"Mining the Future"

Scenario & Strategy Planning, August/September 1999, Volume 1, Issue 3

Swiftcall is a telecommunications company that resells national and international traffic, predominantly in the UK and Ireland. Swiftcall was founded in 1993 with £20,000 start-up capital working from small offices in the World Trade Centre, London. We offer savings over the incumbent operator by using simple arbitrage with international wholesale carriers. Our customer database has mushroomed to in excess of 300,000 in the UK and 60,000 in Ireland, with the majority being residential customers.

The company’s early success was founded on an entrepreneurial vision of what could be achieved by offering a new product that was previously unavailable in the UK telecommunications market. It was so unique no one knew if it was legal, let alone regulate it.

The history of telecommunications throughout the world has been that of a huge, normally state-owned, monopoly with no need to consider competitive activities. Development of the market and products available could be slowed to the pace at which the PTT wished to operate. This meant that customers would have to endure a poor or below average quality of service based on today’s standards and expectations, with little motivation for the company to improve, as there was no alternative provider for customers to go to. Deregulation within the industry has forced the incumbent to reconsider their strategy. They have now to consider the changing environment in which they operate with ever increasing competition, the only way to succeed is to satisfy customer demands. Within Europe, it is recognised that the UK is now the most advanced in their pursuit of a deregulated market.

From start-up Swiftcall recognised that outside factors have a critical impact on our ability to do business. We needed to ensure that we were able to identify, drive and exploit where possible, changes within these factors, firstly to offer a product, and then to stay ahead of the market.

We recognised that there was a need in the market for an international call provider and that the provision of such a service was a ‘grey’ area. By establishing ourselves we ensured that a decision had to be made by the Department of Trade and Industry to regulate in this area. During this time we began to envisage how different futures could result from the outcome of their decision.

At the time telecommunications was not the ‘hot’ topic it is today. Telco’s were un-competitive, overstaffed and had the image of being inhabited by bearded techies and career civil servants. The UK regulator had decided that to increase competition, only one other operator would be allowed to compete against BT. It was not clear where the market would develop and what opportunities, if any, would be available for a niche player, who did not want to be another monolith. Fortunately, our founder had the vision that the market would not always remain in this state and prepared for the competition that he felt would come.

We foresaw that the market we wanted to operate within could vary within two opposing futures. Taking the example of the US telecommunications market, one that had been open to a higher level of competition, we looked to find some ideas as to how our market could evolve. To assist in scenario planning, we constructed two analogies that we felt represented two opposing futures that could develop. The opposite scenarios could be likened to that of a "Gold Rush" and of a "Communist Mine".

The Scenarios

Our perception of a gold rush would be an environment in which individuals would be ruthless in their pursuit of self-gain. Initially there would be one or two individuals who would unearth a golden nugget. Word would spread fast. The area would then be inundated with prospectors and panhandlers, working flat out to try to elbow space for themselves, with the dream of hitting a gold rich vein. Only few would strike it rich while the rest were left with their dreams unfulfilled. Eventually there would be consolidation as the successful prospectors bought out surrounding sites and used economies of scale and had sufficient capital to invest in the most advanced techniques.

A communist mine would be state owned and hold a monopoly in the industry. Decisions would be highly regulated and be made centrally on a political rather than commercial basis. Individual flair would be stifled. Promotion would be based on length of service rather than performance. Progress would be restricted by the necessity to retain the status quo. The mine may be subsidised by the government.

Gold Rush                   Communist Mine          

In the gold rush scenario the telecoms regulator would encourage competition within the market. There would literally be a stampede where other entrepreneurs would be encouraged to offer similar services due to the open legislation. In this scenario customers would welcome change and be willing to adapt to new products and services. As for competition, the multitude of ‘prospectors’, each vying for the best site closest to the source of the ‘gold’, will be unrelenting in their pursuit of the customer. To create space between them and others, they would differentiate their product. This could be achieved through price competition, product enhancement, innovation, or differentiation in marketing.

We see that ‘cowboys’ or ‘claim jumpers’ are entering the market and trying to encroach on other operators’ markets using unscrupulous means. These include selling below cost or alternatively selling at a very low price but not paying for the call traffic they are passing. They then go into liquidation and start-up under another name to stay one step ahead of the posse.

Swiftcall have positioned themselves as the strong ‘hero’ character especially since the take-over by KDD, Japan’s largest international telecommunications carrier, in May 1998. We have created space in the market by developing a company ethos of Quality, Service and Savings.

In the "Communist Mine" scenario competition is not a factor. The regulator has no motivation to create an open market. They may create room for one or two others but with such barriers to entry that only similar large-scale operations could apply. The heavy start-up capital requirements therefore dictate higher prices to the consumer to recoup initial outlay. Alternatively, regulations will be so complex and cumbersome, essentially decision making remains centrally with the regulator. Entrepreneurs will go to another rush that provides easier access to greater opportunities.

The incumbent would not have to provide access to the facilities it was allowed to develop under the protection of its’ monopoly position. Those facilities that could be used would be subject to a hefty surcharge to make it uneconomic to offer a service. Technological development would be hindered by the inability to offer a product even should one be developed. The regulator has allowed the incumbent to maintain protectionism in some areas that they offer e.g. local loop, payphones and mobiles.

The Use of the Scenarios

Scenarios allow us to identify potential futures and can help shape business strategy to maximise impact as futures are realised. We use scenarios to help with:

1) Locating markets with similar traits to the UK prior to deregulation
2) Identifying influential environmental factors
3) Monitoring stage of development.

From our experience in the UK market and our use of scenarios therein, we were able to identify several markets that displayed the same traits as the UK had when deregulation was first implemented. If the regulator in these markets followed the lead of the UK, we knew that as deregulation took hold, competition would snowball. We identified Ireland as a similar market and looked to establish ourselves in a similar way to the UK.

The telecommunications market in Ireland was dominated by a semi-state owned monopoly. This resulted in Irish customers being charged some of the highest prices in Europe yet receiving little customer service. Infrastructure investment had been minimal leaving a dated copper wire network in need of heavy capital investment to compete on an international scale.

To comply with EU legislation, the Irish government had put together a fast track deregulation programme. They were also keenly aware that in order to maintain Ireland as an attractive location for international and multi-national companies, the country would need to have a modern, competitive telecommunications industry.

These similar traits between Ireland and the UK, have helped in building a business plan. It has helped us ‘gear up’ for the stampede we feel is coming and resource plan for the future. We continue to look to see if actions or shifts within the environment are going to influence towards a "Wild West" or a "Communist Mine" scenario. Examples of such actions include the Irish government’s decision to push Ireland to the forefront of technological development through the waiving of their EU derogation on deregulation. They have established Ireland as one of the call centre capitals of Europe and continue to stride towards increasing broadband and connectivity to create an e-commerce hub.

Had the Irish government decided to delay deregulation this would have caused us to revise our plans towards a more "Communist Mine" scenario.

The Future

Taking two opposing futures helps us to clarify how we could maximise on potential events that would flow from changing circumstances. It also allows us to identify were our strengths and weaknesses lie as a company. They assist in determining action points to operate effectively in likely futures. They will also show what the likely market reactions will be following these actions and can provide a foundation for business planning. Although we realise that neither scenario is ever likely to be realised in its entirety, the use of scenarios is helpful in focusing senior management decision making.