Triple play scores for telco

23:38, Feb 25 2014

The owners of small Kiwi telco Digital Island think you need to have a good sense of humour to be in business. That's why they hired comedian Vaughan King for the company's 10th birthday bash in Auckland last week.

The company, which now boasts 45 staff, was started in 2004 by three former St Kentigern school mates - Blair Stewart, Stuart Cowdell and Glen Larsen. Stewart said he'd never stayed in a job for longer than four years and thought "let's give it a crack" and see if the company could last a few years.

Ten years on Digital Island is among a handful of smaller providers which collectively have around a 5 per cent share of the $2.5 billion telecommunications market, dominated by Telecom and Vodafone. The co-founders are now planning for the next 10 years, with big ambitions to double the current $25 million-or-so revenue, based on a push to new cloud- based technology.

They've refined their business plan and are now focused on a target of 60,000-odd medium-sized enterprises - those with between 10 and 200 staff. Digital Island has around 2500 customers in that target group, leaving plenty of scope for growth. It has targeted well-known brands such as Red Bull, Giltrap and Paymark, as that helps with word of mouth referrals to other successful companies.

While the telco industry typically has an annual churn rate of 10 to 15 per cent, Digital Island boasts it has only 5 per cent of customers leave within a year.

Revenue growth is around 20 per cent a year, solid, though well below the rates it achieved between 2007 and 2009 when it won a Deloitte Fast 50 award for being among the country's fastest growing companies.


Typically startups are founded by one entrepreneur going it alone but Stewart thinks it has been a strength for the company because the three - all in their early 40s - have complementary skills. Stewart's background is in IT and management so he does general management, Cowdell handles sales and Larsen deals with the operational billing side.

Stewart said equality among the three shareholders was important.

"We take the same amount of holidays, earn the same amount, and have the same amount of passion for the business. If something is not going so well we're all in it together."

The trio even lunches together - what Stewart calls their informal shareholder meetings - and all three of their wives are friends.

Last year they attended a San Francisco conference on cloud computing - the first time all three were absent at once from the business. "We've always staggered our holidays but everything went fine, if not better, than when we are there. It was satisfying for staff that we could hand over the mantle."

When it started Digital Island saw its point of difference as providing better service than other telcos and a constructive relationship - finding out their customers' pain points and solving them. These days it is focused on three areas - mobile, voice, and cloud technology.

The rollout of ultra fast broadband with better connectivity provides real benefits to business, Stewart said. Digital Island is among a few players pushing Cloud PBX, a cloud-based telephone solution that he claims to be "more cost-effective, efficient and streamlined".

With a hosted PBX solution phones connect through the internet to a provider that maintains the equipment at an offsite cloud data centre. Stewart claims benefits include lower upfront costs - Digital Island charges $45 a month per extension - because it cuts out the cost of servers, phone lines, hardware and software upgrades.

While there's been a move towards cloud-based services overseas, the uptake has been slower here as a lot of smaller New Zealand businesses "sit on the fence".

"They're going to their IT providers for advice and it is those providers' core business to sell servers so the transition is being held up."

Digital Island made the shift two years ago to a Cloud PBX and is gradually turning the company into a "showhome" for cloud services. "It's like the shift from black and white TV to colour," Stewart says. And he's not joking.

Fairfax Media