Inside Vanco: Lessons from a service provider

Will Sturgeon recently caught up with Vanco, a rare rising star in the European telecoms sector, at its annual get-together in Malta. While he got the spin about this virtual network operator, he also learnt a few wider truths about what CIOs will pay for in these budget conscious times...

Arriving in Malta there is a buzz about the place. On 8 March the people of Malta went to the polls to declare their interest or opposition to joining the EU - for the record they voted in favour.

Also taking place that same weekend, with considerably less fanfare, was the annual conference of UK virtual telecoms network operator Vanco.

Vanco designs, implements and manages global corporate data networks for companies such as Avis, Ford, FT Interactive Data, Staples and Virgin Megastores. It has no nuts and bolts infrastructure. Instead it treats the technology as a commodity, to be procured as any other company would buy its stock from the most competitive supplier, in order to develop its global network.

A lack of actual infrastructure also shifts the importance onto the personnel selling this proposition. As such Vanco is committed to issues of staff retention and attracting the best staff available.

For this reason Vanco staff enjoy a range of flexible benefits which they tailor for themselves from an annual allowance. These range from a 'show me the money' style cash sum, to private medical care, saleable and swappable holiday days, and a compulsory - but self-determinable - pension scheme.

However, high up on the list of perks is the annual junket. And so to Malta.

Every year Vanco flies its entire workforce and their partners for three days and two nights of team building exercises and seminars. The clamour for the bar upon the arrival of the 600-strong Vanco party suggests 'it's not all work, work, work'.

At this point it seems necessary to question whether, given the general state of the telecoms market, such extravagance flies in the face of conventional wisdom.

Allen Timpany, CEO of Vanco, defended the sense of these trips, saying: "It is important to bring everybody together and ensure that people are informed about what the company is up to. It makes everybody feel a part of what we are doing."

In fairness, it's probably also far more likely that you'd keep an audience captivated and motivated with the promise of evening drinks by the Med than you would in a Holiday Inn in West London.

Furthermore, Vanco isn't a company which appears to be overly concerned with conventional wisdom. Vanco floated on the London Stock Exchange in November 2001 - by which time the telecoms sector had sunk to an all time low. On the surface such a move seems incredibly reckless.

Wayne Churchill, UK MD of Vanco, said: "The thinking behind the IPO was that it was a good time to do it. We had the total attention of the investment community. For the size of the company we got a disproportionate amount of interest.

"While we only raised a relatively small amount - £15m - the issue was twice oversubscribed."

In total 12 institutional investors took up the shares, including the likes of Merrill Lynch.

Timpany, who bought Vanco for just £1 in 1988, said the money and interest from investors was always available, even in the darkest days of the downturn. The fact that there were no IPOs for months either side of the Vanco float was more a reflection of the quality of companies looking for an exit rather than the confidence of the markets and investors, he believes.

While the 'flash in the pan' dot-com phenomenon made the headlines, Vanco believed investors were still willing to talk to anybody with a solid business model.

Churchill said: "One thing we had going for us was that we had a 12-year track record of delivering growth and profitability."

Vanco's business model was founded 15 years ago, when, Timpany explained, "there was BT, France Telecom, Deutsche Telekom and KPN who were all-powerful national monopolies. If major companies wanted a data solution then they had to go to them".

However, subsequent deregulation within the telecoms market improved the competitive environment within Europe. In Timpany's words: "Out of market discontinuities, be they technical or regulatory, comes the opportunity to build new business."

However, Timpany believes the major next-generation telcos, such as WorldCom and Global Crossing, who grew to feed the need for international data carriers, were fundamentally flawed. Regional demand and global supply were incompatible bedfellows. The subsequent demise of both firms speaks volumes in support of such thinking. Conversely, Vanco has shown average growth of 42.6 per cent year-on-year over the past 10 years - generating revenues of around £42m last year. The value of its contracts has also soared, doubling in just two years, with Vanco's current portfolio of customers signed up for almost £75m worth of businesses.

One customer, car rental giant Avis, neatly illustrates the capabilities of the company's virtual network.

Despite its name, Avis Europe, and associated franchises on its network, operates in geographical locations as diverse as the UK, China, Madagascar, Namibia, Russia, Saudi Arabia and South Africa. The company has annual revenues of E2.1bn resulting from more than eight million rentals. In total Avis operates from 3,000 locations in 107 countries. Some are massive headquarters and call centres while others are small rental desks with a couple of PCs and one or two employees. Vanco's task was to create and manage the virtual network connecting these sites.

With fewer people flying in the past couple of years, there are fewer people arriving at airports wanting to rent cars. As such one of Avis' key concerns was to cut costs.

Through a five-year, E16m contract with Vanco, Avis expects to see a tenfold increase in its bandwidth, coupled with savings of E1.8m. Mittu Sridhara, vice president of IT for Avis Europe, told silicon.com: "Our deal with Vanco is a good example of delivering significant cost savings while still being able to make leaps in service levels."

Avis' existing technologies are being upgraded to take advantage of IP networks. Vanco is moving customers away from leased lines and ISDN and onto DSL. Each solution is tailored to give customers the best network for their needs.

Vanco also took the opportunity of its annual conference to unveil market research conducted independently by ICM, which provided a snapshot of UK market opinion.

Unsurprisingly it is 'cost' which still occupies the minds of most senior IT decision makers. While 'network security' and 'quality of service' also show up strongly in the findings it is money which is making the telecoms world go around in these more budget-conscious times. More surprisingly 'bandwidth' and the 'uptake of broadband services' barely feature on UK radar screens.

UK MD Churchill said: "In today's marketplace you will not get a CIO to change service provider just because of poor service - there has to be some kind of cost benefit."

Helpfully, one of the things which has stood Vanco in good stead is that this isn't a question of encouraging companies to come up with new improved IT budgets in lean times, it is more a question of encouraging them to reposition an existing budget.

But then the trend Vanco is witnessing is a pattern seen across the whole technology sector. For all the labour-saving, streamlining benefits of technology, CEOs won't even entertain a salesman until a clear and transparent return on investment is presented. ROI is king, as the French may say.