without the marketing clout of Vodafone, Daisy uses its face-to-face customer service as a selling point for its subscriber base of 75,000 businesses, which are dwarfed by BT’s 893,000 SME clients.

“We set ourselves up as an SME-focused company because we wanted to spread out our risk over thousands of customers rather than be totally reliant on one or two big ones,” says Matthew Riley, Daisy chief executive.

Daisy’s customers employ an average of 80 staff, leaving the bigger contracts to the likes of BT and Vodafone.

“Big companies have layers of bureaucracy. With small companies it’s nearly always the boss that you deal with, and decisions are made quickly,” says Mr Riley.

When asked about the impact of the UK double-dip recession, Mr Riley says that it is mostly behind SMEs because “the weaker ones have already gone bust. The stronger ones have pulled their belts in, but they’re not seeing much growth.”

Budget-conscious SMEs have provided business opportunities for telecoms providers to combine services, such as fixed-line telephone systems, mobile, broadband, cloud computing and consultancy, into one lower cost package.

However, the benefits of this move is yet to reach Daisy’s bottom line.

At Daisy’s most recent results for the six months to September 31, the group narrowed pre-tax losses from £10m to £9m, out of revenues up from £119m to £176m. Daisy’s sales were bolstered by a swath of acquisitions.

“The problem that Daisy Group has is that it is not big enough in a market where size really matters,” says Mr Cansfield, acknowledging that Daisy has made acquisitions to address this concern.

Although SMEs have tightened their belts during the downturn, both Mr Riley and Mr Cansfield backed calls for the government to increase its pressure on banks to free up lending to SMEs to stimulate growth.

“An economy grows when its SME sector is vibrant,” says Mr Cansfield. “Big multinationals are not the companies that drive economic growth.”