A Billion To Bust In A Year - How Ionica Did It 18/03/11
Posted by Birchills Telecom on Fri, Mar 18, 2011 @ 01:18 PM
How a start up telcommunications company went from being worth a £1 billion to nothing in a year.
It Starts
Ionica L3 was a company founded in 1991 to take advantage of fixed lines using microwave technology. The idea was that you would install a small microwave antenna and use this to make calls rather than the fixed line provided by BT.
The government were keen to encourage competition to BT and granted Ionica a licence for it’s service known as a fixed radio access service FRA. The technology was delivered by Nortel (known at the time as Northern Telecom). The microwave links replaced the last mile of copper, otherwise known as the local loop. So the technology was called Wireless Local Loop. The technology had been successfully used in Canada prior to this point. However there were technical problems with both sides blaming the other and the launch of the company was repeatedly delayed.
The big selling point was that a microwave link cost far less than a conventional telephone line to install. The problem was that consumers never paid the line cost any way.
When the company eventually launched the product it was at the best possible time for the stock market and it raised £300m in funding. The shares rocketed valuing the company at over a £1bn in 1997.
Problems
However problems with the billing technology and the transmissions in crowded areas made it difficult to sell. The need to achieve a clear line of sight to a receiver caused a lot of problems as did the fixing of the antennas to existing buildings.
The company burnt through cash and when it was unable to find a strategic partner with deep pockets entered administration. In it’s short and spectacular rise it managed to get over 60,000 customers who BT eventually “graciously agreed” to take back. Having burnt 300m that worked out at a cost of acquisition of £5,000 per customer.
The administrators were called in 1998 and the 1,200 people employed made redundant. The administration finally concluded in 2009.
The Lessons
It all depends on your viewpoint the lessons you draw. If you are a cynic then “failure was obvious from the start” and if not – then it was better to have nobly tried and failed rather than never have tried at all. I tend toward the latter view.
There is a lecture on Lessons from Ionica here.
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