Telecoms firm makes the right connection.

The first thing you notice about Hull is that its phone boxes are not painted white, as is commonly held. It’s more like cream. Another popular misconception about the city is that the company that owns and operates those kiosks, Kingston Communications, is a sleepy, former council department operating in a telecommunications backwater. In the real world, Kingston – which had a part flotation only eight months ago – is a pioneer in the burgeoning telecommunications market. Its flotation share price was 225p and the group’s market capitalisation was £750m. Its capitalisation is now £5bn and last week, when it made its debut on the FTSE-100, its shares were trading at just under 1600p. It is the second-largest company in Yorkshire behind the Halifax and it was voted the most successful flotation of 1999 by Euroweek magazine. But for all this success it remains very much a product of Hull. Its headquarters remain there and with 1,300 staff, it is a key employer in an area that remains an unemployment black spot. The group has 10 companies, including the local phone operator covering 120 square miles around the city, an interactive TV service and a service with offices in Europe and North America that tests new IT, telecoms and electrical equipment. It is a far cry from the modest local telephone system set up by Hull Corporation in 1902, which survived the government buy-out of the national phone network nine years later. For the next 75 years, the telephone department grew under the council’s auspices, and when it became Kingston Communications in 1987 the council retained a 100% stake. The first all-digital network in the UK was completed two years later. Following last July’s partial flotation the council now holds 44.9% of the company. FD Ross Cope is clearly proud of the success of the group, which is now growing at around 30% a year. ‘At the flotation most of the interest was in Torch, our business-to-business communications arm. Investors thought the rest was interesting but it was more like a mini-BT so Torch made up most of the initial valuation. Since then they have come to realise the rest of the group isn’t a mini-BT but is an innovative new business.’ There is no doubt the company has been caught up in the UK communications boom. ‘The whole sector is exciting,’ Cope says. ‘If you look back to the 1980s, telecoms accounted for about 2.5% of GDP. It’s growing fast and it’s going to be 5% to 6%. Anyone with telecommunications expertise should be capable of taking advantage of that growth. Kingston is one of those growth companies.’ To cap all the success, relations with Oftel have improved since the partial flotation. ‘Our relationship with the regulator is not confrontational, though it was fairly confrontational three years ago. The regulator recognises we are doing what the government wants – providing good value telecommunications, a quality service at a reasonable price.’ Cope says other companies considering flotation should go for it, despite the fact it is difficult and can be a lot of work. ‘Our success is not just down to the company being in a new, sexy sector. It is about getting investors on your side and making sure they understand your story,’ he adds. Business is booming but what of the company’s future? It stresses it is in the throes of transforming itself from a telecommunications company to a communications company. A key element of this is last month’s tie-up with British Sky Broadcasting. This joint venture will enable Kingston to supply digital TV and high-speed internet access across its existing telephone lines, using Asymmetric Digital Subscriber Line (ADSL) technology. Though the new services will only be available initially in and around Hull, there is no doubt where the joint venture is leading the company. It is now gearing up to take on BT and the cable companies that provide telephone, internet and TV services. This battle will begin when BT’s local network monopoly is broken. This is due next year. Kingston’s chief executive Steve Maine said as much when the BSkyB deal was agreed: ‘This (deal) signifies a major step forward in the further exploitation of our network to deliver a wide range of services to the home. Of potentially greater significance we will also be well positioned to take advantage of the opportunities created by the unbundling of local networks elsewhere in the UK in 2001.’ Cope reinforces this message. ‘From the market’s point of view Sky coming in as a very credible media company said a lot about us as a serious player,’ he says. A secondary share placement last month raised £100m to support the joint venture with BSkyB. ‘This will give us the balance sheet strength to be a credible partner for players outside the East Riding of Yorkshire. We are going to go for it in a very big way indeed,’ Cope adds. The introduction of ADSL technology is not the first time the company has jumped before more established names in the industry. It has a long history of innovation. It introduced the first mechanical exchanges in the UK in the 1930s and became a trail-blazer again in the 1980s when these were converted to digital exchanges. ‘Part of the company’s tradition is to roll your sleeves up and get it to work,’ Cope says. This no-nonsense attitude is reminiscent of the people of Hull itself. The company is proud of its Hull roots and the citizens clearly have faith in their local phone provider. When the council announced the partial flotation, 40% of local households and half the staff bought shares – around 50,000 people. Some 44,000 local people retain their holdings. They have been repaid handsomely. On a maximum investment of £5,000 investors have made a paper profit of around £30,000 each. ‘We had a tremendous response from local shareholders,’ Cope says. ‘All they got was priority in buying the shares; they didn’t get a discount. With hindsight it was a great investment but at the time they wanted to show confidence in their company.’ Though the council always ran the company as a separate entity it did so with one eye on the local economy. Cope says the flotation has not changed that, offering the decision to site its call centre in the city as an example. ‘It means more telephone traffic for us and more buying power in the local economy. I think there was always a sense of pride in the company and that was partly down to the council. It’s a local company rooted in the local community.’ But can the company reinvigorate the local economy? ‘We see it as in our interest to promote sensible development. The better the local economy, the better the spending on our services so we are interested in promoting new businesses into Hull. We always prefer to use local contractors if we can but whether we can be the catalyst that will bring Hull to something like the level of, say, Leeds in two years’ time, is probably a bit too much to hope for.’ Change is inevitable. If the company expands as its directors envisage it will become a household name. Kingston Communications is in the early stages of a rebranding exercise. Hull recently dropped Kingston from its own name following a local vote but Cope insists that Kingston Communications is already too well-known to change its name. And he adds: ‘We won’t be changing the name to ‘Tomato’ or something like that. That’s not a Hull thing to do.’ TORCH TO OPEN UP OPPORTUNITIES IN SME MARKET ‘In the recent past we have focused on the large corporate bodies but there is only a limited number of these. We are committed to developing our regional networks around the UK and the vast majority of opportunities will come in the SME market.’ So says Jamie Watson, marketing manager of Kingston’s business-to-business arm Torch Telecom, of his company’s future strategy. Its chief weapon in the battle for SME business is its ability to host a company’s telephone switching system. ‘This is attractive to SMEs because they don’t have the capital outlay of buying a switching system. It also offers flexibility. Most small companies cannot get an idea of how quickly there are growing and they tend to underestimate it so they outgrow their switchboard quite quickly. With our system they can get new extensions within 24 hours by giving us a call.’ Torch has four regional networks, in Yorkshire, the South-West, the south Midlands and the East Midlands, which is due to go live this month, though SMEs elsewhere in the country can be indirectly linked to its services. It is also due to begin offering mobile phone services this month. Torch has about 800 SME customers, though Kingston also has small business clients in and around the city of Hull. One of these, Shaun Hague, owner of dtop web design, says the company’s charging regime is a real benefit. ‘At the call costs they charge I would be stupid not to use Kingston. Local calls, that’s calls within the Kingston Communications area, are 5p and they are not timed so you can stay on for however long you want for 5p.’ Though he uses Demon as his internet service provider, he is keen for Kingston to extend its recently launched residential-only ISP to small businesses. ‘I will be quite happy when they do because it will bring my call costs down.’ The local company still has a public service ethos, he believes. ‘I have never had any problem with them and when their engineers call they have been friendly, polite, prompt and sorted out the problem quickly and to my satisfaction.’ ?: