HOW BAD WEATHER IN THE UK KILLED THE TELECOMMUNICATIONS "UNICORN" BUSINESS IN THE LATE 90S
Mar 10 2021
There are many factors that affect the business of telecommunications companies. These are competitors, the financial configuration of the market, and various kinds of crises. Most factors can be predicted, but it also happens that a business collapses due to unforeseen obstacles. It turns out that the weather can become an insurmountable problem. This is exactly what happened with the company Ionica from the UK. It tried to compete with the monopolist British Telecom and even became a pound "unicorn", which in the 90s of the last century was a real economic miracle. But the rapid rise of the business was replaced by an equally rapid decline.
Ionic? I've never heard of it
Yes, this is not the most famous company right now. This is probably remembered only by the participants of the telecommunications market, who followed the trends of the beginning of the new millennium. Ionica is a product of the Cambridge Business Incubator that was operating at the time. With its help, many interesting companies appeared in the world that promoted technological innovations. One of them is the main character of our article. At the end of the XX century, an interesting situation developed in Britain: British Telecom became a monopolist of the telephone market. Almost all landline phone lines were laid/changed with her knowledge. Not everyone liked this situation, as the company's tariffs were almost extortionate. There were no competitors, all the levers were in the hands of the monopolist. But there was a way to circumvent the monopoly - thanks to wireless communication. Now it seems like a simple solution, but at the beginning of the new century, telephone communication without wires was something of a technological breakthrough. His guide was Ionica. The company has developed wireless communication technology, a kind of analogue of modern cellular communication. In a certain region, a tower was installed that provided wireless communication with local residents/organizations. Each building was equipped with microwave radios, to which fixed lines were connected. The idea was great, and the company immediately got a lot of customers. One of the factors that led to the popularity of Ionica is the low-cost tariffs. They were lower than those of British Telecom, due to the lack of need to deploy a wired infrastructure. The service was launched in several cities in the UK.
Sounds good, but what happened next?
As already mentioned, towers were placed near the houses, which exchanged data with the antennas on the houses. And so the antennas became one of the problems. These were very complex technologically and very expensive (as far as we can judge) hi-tech systems. The technology itself is called Wireless local loop (WLL). This equipment worked in the 3.5 GHz band, using custom chips and other elements from Nortel Networks.
Now all of this can be replaced with a pair of dollar-priced wireless chips with strapping. But then it was a real innovation, and not cheap. The company started installing its equipment in 1996 and has been increasing its operations every year. But, unfortunately, almost immediately there were problems. The main one is the weather conditions. It turned out that in fog, rain, snowfall, there is almost no communication. The 3.5 GHz spectrum is very sensitive to weather conditions. Perhaps the company tested its towers in ideal conditions, in good weather. In any case, the technology has been tested, it is unlikely that anyone would spend money on bringing untested systems to market. In 1997, the company went public, its shares soared in price, so that Ionica immediately received a capitalization of 1 billion pounds. Here you can see that a billion pounds in the late ' 90s is not the same as a billion pounds now. Everything seemed to be going perfectly. But it just so happened that users started complaining — and not just one or two people. Hundreds and thousands of customers were dissatisfied with the service. Someone had to endure communication problems due to the lack of alternatives. Others left the service almost immediately. It turned out that some customers from 1996 to 1997 did not receive normal communication. More or less everything worked only in good weather, which, of course, is not normal. The company suffered losses and barely kept afloat.
It was all over in one night
By 1998, the company had accumulated a lot of debt. The total amount was 300 million pounds. By August 1998, Ionica could not find an investor, and, according to management, it took only 45 million pounds to get out of the crisis. By the end of the year, the company's share price had fallen fourfold, so that Ionica's capitalization was 250 million pounds, and its debts were 300 million. Well, then it got even worse. On November 2, the company laid off almost half of its employees. In December 1999, it began to transfer its customers to the service of the same monopolist — British Telecom. The latter also supported the company by keeping the Ionica infrastructure in working order until the transfer to its own facilities. On February 28 of the same year, it was all over. The company began to provide only point services that brought at least some income. By the way, she managed to start working in Canada, where the weather conditions are much better than in the UK. Here, too, the customers were satisfied, but Ionic had no resources left to expand. In addition, in the 2000s, ADSL technology began to spread rapidly, which finally buried the Ionica business.
Could it be otherwise?
Yes, quite likely. If the company had not been hampered by weather conditions, it would most likely have managed to win a solid base of satisfied customers. Then the company would reduce the cost/simplify the production of equipment, then switch to new technologies, while continuing to support customers. In this case, everything will be fine. But to do this, Ionica had to start operating in the sunny regions of the US, Europe and Australia, and not in the UK. There is a far non-zero chance that the company name will now be as well-known as British Telecom, Vodafone, Orange, etc. But it turned out the way it did.
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