Vanco vanquished: India's Reliance buys ailing UK virtual network operator

Stuart Corner
Tuesday, 27 May 2008 03:32

IT Industry - Deals

However, according to consultancy Ovum, the model has a number of weaknesses which appear to have been Vanco's undoing. Firstly, "Global network economics is based on scaling up networks massively through big contracts," says Ovum. "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, Vanco must have difficulty keeping up with technical innovation compared with network-based telcos because it relies on the services they provide. Ovum suggests that this is especially an issue at present. "The telecoms industry is right now accelerating into a technological-advance phase, especially around applications management and local network (LAN) management. It may be the bankers have got wind of that - although that implies they are thinking a bit strategically a couple of years out, which is not typical of them!"

Thirdly, Ovum contends that managed services are people reliant - requiring the management of local resource on a global scale. "Whilst technology and commercial management can be centralised, local resource will always be distributed and that requires people in numbers which Vanco could not provide. "In our view, 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."