In its early years, Ford Motor Company owned a steel plant and a rubber plantation to guarantee a supply of high quality materials.
That would be unthinkable for any carmaker today and Ford has long operated as a design and marketing company that marshals finished parts from external suppliers.
The telecoms industry – born a good 18 years before Henry Ford founded his company – has been slower to evolve beyond this own-it-all mentality.
Change swept in during the 1980s, when regulators forced the end of the monopolies and enabled new entrants to build their own networks.
In that period, Europe’s operators exploded from 20 national incumbent carriers to 600 licensed operators across the region. Of the 600, fewer than two-thirds survived the bursting of the dotcom bubble.
But British entrepreneur Allen Timpany saw a different opportunity in deregulation. “This was a market discontinuity and I was looking for a way to take advantage of it. The easy answer was to get a licence to be an asset-based network that owned its infrastructure. But that seemed like a terrible business, about as attractive as becoming a small steel maker,” he says.
Instead, he set out to become a middleman, one who could consolidate the newly fragmented telecoms supply chain into bespoke services for business customers.
To do this, he believed, there was no need to own the underlying network infrastructure. He would design, source and manage the network on behalf of the customer, and in 1988 he founded Vanco, the first virtual network operator (VNO).
A key advantage of the Vanco model, says Mr Timpany, is that a VNO is free to select the cheapest or best network link to serve a customer.
Asset-based carriers, on the other hand, are bound to show a return on their existing network assets and this often goes against the best interest of customers.
In many cases, traditional service providers will not even bid for a global contract unless they are sure they can run 60-70 per cent of a customer’s traffic over their own networks, he says.
Today, Vanco provides global voice and data connectivity as well as remote access and managed security services.
A typical Vanco customer is a multinational company that needs to connect hundreds or thousands of sites across dozens of countries. It connects 1,700 sites in 10 countries for Michelin subsidiary Euromaster and ties together 80 separate service providers to connect 155 sites in 64 countries for British Airways.
Critics of the VNO model say that the quality of the assembled network is at the mercy of outside suppliers.
But Vanco offers aggressive service level agreements (SLAs) and discusses any breaches with customers during monthly review meetings. “We have never had a contract broken in 18 years for SLA reasons,” says Mr Timpany.
This underlines another difference in the VNO model. “One of the greatest failures of carriers is their ability to work together,” says Mark Robinson, Vanco’s Global Service Delivery Manager. “We try to resolve problems when they occur, whereas carriers want to show that the problem is not in their network.”
To underline this openness, Vanco gives its customers full online access to the same management tools that Vanco uses to keep its services running. Vanco’s network operations centres manage 25,000 customer routers spread across more than 350 service provider networks in 152 countries.
Business customers are increasingly attracted to Vanco’s proposition. It has more than 190 customers worldwide, including such companies as Siemens, Accor and Lloyds TSB.
Since its creation in 1988, Vanco’s revenues have grown about 40 per cent a year, reaching £147m in its latest fiscal year. “You can only have that when you are in step with the market,” says Mr Timpany.
Vanco’s contracts run an average of four years and the renewal rate is more than 97 per cent. Borrowing a pricing mechanism used by the IT industry, the VNO reviews customer solutions annually to see if they can be optimised and then takes a cut of any savings realised.
This typically results in a 25 per cent cut in the price of bandwidth over the life of the contract, although the contract’s absolute value tends to rise as sites and bandwidth are added.
The entry barriers for other VNOs may appear to be low but Mr Timpany believes that few new entrants could build the carrier relationships and the credibility needed to succeed. For instance, Vanco has relationships with 4,000 of the world’s 10,000 operators and actively trades with 500 of them.
“Swisscom looked to copy what we did. But they decided it would be too complicated and expensive,” says Mr Timpany. Instead, the telco signed a 10-year contract with Vanco to resell the VNO’s services to Swiss companies looking for global network solutions.
A similar deal is likely this year and Vanco also has reseller agreements with Telecom Italia and Asianetcom in Singapore.
Now, Mr Timpany aims to accelerate his company’s growth rate above 40 per cent a year. “I don’t think Vanco has arrived until we’ve reached a multi-billion pound scale.”