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November 25, 1993

BULK TELECOMMUNICATIONS RESELLER SEEKS UKP450,000 UNDER BUSINESS EXPANSION SCHEME

By CBR Staff Writer

Nationwide Power Communications Plc of Mayfair, London is seeking to raise up to UKP450,000 under the UK Business Expansion Scheme, which gives investors in qualifying companies tax releaf at their marginal rate of tax after the company has been trading for four months – with the relief withdrawn if the shares are sold before the five-year qualifying period is up. The company is making its bid for a niche in the UK telecommunications market, its main pitch being the concept of the cut-price calling card. The basis of the business is the bulk buying of telecommunications capacity from the existing carriers at preferential rates, which it can pass on to its own customers. The first product, dubbed Inter-Com Gold is based upon the calling-card principle: users get a PIN and a number to call and dial into the Nationwide system. Once in, they use the tone-phones to dial out again to their final destination – at substantially lower rates. Instead of trying to sell the cards itself, the company intends to target the existing card providers or associations: credit card companies, hotel groups and motoring organisations already issue bits of plastic, and Nationwide wants to persuade them to add telephone card capabilities to these. On top of the basic calling-card there are also a few value-added services including tracker which enables users to program the system to divert their calls to a new number, nationally or internationally. The company intends to issue a total of 450,000 new shares at UKP1 apiece in addition to the current issued ordinary share capital of UKP100,000.

Small trading profit

Chairman Walter Stevenson has also committed to investing a further UKP100,000m. The company is aiming for a small trading profit by the beginning of its second year of operation and a net profit of UKP2.59m by the end of the third. It believes that, after paying network charges and agency fees, it can make a gross margin of around 15% on the cards. However the company has yet to sign its bulk purchase agreements with the carriers – and won’t until after the shares have been issue: the company is waiting to get the best possible deal, says finance director Richard Warren. There are another couple of ‘buts’ to watch out for too. The UK telecommunications market may be booming but it is also highly competitive and technically innovative. British Telecommunications Plc already offers a simplified version of NPC’s Tracker, in the form of its star service call diversion BT does not handle international diversion yet, but where there is a market, BT and Mercury tend to follow. Similar concerns can be raised about the National’s ability to maintain margins as competition continues to open up the market and drives carriers’ standard tariffs down. Finance director Richard Warren acknowledges these concerns, but sees tariff drops as a two-edged sword. He cites research indicating that call volumes tend to rise as tariffs fall and claims that these volume increases will offset any losses through margin reduction. In addition, he is optimistic about striking deals with the new carriers which will appear as the market is liberalised. National is already in negotiations with wire-less based licensee Ionica L3 Ltd. The service should be running by March, minimum individual subscription is UKP1,000 and the issue closes on December 17. No proposed exit route is given in the prospectus for those that want to cash in after five years and the unsponsored issue is clearly a high-risk one and for the very adventurous investor only.

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