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April 14, 2005

Colt trades voice revenue loss for kit rental

Colt Telecom Group, a UK-based network operator that is targeting business customers in Europe, has launched what it claims to be the first pan-European managed IP telephony service, based on flat rates for calls within those countries and equipment rental.

By CBR Staff Writer

The company, which is headquartered in London, is offering the new Colt IP Voice service to businesses at 24.50 euros ($31.50) per user per month for local, national, and international calls within its 13-country network footprint, plus 20 euros ($25.70) per user per month for the equipment, which is basically the soft or IP phone.

Andy Irvine, Colt’s director of voice, said the offer is targeting the company’s on-net customers, the 50,000 users of the company’s data and/or TDM circuit-switched voice services, of whom 18,000 have a fiber link to their building, with the remainder using DSL connections.

Colt CEO Jean-Yves Charlier said 60% of the company’s GBP 1.2bn ($2.26bn) annual revenue comes from voice services, with roughly half the voice revenue from the sale of wholesale minutes to other carriers, the other half from retail services to businesses. That total is set to drop as Colt persuades existing voice customers to switch to IP, though equally there could be incremental revenue from data-only customers adding voice services to their overall buy from Colt.

He said there are trade-offs for the drop in revenue from circuit-switched voice. First and foremost is the revenue from the equipment revenue. We’re not currently providing customers with phones, so this is a new source of revenue, he said. Colt has selected Germany’s Siemens as its equipment provider for the phones and the network infrastructure, comprising four soft switches and 25 media gateways.

Charlier cited the model the company has used with its German customers. A typical German customer will enjoy a 20% reduction in the cost of phone usage with the new service, he said, plus a further 25% on infrastructure, as he’ll go from a capex spend on the phones and a PBX to an opex spend on the phone rental with no PBX, and will have none of the 100-200-euro cost of moves, adds and changes incurred in the circuit-switched world.

While that 20% reduction in spending on calls will impact Colt’s voice revenue negatively, he said the 20 euros a month it will now start to receive for the equipment rental compensates for the reduction in usage revenue.

The second gain Colt predicts from the service is the up-sell potential for its IP VPN services. Today only 15% of its customers are taking voice and data services, but the IP telephony service will be delivered through a VPN, enabling Colt’s salespeople to target IP Voice customers not currently using the company for data to start doing so. The logic behind this is that they will already have the VPN infrastructure in place for voice.

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As for its total spend on the IP Voice project, it is relatively small at GBP 10m ($19m) per annum for the next three years, or about 8% of overall capex forecast for the period. While existing customers for voice or data are the low-hanging fruit, winning over entirely new ones may be more challenging.

However, Charlier said Colt is providing the network for most of the major stock exchanges, 70% of Swift’s IP traffic and a number of banks around Europe, and has Fidelity as a long-term investor with some 58% of its equity. He also said it expects to go cashflow positive in 2006.

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