By Simon Woodhead
We mentioned a few weeks ago how we were tweaking our rate-setting algorithms and you’ve hopefully noticed some changes to termination rates since. Separately, Grahame has kindly taken care of the formalities around our forthcoming MSA and category changes. That leaves me to expand a little on the ‘why’ and talk about some really exciting follow-on changes.
Back in 2014 we identified Ofcom as the single biggest threat to our business (wasn’t hard: they took away a majority of our income overnight, and gave it to BT!). There was born our Virtual and Managed Interconnect services, as we set upon a journey to reduce our dependence on revenue from minutes and sought instead to monetise infrastructure as a service, i.e. increase contracted recurring revenue. That has worked really well and we’re immensely grateful to the customers who have made that leap. We’re now in the fabulous position where those committed customers keep the lights on, but we are intent on continuing to replace margin from minutes with margin from committed revenue.
One subtle detail that may have been lost in the MSA review is that – for those Virtual and Managed Interconnect accounts – whereas UK numbering was 50p per year (vs. per month on Start-Up), it is now 50p from the time of billing until the end of the contract minimum term. So if you’re committed for 3 years, we’ve just cut your numbering cost by 3, timing differences aside! Start-Up customers upgrading can see their number cost cut by 36! Keep in mind though, that outside your minimum term contracts revert to month-to-month, and thus monthly pricing. We will be in touch well beforehand to discuss renewal though, so this won’t happen by accident!
The major changes we announced were around our entry-level ‘Start-Up’ accounts, where we’ve formalised our long-standing offer to waive minimum call charges for a spend commitment, extended our unique 100% SLA to cover numbering for a term commitment and raised our minimum spend. The latter has a number of options to soften the blow, such as grandfathering and referrals to trusted customers. I’m really pleased with the response overall and am grateful to all of you who have had little hesitation committing at some level or upgrading.
We don’t think this should be a controversial change, but there’s some colour to it that I probably ought to share. We’re growing at 50%+ a year, which is great and we’re very grateful to you, but we could grow much much more if we were able to give retail service and support at wholesale prices. That would be bad growth though as it obviously doesn’t work economically, but we’re nevertheless fairly inundated with attempts to solicit that. We already port 34 times as many numbers from ‘me too’ as the other way round, but we could easily add a zero to that if we dropped our guard and let more resellers become wholesale customers. However, those people should be resellers of our customers, benefitting from the value you add, not trying to cut out the middle man and pocket the margin, at the expense of our support and the end-user’s experience! Hopefully, increasing the minimum spend goes some way to achieving this, and characteristically, is a fair and overt way of achieving what others also do but through less obvious means. Crucially:
- It is a minimum spend not a charge. Others may charge you £100 a month to access their numbering, or £100 a month for 999 services or £100 a month for something else. Nothing wrong with that but you are very quickly well beyond £250 in charges before actually consuming anything. We don’t work that way, and instead we charge you piece-meal as appropriate, but expect the account to show more than £250 a month of spend or we’ll invoice the difference. We think this is fairer.
- This isn’t just a minimum spend on wholesale voice. If you use Simwood for SMS,connectivity, colocation or any other service we can provide you, it all counts towards that minimum spend. We’d love to talk to you about other services and greatly appreciate customers that come fully on-net.
- Being start-up friendly remains important to us, and so we have added credits for expenses incurred during pre-production time using our Developer accounts. We are always receptive to a sensible conversation about ramp up for new growing customers.
- Put bluntly though, for an established communications business, wholesale telephony services should be one of the primary expenses. If I ask (as I have) a florist whether they spend £250 a month with their flower wholesaler, or (as I have) an embroiderer whether they spend £250 a month with their clothing supplier, they’re almost insulted at the question. Of course they do! We therefore believe we’ve set the bar very low.
The above measures should all help to reduce our dependence on billed minutes further. That means we can charge you less for calls! Managed Interconnect tracks our costs so will have seen some reductions over recent weeks as we’ve clarified what cost is in our model, but for Virtual Interconnect and Start-Up we’ve made some more dramatic changes. As the title suggests, today’s rate update (effective August 9th 2019) is a big one!
We have moved away from the simple theoretical cost-based algorithm we described previously, and have got more intelligent about actual cost, which has lead to a number of changes over recent weeks. With the data you have provided, we’ve gone a stage further, and are now tracking the rates offered by six of our competitors – internationally, not just UK – and that has lead to a few insights:
- Other people are less algorithmic and there’s some very odd rates out there!
- We were generally more competitive than the average, but generally more expensive than the cheapest. We could do better in certain quarters though!
- Comparing rates by breakout is muppetry as we’ve said before! Doing it at the per call level highlights numerous instances where others would bill a call at sometimes 100x what we would, not because their rate for that nominal destination is worse, but because they classify that prefix differently altogether! You will not see this lining up rows in Excel, you need to re-bill actual CDRs. We’re very happy to do that exercise for you.
We have engineered price-matching into our rate generation algorithms. On comparing actual calls across competitor rate decks, if any one of the basket are offering a lower price than us, and that price is possible, we will beat it. Where we’re already the best value in the basket, we’ll apply our standard model for the service level concerned. It is important to highlight that this isn’t picking on one particular competitor, but the lowest across all of them. So we should be offering the best value in the marketplace where possible.
The ‘where possible’ needs clarification. We will not buy rubbish routes, or price-match mistakes. We continue to route quality first (and in fact are improving how we handle that too), so ‘possible’ means we have multiple viable routes at the target price. Where we only have one, or to achieve the price we’d need to route other than quality-first, we won’t. This is about offering our customers best value for the quality you enjoy now or better, not becoming bottom-feeders or starting a price-war!
I mentioned in a previous post how we were adding some ML and AI into the mix (we’ll leave Blockchain and other buzzwords to the regulator’s hair-brained schemes), so what we do going forwards really depends on you. Frankly, if we find that lowering the price leads to lower-quality traffic, or otherwise doesn’t lead to the outcomes we expect, we’ll quietly reconsider. If you blow our socks off and prove a model, we’ll run with it – that is where the ML and AI come in. Like you, we need to make a profit, and we favour it not being from sources vulnerable to Ofcom’s interference, but we’ll try to adapt to what you need – we’ll just be more scientific in determining what that is than we have been and others are. It is a very exciting area though and something else unique to Simwood.
As we only started the rate matching recently, it is going to take a few weeks to fully work through. Broadly 175 breakouts have so far been adjusted to match the market so there’s plenty more to go at. We’ve made sure that UK Fixed and major Mobile were in the initial update and the changes there are significant.
At the Start-Up level, UK fixed has been reduced by almost 32% to £0.00189 or equivalent. UK Mobile at the Startup level has been reduced over 27% to £0.00589 or equivalent. There are less-frequently dialled destinations reduced by as much as 99% through the combination of changes we’ve mentioned though!
Updates are ongoing as well so will handle any responses in the marketplace. Naturally, we can only track rates we know about and other people don’t like being transparent about pricing for some reason! If there’s an operator you use that you can help us track, we’d love to hear from you. We expect to be fully matched by the end of the month.
We hope these changes float your boat and very much look forward to seeing what you do with them.
