Spectrum Interactive

Source: Stock Market Digital

Date :26/07/2007 14:11:31

Two years after it floated on AIM, Spectrum Interactive is pushing an open door as it tries to keep up with demand for its wide access internet services.

Written by John O'Hanlon & produced by Kiron Chavda

Walking through my local railway station recently I saw, in the concourse close to the main entrance, an internet access point with three screens. How long it had been there I am not sure, but it must have been a while. Facilities like this have quickly become part of the scenery, even though they represent a radical change in the way we live our lives.

In 2002, when the payphone operator NW (New World Payphones) called in the receivers Mark Lewarne, as a director, thought there was little that could be salvaged from the failure of its venture into the mobile phones market. While he was still thinking it might be time to go and do something else, he was approached by a number of the payphone customers, spurred on by the good service that they had always received on that side of the business, who told him they would support him if he decided to bring the business out of receivership.

This was quite unusual because normally when a company goes into receivership it loses the confidence of its clients, he says. “Working with the Bank of Scotland I managed to do a management buyout,” “The core activity of the company was the pay phone business, and we were able to keep the excellent clients that we already had among airports, railway stations, hotel groups and shopping centres. And that footprint has allowed the company to move into new product areas so it has been quite a remarkable turnaround really.”

Replacement communications

“Clearly I didn’t want to bring the company out of receivership just to run it down over a number of years,” he continues. “Because of the really good relationships we had with our clients I always thought we had the potential to bring the business into what you might call ‘replacement communications’.”

By this he means that whereas fifteen or twenty years ago travellers were constantly using payphones to make necessary calls, now that they all have mobile phones there is very much less demand for that. The payphone evolved from a cash machine to a card machine and back again to a hybrid, and has now settled down as a necessary service but one that is much less used than it used to be. “What people want to do now is to send e-mail, check their electronic communications, and access the intent for anything from timetables to their office intranet.”

Sharp as a razor, I pointed out that more people have BlackBerries and other WAP enabled devices, but on reflection these are very limited. On the small screen and with the mobile keypad it is difficult to read or compose anything but the simplest messages. It is very hard to deal with attachments, and the much-vaunted internet access they provide is fine if all you want to do is check the football scores or catch the news. For anything more serious you need the big screen, and you can’t carry that around with you.

Between 2002 and 2004 Spectrum started to provide simple internet terminals for people to use at airports and hotels. “It was very plain to us that the revenue streams from those types of units would be good and we would be able to charge economic prices,” says Lewarne. “At an airport people are used to spending £2 on a cup of coffee and a fiver on a sandwich. A pound for ten minutes on the internet is a bargain in terms of the benefit you get. We feel it is good value for money, and the customers tell us they agree.”

The beauty of this model is that it is really no more difficult to provide an internet terminal than to install a payphone. The connections are similar, and the equipment basic – just a PC with broadband, he points out. “In many ways the business model was incredibly similar. You’re buying a piece of capital equipment and looking for return on investment over a number of years. You reach a commercial deal with the site owner to share profits. It is an uncomplicated business model. You just have to pick your sites very well.”

Even that isn’t too hard. People who are on the move, away from office or home base, will constantly need internet access – while airports and railway stations are prime sites, and the hotels they head to after that. Shopping malls and leisure complexes or tourist sites like theme parks are secondary opportunities.

For people on the move

The business grew fast: “We also did some acquisitions when we came across other companies out there were doing similar things to us. Most of those companies didn’t have the scale that we had so we were able to buy two or three competing businesses that helped us to scale up. We now operate over 2,000 internet terminals in the UK and in 24 out of the 25 busiest UK airports. The reason we have been able to do that is that we provide a very good service that is really easy to use. All people really want is to be able to replicate the speed and reliability they get at home or at the office.

As more people travel, and more of them travel on low-cost flights without the club class privileges of a free, wired up executive lounge, the demand will only increase. Of course a lot of people travel with their laptops and handheld communicators, but such people cannot go online without finding a WiFi connection.

Naturally BAA is a vital partner here. It is said that it now gets more revenue from its retail areas than from air traffic movements, and accordingly service to the passengers that use its airports is very important. So when the new Terminal 5 opens at Heathrow in March 2008 the 30 million passengers who go through it annually will be able to go online using no fewer than 60 Spectrum terminals.

Mark Lewarne sees the internet terminals as complementary to the WiFi provision – almost seamless in fact, and WiFi connectivity is a small but increasing part of the business that last year netted around £1 million and is expected to grow annually by around 30 percent. “We provide wireless access, and if they have a laptop they can connect to that, if not they can use one of the terminals. We are seeing good growth in WiFi revenues this year are and we are sure that is going to grow as more WiFi enabled devices come onto the market. It makes us a bit of a one stop shop in places like airports and hotels.”

As recently as June 2007 Spectrum announced an agreement to provide exclusive WiFi services to all Travelodge hotels until 2014. It already covers 25 percent of Travelodge’s 306 hotels, and will have rolled out the service to most of the others by the end of this year. But Travelodge is expanding too – by 2012 it expects to have 500 premises

Expansion abroad

This year’s turnover of around £17 million is still mainly generated from the declining estate of payphones. As they become unprofitable they are being taken out, but this is mainly happening on private premises: the high street locations continue to be profitable, and as the public face of Spectrum are one of the few places where the brand is flaunted. Nevertheless Lewarne estimates that 50 percent of Spectrum’s profits already derive from its internet business which he expects to grow from around £4 million in 2006 to nearly £5 million in 2007 and £6.5 million in 2008 – an annual growth rate between 25 and 30 percent.

This growth, together with that in WiFi, will more than compensate for the expected 10 percent decline in payphone revenues, he says. The company is now well grounded and leading in its markets, which are clearly defined. Mark Lewarne is not interested in diversifying into new product areas while there is so much room for further expansion both in the UK and internationally.

“Our first objective is to win new sites in the UK and to add value to them as we did with our recently launched Spectrum Casino. Then we will consider further acquisitions either in the UK or abroad. There are two or three key markets in Europe that we believe are absolutely perfect for us: we can either set up offices there or buy a company.” Spectrum’s first overseas subsidiary in Germany has already won an exclusive contract to install terminals at Hamburg Airport.

The equipment has to be rugged, reliable, and familiar to the user. So Spectrum sources its computers from popular manufacturers like Dell, and uses a simple desk design that it has developed with a manufacturing supplier in Poole. “Software is developed for us by small company that we have partnered with for about eight years,” says Lewarne. “They are based in Sheffield, and designed the new software for the terminals.”

Of course the computers go wrong sometimes. However there is a nationwide engineering force controlled centrally from the company’s offices at Hemel Hempstead that aims to keep the servers running at 99 percent availability – breakdowns hurt Spectrum its client and the service user in equal proportions and is not an option.