Vanco on the ropes?
08 May 2008
After a meteoric rise to success, it seems UK-based virtual network operator Vanco has run out of luck.
Earlier this week the company suspended its shares, and chief executive Allen Timpany announced his resignation.
It is understood the company is in talks with banks about a possible rescue package after spending most of the cash advanced in a credit facility negotiated in January.
Vanco shook up the market, when it proved that managed services could be delivered by a virtual operator. Unlike its principal competitors, BT Global Services, Equant and AT&T, Vanco does not own telecoms infrastructure but provides international networks to enterprises by packaging together those of other infrastructure-owning carriers.
The company even earned itself a bulletproof reputation for reliability and customer service, although that reputation might now be put to the test.
But while Vanco's business model is 'cost efficient', analysts at Ovum point out that it has always had two key problems.
According to analysts David Molony and Richard Mahony, "Global network economics is based on scaling up networks massively through big contracts. BT and AT&T have both done $1bn individual deals in the past year. Vanco only won its first $100m plus contract early 2007, after 10 years in the market. Its "just in time" network model means by definition it is not scaling up fast, but it is incurring costs up front, and it is not clear that cash flow is keeping up."
Secondly, the company must have difficulty keeping up with technical innovation compared with network-based telcos. "By definition it waits for telcos to introduce new network services, which it then buys from them for its own customers," the analysts said.
In conclusion, Molony and Mahony believe that the VNO model is suited to highly distributed organisations with light sites such as aviation, "where the demands and sophistication of ticket desks are not that great compared to a professional services or manufacturing business." But they also believe despite Vanco's troubles, the VNO model is a winner where commercial and technology centralisation and flexibility are the client's primary drivers.
In a statement this week, the company said: "The principle reason for the suspension is that there is uncertainty about the results for the year ending January 2008. We are still operating within our facility, but the headroom is limited. Notwithstanding this, the directors believe that, bar any materially adverse event, the company will trade normally and not breach the facility."
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