Company profile: Energis comes of age as an alternative to BT

Energis, the UK?s third telecomms operator, celebrates its fourth year in business this month. Although it did not launch its core network until the summer of 1994, it is already snapping at BT?s heels and boasts household clients such as British Gas, Boots, travel agency Going Places and Mirror Group Newspapers. So who is this young whippersnapper, and how serious a challenger is it to BT?

The operator put itself on the map when it dared to challenge BT at its own game by slashing the cost of its business calls to the top five international destinations - the US, France, the Netherlands, Germany and Ireland - to 10p a minute. This undercuts BT?s tariffs by almost half.

Aggressive pricing has been Energis? watchword since it came into being in March 1993. It began by launching a telephony service to UK businesses, which it promised would be at least 10 per cent cheaper than BT?s lowest discounted price. For this customers would get free reporting facilities so they could budget for increased usage, for example.

Such expensive promotional tactics are possible for Energis partly because of its heritage as the offshoot of deep pocketed parent National Grid. Up to last September, #500 million had already been spent on Energis and the National Grid promises to invest up to #100 million each year.

Energis also boasts BT?s former European director, Mike Grabiner, as chief executive. But Annie Jupp, spokesperson for Energis, said UK businesses took notice of the company because it signed the BBC as its first client before its network was officially up and running.

The company operates a 4,700-kilometre network covering all the major cities in the UK. Jupp believes this is what sets its apart from its rivals such as Colt and MFS, which serve only the financial centres. Energis runs a national network through fibre optic cables wrapped around the National Grid?s electrical pylons. Therefore it can claim to be the UK?s third national operator without the baggage of legacy systems.

The network uses synchronous digital hierarchy (SDH) technology, which has been around since the end of the 1980s. Energis claims SDH can carry data at up to four times the speed of other fibre networks. SDH requires smaller hardware so telcos need only set up a minimum number of telecomms sites. BT is currently closes down many of its sites because it is migrating its network to SDH from its predecessor PDH.

The benefit to Energis, explains Alistair Henderson, head of network strategy, is that its network can be managed remotely rather by hundreds of field engineers fiddling with wires. It also enables Energis to introduce new services quicker than having to work out how to deliver them over a legacy network.

The company now offers 16 different services spanning frame relay, ATM, Intranet and virtual private networks, to 32 business sites in the UK. One of its growing service offerings is Inbound, aimed at Internet Service Providers (ISPs). Under the scheme, users dial a local access number that goes to BT?s local exchange. The call is then collected by Energis which sends it to the ISP. This means customers only pay the price of a local call the whole time they are surfing. The part of the call delivered by Energis is paid for by the ISP. Through this service, Energis claims to carry 60 per cent of the UK?s Internet traffic. ?The only ISP we don?t have is Compuserve which has its own network. We are attractive to ISPs because we are never going to be an ISP, unlike BT,? said Jupp.

In the first half of the company's financial year managed services, such as management reporting, and direct services, encompassing Inbound and virtual private networks, were the largest and fastest growing revenue streams, contributing 33 per cent and 31 per cent of the #43 million total respectively.

Energis targets UK companies that have multiple sites across the country and in sectors spanning travel, retail, broadcast and media, IT, and utilities. Despite the UK-centric nature of its clients, offering international access is vital. It is working on offering all its services across Europe and the US.

However, unlike its national competitors, it does not intend to join any global alliances. Instead it offers international access through correspondent relationships, including those with Dutch operator PTT Telecom and Sprint of the US. These agreements allow both parties to share each other?s network infrastructure. Currently, Colin Jenkins, Energis? head of international programmes, is working on developing more relationships with operators around Europe and north America.

Such relationships are non-exclusive though they do rely on partners supporting each other?s customers. As Jenkins explains, these relationships ?rely on mutuality?.

Inbound is the nearest Energis gets to offering services to residential customers. The prohibitive factor, which is a problem for all new players in the UK, is the cost of interconnection charges to the BT network. If the UK adopts equal access, as in the US, then Energis could offer services to consumers, suggested Jupp.

In the meantime, Energis is tackling the issue of metropolitan access, which would bring it closer to local businesses. Currently the company shells out #50 million a year to BT to deliver calls to its customers? premises but this could be done by cable or radio operators.

So what of the future? The National Grid has said it is looking for an equity partner for Energis and Grabiner has been reported to have held meetings with a number of telecomms and cable operators, but nothing concrete has been announced. Instead it has invested #550 million in building a 4,500-kilometre national fibre optic trunk network, which includes running phone wires along London?s Undergound tunnels. By investing heavily in infrastructure and marketing and keeping a sharp focus, Energis is confident it can give BT a run for its money.