A Finnish company is quietly laying the groundwork to disrupt a trillion dollar industry by providing global and local services for only 10% of the cost.
Alekstra CEO Toni Toikka got his start in 1998 as salesman at Elisa, a Finnish telecommunications company, where he discovered no one had any idea what they used or paid for when they purchased mobile services. Toikka recalls that everyone argued over the minute price, but the devil was in the details. What he envisioned was not only a transparent system, but a global system updated for the modern era.
After a stint as a Director at Nokia, Toikka is the founder and CEO of Helsinki-based Alekstra. Looking at the company right now, you'll see a suite of services designed to lower the mobile phone bills of large organizations, with the overall theme of efficiency and the reduction of billing errors. Their services optimize company's rate plans so they aren't buying features they don't need, and they offer features like Ratemizer, an automated phone bill analyzer that lowers costs due to billing mistakes.
€700 000 billing errors
This alone is a huge market; the Aberdeen Group estimates billing errors represent 12% of the total invoice price. As proof of their concept, by going back through past bills for one of their customers Alekstra was able to reclaim €700 000 in billing errors made over a five year period. Alekstra was founded in 2006, and after their fourth year they were cash-flow positive and turning a good revenue.
But what's less obvious is that by building these intelligent billing systems, Alekstra is methodically laying the groundwork to become the world's first Global Virtual Network Operator. This type of service is greatly different from the current fragmented and bloated wold of TeliaSoneras, Vodaphones, and Verizions. A Global Virtual Network Operator would allow you take your cell phone from Finland to Singapore to the U.S. and pay a low fee and no roaming charges - everything would all be under the same network. On top of this flexibility, Alekstra will be able to offer phone and data services for 10% of the current cost by cutting out the unnecessary waste.
"The first step was how to get users onto the network," says Toikka. "Business users are the highest value to operators because they travel a lot." Alekstra now has about 12 large customers onboard, such as McDonalds, G4S, the state of Connecticut, and others. But the second step was to figure out how to efficiently bill incumbent networks across the world to provide the mobile and data services.Technically their plans of becoming a Global Virtual Network Operator is very simple. Anyone can establish themselves as a virtual network provider, and Alekstra plans on not even having boots on the ground in the countries they operate. As long as the area has internet, Alekstra can plug in their billing API to the system and run everything remotely.
They're able to expand around the world so easily because in most countries your wireless phone service is actually running through two different companies in order to prevent anti-competitive practices. The first is the incumbent network, who runs the pipes and must legally provide network access to any carrier. The second is the service provider, such as TeliaSonera, who purchases services from the incumbent network and sends you the bill.
Apple and Google both have announced intentions to become global operators, but despite the easy technical challenges, Toikka says it takes years to build the efficient billing relationships with incumbent networks all around the globe; the billing systems are just that fragmented, complicated, and just not designed for easy plug-and-play. Toikka recalls a two year study taken place while he was serving as a director at Nokia, which looked at 300 operators in 100 countries to make sense of their billing systems. The study gave no clear results. No one had any idea if the prices were real, or if the operators were undercharging or overcharging.
Toikka compares current service providers to what travel agencies were before the internet. To book a flight you had to go to a travel agency because they were the only ones that knew the routes and prices. But today with the internet anyone can search and go straight to the airlines, cutting out the middleman. That's what Toikka wants to do. Cut out the middleman of bloated storefronts and complicated billing systems, and instead throw everything on the internet and provide easy ERP billing systems for customers.
Alekstra has positioned themselves to get acquired in the next 24 months, but unafraid to take on the world by themselves. On the acquisition side, Toikka mentioned Apple many times, and pointed out that iPhones actually make up 74% of all business phones, their key market. But without an acquisition Alekstra plans on running an IPO and becoming a stand-alone operator by the first half of 2014, offering services to both business customers and consumers.
A huge shift in the market is going to take place whenever Alekstra goes live. Compared to the giants like TeliaSonera and AT&T, Alekstra is impossibly lightweight. AT&T for example has 3500 employees per one million customers. Alekstra, on the other hand, needs only around 0.7 for the same amount. If they want to set up a new operator in Singapore, they don't need boots on the ground. As long as internet is available, they can establish an API to the operator's billing system and run everything remotely. The potential for this type of network is huge. The mobile industry has aggregate revenues of 1.5 trillion.
It's fairly ridiculous what we as consumers have put up with for years. High roaming charges make little sense in today's connected world, especially as VOIP services perform the exact same task for free or cheaper, sometimes even over the exact same network. My personal pet peeve is that in the U.S. many people are still paying $0.10 for every incoming and outgoing text message, as if that makes any sense.
"The operators are oligopolies," says Toikka. "You can see that with TeliaSonera charging for Skype. They don't care until it's too late."