UK Edition
Challenger broadband providers target small businesses
In London’s Soho, myriad film production firms are editing raw footage and creating special effects before sending their final touches to the likes of Hollywood film producers, the BBC and global advertising agencies.
In the heart of the country’s film industry, these firms are hungry for a fast and reliable broadband connection, and they’re not alone – there are now a record 5.4m small and medium-size businesses in Britain, which are growing at a rate of 3pc a year, according to the Office for National Statistics.
“Everything is file-based now, just a few years ago we used to post out video tapes,” said Steve Dann, the chief executive and founder of Berwick Post, a film production firm which recently worked on Benedict Cumberbatch’s Liberty campaign clips and Compare the Market’s Meerkat adverts.
Dann switched his firm’s internet connection to Venus last year, a little-known broadband start-up which owns a fibre network in London, saying that it took two hours to download a film on his existing connection with BT Openreach.
Film producer Dann says he “can’t remember the last time” he had to post out film or audio clips, adding that everything from his employees’ details to financial accounts are now stored online, or in the so-called virtual “cloud”.
Venus is just one of a host of challenger broadband providers – including Toople, Metronet, Optimity and Warwicknet – which are capitalising on the country’s growing army of small and medium-size firms.
Small businesses, typically defined as employing less than 250 people, are simultaneously shifting their data online, using remote-access programmes like Microsoft Cloud instead of their own servers.
Telecoms entrepreneur Brian Iddon has spent the past five years building Venus’s fibre-optic broadband network. It now has around 1,000 business customers, but the market for SME broadband is still catching up, he admits.
“We’re seeing a huge rise in demand from businesses which are moving all their IT online, whether they’re a tech company or a cupcake shop,” says Iddon, who charges anything from £45 a month to several hundred pounds for a fibre-to-the-premise connection.
Most small firms buy their internet from BT Business – which owns nearly half of fixed-line SME revenues, according to Ofcom, the telecoms regulator.
This is a huge contrast to home broadband, where market share is spread between the four biggest providers – BT, Sky, Virgin Media and TalkTalk – which each have more than a 20pc share.
The telecoms regulator Ofcom has nevertheless observed a “renewed competitive” focus on the SME market helped by the growth of smaller companies like Venus, which is set to hit £6m sales in 2016.
Venus’s network, which connects fibre cables to offices from BT-owned cabinets, began in Soho but now reaches 1,000 businesses across London, with outposts in cities including Edinburgh, Cambridge and Brighton, and is growing customers by 20pc annually.
“If you’re a small business you don’t want to rely on hard discs and couriers, it’s slow and expensive,” Iddon said. “Now they want to send everything digitally, and store everything online.”
Ofcom is now setting its sights on the SME broadband market, with plans to review whether it is truly competitive, in a business review that will conclude in 2019.
“The market is in a state of transition,” the watchdog said its latest SME Action Plan published last year. “It remains uncertain in the long term how successful challengers will be in exerting competitive pressure.”
Another “challenger” firm hoping to cash in on the small business pound is Toople.com, which has signed up several hundred firms since it launched on London’s junior market, Aim, in May.
“I feel this market is really ignored by the major carriers,” says founder Andy Hollingworth, whose target company typically employs fewer than 50 people, right down to one-person firms that work from home.
“The bigger suppliers don’t understand that these people are company bosses, not a consumer.”
Buckinghamshire-based Toople.com, which buys wholesale broadband from the Big Four providers, has rapidly stretched its customer base of just 40 businesses at the beginning of the year to the several hundred, but says his 26 customer service staff can cope with the influx.
“The secret to a successful business is how many seconds someone waits until you answer the phone,” he said. “At the moment we’re at seven seconds at our call centres in Hull and Berkshire, and we’ll match our headcount to customer demand.”
Pay-TV company TalkTalk, which has faced Ofcom scrutiny over its levels of customer complaints, recently shifted away from taking on rafts of new customers - usually luring them with cheap introductory deals - towards improving service levels, saying it would be more profitable in the long run.
The telecoms company, which is FTSE 250-listed, also said there is a small business boom. Duncan Gooding, who runs TalkTalk’s enterprise business broadband arm, says SME broadband is the “fastest-growing marketplace” in TalkTalk Business, with around 18,000 small companies signed up.
He said their customers run into the “hundreds of thousands” when accounting for the myriad of firms it indirectly suppiles, which tend to sign up via local consultants and IT firms.
“The SME market is dominated by BT, because everybody knows them,” said Mr Gooding. “But we’re now seeing that as SMEs move towards internet-based services, like email in the cloud, they need a better broadband connection, and usually this means fibre.”
TalkTalk has been trialling a city-wide broadband project in York, which involves building fibre-optic cables to local business parks, which offer one-Gigabit speeds - the fastest available in the country.
“Small businesses have been forced to buy consumer-type broadband for too long, and this isn’t what they necessarily need,” Mr Gooding added. “It’s an area we’re trying to invest in.”