Troubles at Energis hit hopes for cheaper phone calls

CONCERN is mounting in the City that Energis, the National Grid- based phone system that is a potential nationwide competitor to BT and Mercury, lacks a convincing strategy after axing 11 per cent of its workforce. The 60-plus redundancies follow the departure of the chief executive and three senior managers earlier this month. The cuts came in the same week as the telecoms watchdog, Oftel, said change was needed to prevent BT using its dominance to discourage competition.

Consumer hopes that Energis would be able to offer them its cut-price service have receded at a time when Mercury, the only other nationwide competitor, has effectively withdrawn from the residential market.

Doubts over the strategy and prospects of Energis also throw into question the valuation to be placed on it as part of the flotation of the National Grid in November for an estimated pounds 3.5bn. That could affect the price of shares in the regional electricity companies, currently the focus of takeover fervour, which own the National Grid. The Grid in turn owns Energis, whose service is based on wires wound around the Grid's pylons and transmission network. One City analyst said some institutional investors would prefer to see Energis sold off before the National Grid was brought to the stock market.

Nigel Playford, chief executive of Ionica, a potential competitor to Energis in some markets, said: "Energis are entering the bulk traffic market 10 years after it was opened up and it is possible they are finding it difficult. It is not good to be the third entrant after the cream has been skimmed. They should have a cost advantage but they have obviously had a staff turnover problem."

He said Energis had a chance of success but noted that the company had not made much progress in signing up large cable telephone operators to provide an alternative local connection to that offered by BT. "All the power is with BT and the cable operators, because they are in people's homes."

Another City telecommunications analyst said: "Energis was a brilliant business plan for making use of the National Grid. But margins are very thin in the long-distance market. Energis's TV ad campaign telling consumers about savings was a mistake.

"It's difficult to work out what their strategy is," he added.

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