Business and Finance
The billion-euro British phone network that doesn’t exist
Those looking for the best rates to phone overseas have flocked to Lycamobile. But while it undoubtedly offers cheap international phone calls, it’s never far from controversy.
The company’s only been going seven years and yet boasted a £120million turnover in the UK in 2012, and an estimated €1 billion as a group.
Yet, it’s not even a “real” phone network, it’s a virtual one. In fact it’s the world's largest mobile phone virtual network (MNVO), a type of company that leases radio frequency from mobile phone network operators and forms partnerships with the operators in each country it serves.
MVNOs are big business. Globally there are more than 800 with most based in Europe. Within the UK, Lycamobile’s main rivals are Lebara, Now Mobile and Vectone.
MVNOs offer consumers cheap calls using pay-as-you go mobile Sim cards. Calls between Lycamobiles are free while calling UK landlines costs 5p a minute and other mobile networks 10p a minute.
But the real savings come when calling abroad. For that reason the firm’s marketing is aimed at ethnic minorities with families and friends in their home country. You’ve probably seen Lycamobile advertising on the high street – it offers calls from 1p a minute from the UK to destinations such as India, China and Nigeria under the slogan “Call the world for less.”
The huge bill that created a business
Chief executive Milind Kangle founded the company in 2006 with group chairman Subaskaraan Allarajah. Kangle had moved to the UK from Dubai in 2000 and experienced first-hand the high call charges migrants face when calling home. With his father unwell in India, he unwittingly racked up £3,000 worth of calls – on his mother-in-law's phone bill. Next he tried prepaid calling cards but found the call quality too poor.
Kangle worked in financial services at the time and a chance meeting with Allirajah saw the pair set up calling card firm Lycatel in 2003, and Lycamobile three years later.
The Sim-card company now serves 16 countries including Australia, Denmark, France, Germany, Spain and the UK. Its plan is to expand by offering services in more companies – it launched in Austria this month and the US earlier this year.
Start low, grow fast
Lycamobile’s quick growth hasn’t gone unnoticed. This year it was ranked number four in the Top Track 250, a Fast Track list which ranks mid-market company growth. Allirajah is estimated to be worth £180 million according to the Sunday Times Rich List 2013.
Lycamobile typically adopts an aggressive pricing strategy in new markets in order to acquire early market share. In the UK it uses the O2 and Orange networks and signed up 1.2 million users in its first year of trading. It claims that a new customer joins the virtual network every two seconds.
Lycatel, meanwhile, sells calling cards both direct to consumers and on a wholesale basis to shops. The two firms collectively employ about 4,500 workers around the world.
Lycamobile’s call centre in London's Docklands supports more than 20 languages, from Polish to Tamil. Kangle says the company’s typical customer is living in a host nation with most of his or her family living back home or in other countries.
The wrong sort of publicity?
But despite being popular with migrants looking to call home, Lycamobile’s hit the headlines for the wrong reasons. It’s come under attack both for its tax arrangements and its links to the Conservative party. Despite a £120million turnover a year, Lycamobile hasn’t paid corporation tax in the UK since 2007 and doesn’t expect to for at least another year.
Tax is only payable on company profits – and Lycamobile has not reported a profit on its UK operation. Michael Landau, Lycamobile's chief financial officer, said the firm ploughs its profits back into the business.
"Lycamobile is a very fast growing company as an affiliated group of companies and all the profits that we make get reinvested back into the group to grow the business further on," he told the Huffington Post in September this year.
Lycamobile's tax arrangements have drawn criticism from politicians. Labour MP Paul Flynn described the situation as “outrageous”. To make matters worse, Lycamobile is a big Tory donor; it’s donated more than £420,000 to the Conservatives since 2011.
Margaret Hodge MP and chair of the Public Accounts Committee, has criticised both the Government and Lycamobile for the arrangement.
"No political party should accept donations from a company that avoids paying its fair contribution to the common good,” she told the Huffington Post, “The Government loses credibility if it says it condemns tax avoidance and then accepts money from obvious offenders."
Lycamobile has also had its knuckles wrapped by the Advertising Standards Authority (ASA). The ASA banned an avert from Lycamobile after it claimed it offered unlimited allowances – but the small print stated that unlimited usage was subject to a fair usage policy.
Not slowing down
Of course, negative headlines don’t often stop a successful business – and there are no signs Lycamobile’s slowing down. In November they launched in Australia with plans to keep expanding outside Europe.
“Launching to the Austrian market is a significant milestone for Lycamobile as we look to expand our European footprint. This development, together with our roll out across the USA, highlights a hugely successful and pivotal year for the company,” said Lycamobile Group chairman Subaskaran Allirajah.
“We are delighted to welcome Austria into the growing Lycamobile family and look forward to accelerating our growth with additional country launches as we move into 2014.”