core sector communique

Call home @ low-cost

Vast numbers of immigrants across Europe and Australia can dial their home country at low cost, thanks to a unique enterprise set up by three young men of Asian origin.

When three friends drove past the gleaming offices of Norway's largest telecom, Telenor, a decade ago, they looked on in awe and aspired to one day build something similar. Today, they are pretty close to doing that. Their telecom business, Lebara, directed at the immigrant community in Europe and Australia, is edging towards revenues of €1 billion a year, and is currently up for sale for a reported £650 million. It recently scooted past industry titans such as Vodafone and BT to pick up the best customer service award at a major British mobile industry event this year (It says it answers customer calls in an average of 30 seconds).

Rasiah Leon, Baskaran Kandiah and Ratheesan Yoganthan - all former employees of a calling card company - set up Lebara (the name comes from the first two letters of their last names) in 2001. It provides low-cost phone service for Europe's large immigrant community to call home on network space it rents at wholesale rates from network majors. The company sells its SIM cards at pretty much every supermarket in the UK, and across much of Europe its distinctive blue logo is visible on many shopping streets. It now operates in eight countries - France, The Netherlands, Germany, the UK, Australia, Switzerland, Denmark and Spain - and boasts 3 million customers and over one thousand employees.

Lebara also has a foundation, which recently launched a £10 million programme to provide care services for children in Tamil Nadu (past projects include working with disaster victims in Pakistan and children affected in the Sri Lankan war).

Landing from aerospace!

For CEO Ratheesan it's all still quite a blur. “I don't know what I'm doing in telecom,” jokes the aerospace engineering major, seated in the company's boardroom at its sizable offices in the heart of London's old financial district. Born in Jaffna, and educated for much of his life at a boarding school near Madurai, Ratheesan moved to the UK in his mid-teens, joining a shop selling calling cards in the east end of London to earn his way to doing a masters. A chance encounter with a senior executive of the company, when he highlighted problems in the company's calculations, got him a full-time position at the headquarters. There began his quest to build a business of his own, he says. “I became incredibly ambitious. I discovered I really wanted to progress, I wanted to have a career and be recognised as someone who did something.”

And so, on the trip to Norway, the three friends began to hatch plans for a firm of their own. Calling cards were the obvious choice, because it was the one thing they had in common, says Ratheesan. They started approaching the biggest calling card companies in Europe to become a registered distributor, and one finally agreed - giving the trio a mere €55,000 in credit for 14 days. Each day the money earned from selling those cards went straight into buying cards from other card companies, which they got at a discount because they were prepaying. “We never had any bank loans; we just used the cash flow,” says Ratheesan. At the height of it all, the trio was making around €2,000 a day, driving like mad across Europe in quest of sales.

Ratheesan recalls travelling an astonishing 1,863 km in one day. Nearly 50 per cent of the revenue went back into the business, 25 per cent covered expenses, and the remainder was put into savings to buy the company's first switch - essentially the platform that allowed them to start selling calling cards of their own.

Catering to an unmet market

While the firm couldn't compete with the big shots of the calling card industry on price, it could on hours and its extensive distribution network of shops catering to immigrants. “Anybody just driven by price never succeeds in the market in the long run,” argues Ratheesan. So while competitors closed shop on a Friday, Lebara worked during weekends.

“When the market was really alive it was our cards that were really being sold,” he says. The company also adopted a deliberate strategy of focusing on non-typical immigrant groups such as Latin American and Eastern European, which hadn't been the focus of the calling card industry - and subsequently turned to the more competitive markets such as India.

The next step was to become a mobile virtual network operator, with its own SIM card - the break came when a Dutch company, Telfort, agreed to open up the network, and subsequently Lebara has struck agreements with several network providers across Europe. Ratheesan says the networks were willing to join forces because Lebara never cannibalised those networks. “We don't compete on national pricing. We never wanted their customer base; we just add traffic to their network.”

By its sixth year, the company had turned profitable. In 2010, the company reported £500 million in revenues, and a 139 per cent rise in pre-tax profits to €21 million. Unusually, it remains debt free.

New horizons

It is branching into other products - including data services, and a tie-up with Master Card that allows an immigrant in one of Labara's markets to transfer money to relatives back home. Money can simply be uploaded on one card and downloaded at an ATM at the other end - a cheaper alternative to regular money transfer systems, he says.

“The top 10 destinations for Lebara mobile customers are the same top 10 destinations for repatriating money from Europe,” he points out. The company is constantly scouting for new ideas and initiatives - a culture, Ratheesan says, he inculcates through an annual competition for employees in business areas not necessarily related to what Lebara does. Winning ideas have included fashion and recruitment. “We want people at Lebara to believe in entrepreneurism - it's not just creating their own business but thinking outside the box.”

Though the Royal Bank of Scotland has been charged with finding a buyer, Ratheesan says he isn't sure if he'll sell yet. Ten years on, he thinks it's a good time to take stock and see the potential in what a sale - or simply, outside investment - could do for the company (aside from 15 per cent of the company owned by employees, the rest is split between the three initial partners). Market conditions aside, an IPO isn't something he'll consider, largely because of the constraints that would be imposed.

“I like a free hand - as long as out of ten I get six things right, I think I'm doing fine,” he says. “I always tell people make as many mistakes as you can when we're small, because when we're bigger it's going to cost a lot more. Every mistake you make, all you need is greater memory power and your path to success narrows down. I think I've failed many more times than succeeded.”

- Umesh Shanmugam