"KDD establishes a European foothold"

Company Profile: Swiftcall

KDD Europe (the UK based subsidiary of Kokusai Denshin Denwa, the Japanese international telecoms supplier) has acquired Swiftcall, a re-seller of international telephone calls to the UK and Irish domestic and small business markets.

Swiftcall's principal delivery mechanism in the UK and Ireland is pre-paid cards. From this month, KDD Europe will offer post-paid services direct to domestic and corporate customers in the UK under the KDD Call 127 and KDD Call Direct brand names, complementing the Swiftcall offer.

According to Yas Matsuda, general manager of KDD Europe and one of the newly-appointed directors of Swiftcall, the acquisition (completed on May 21) provides KDD with an entry to the budget UK market through a recognised brand. On its side, Swiftcall had made no secret of the fact that it was seeking partners for expansion into Europe.

The company also had liabilities which KDD has assumed, and had experienced some technical problems over the last two years. Mr Matsuda says, "Swiftcall was seeking financial stability and technical expertise;KDD needed a marketing vehicle. Both sides are satisfied in this deal. " The purchase price for Swiftcall was not disclosed.

KDD is currently seeking licences to operate in France and Germany where it has already built networks. Swiftcall is also poised for a move into Europe. Over the past months Swiftcall had sent path-finders to research several European countries and, says Mr Matsuda, the two companies will now leverage KDD's network and duplicate their marketing strategies in France and Germany.

Swiftcall was established by Irish Entrepreneur Tom McCabe in March 1993, just prior to de-regulation in the UK, and was the first to break the BT-Mercury (now Cable & Wireless) duopoly of telephone provision in the UK.

The business proposition remains a simple one; Swiftcall bulk-buys switched minutes and leased lines from the network providers such as KDD, BT, Frontier and MCI and sells the capacity on to its customers (personal callers and small businesses) at very competitive rates. For the time being, this strategy will continue, although Mr Matsuda says Swiftcall's service will gradually be migrated onto the KDD Europe network.

Selling to the domestic and residential market means the majority of the calls made via the Swiftcall are off-peak, and Swiftcall's own operations are designed to keep overheads to a minimum. The result is a business turning over ?7m in 1997-98 with call rates to the US (the top calling destination) about 10p a minute.

Swiftcall is not the cheapest supplier of international calls. Mr Andrew Fray, group managing director of Swiftcall until the recent change of ownership, says that the company will not sell below cost, as he claims some competitors are doing in an effort to build market share in a very competitive arena. The reseller market is difficult to audit, but it seems likely it controls about 10 percent of the total UK market of ?bn with two or three suppliers taking the lion's share, but with about 20 others trying to build volumes, according to Raj Rajgopal, vice-president, telecoms at Gemini Consulting.

"This is a rapid, low-cost market enter but it is very much a niche market where you have to stay nimble to survive," he says. "It is not a market for lumbering giants." Mr Rajgopal believes that network over-capacity has made it easier for resellers to deliver a double blow to traditional to the traditional suppliers, by creaming off the most profitable parts of their business and forcing them to reduce costs.

To gain access to the international network at Swiftcall's rates, customers dial the Swiftcall number and key in a personal identification number (PIN) from a scratch-off panel on their pre-paid card.

Alternatively, an account can be set up which charges calls to credit card - in this case, the the customers also enters a PIN before dialling the number required. These arrangements provide Swiftcall with a predominantly cash business, with all the associated cash flow and credit control benefits.

Most of Swiftcall's 200 employees are at  the Dublin call-centre, registering  and managing accounts and providing customer service. As well as its own organisational costs, Swiftcall must meet the costs of interconnection to the networks. An additional 20p charge levied by BT for connections form its payphones is met by the customer.

Mr Fray says Swiftcall's users come from all socio-economic groups in the UK. Some 20 percent of the customer base is earning less than ?0,000 a year, and another 20 per cent more than ?5,000 a year. Swiftcall advertises in the quality broadsheets, but gains 65 per cent of all new business from word-of-mouth referrals.

"Anyone who has friends or family in other countries might be a customer" he says, adding that ethnic communities are particularly well represented and have demonstrated a willingness to accept new brands. After the US, Australia and India are the most-called destinations, while calls to France and Germany have doubled over the past 18 months. Traffic from Ireland, where Swiftcall extended its operations about 18 months ago, is also up.

"Pundits said pre-paid calling would never take-off," says Mr Fray. "In fact, this form of service has proved very attractive to anyone on a low budget, or with a mobile lifestyle, because it offers control over expenditure." KDD Call 127 will be marketed primarily to the UK-based Japanese community.

Swiftcall wants to provide a broader portfolio of voice services, and simpler access, in the future. Caller Line Identification (CLI) will enable Swiftcall to offer more payment options such as direct debiting. The company has considered smart-card technologies and is watching e-cash trials such as Mondex and Visa cash, but currently sees no point of entry for those technologies in its business.

Swiftcall plans to introduce an Internet telephony service "once capacity and routing issues are resolved", probably within the next year. Swiftcall's Global card already makes it possible for customers to access Swiftcall from 40 countries via a free-phone number. Swiftcall also wants to exploit the market for pre-payment of mobile phone services by badging the service of an existing supplier.