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The Phone Co-op

The Story of a New Consumer Co-operative for the 21st Century

Business as Mutual Conference

Cambridge, 12 September 2012

Vivian WoodellChief Executive, The Phone Co-op

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The Phone Co-op’s story

• One of the UK’s fastest-growing and most successful consumer co-operatives

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Why are we all here today?• Why do people become social entrepreneurs?

• “You didn’t like the world the way you found it so you built something different”

• Like it or not, every business changes the world, for better or for worse

• Yet people are still only learning to see business as a vehicle for change

• We can make a difference

Why a co-operative?

• Entirely stakeholder-focused

• Democratic (one member one vote)

• Spreads ownership widely

• Enables “crowd funding”

• Equitable – (i.e. fair) in the way that benefits are distributed

• National and global community of co-operatives– Wider support network

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Why a co-operative?

• Co-operatives are quite simply the purest form of social enterprise

• No owner/beneficiary conflict

• Co-operatives are well recognised and trusted

• Model has been tried and tested for 166 years

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What is The Phone Co-op?

• A telecommunications and internet service provider

• We supply business customers and home users

• Fixed line, broadband, mobile, business services

• 23,000 customers, over 9400 members

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We are different

• A consumer co-operative

• Entirely owned and controlled by its customers

• Uses traditional UK consumer co-op model

• Returns a share of its profits to members through a dividend based on purchases

• Supports the development of other co-ops through an investment fund

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And we’re different in other ways too…

• Operates on behalf of its customers to maximise buying power

• Aims to operate in an ethical and environmentally responsible way and to promote co-operative values

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Where did the idea come from?

• High phone charges working on international projects

• Looked for an alternative supplier• Realised that telephone calls bought and sold as a

commodity• Ideal opportunity for a consumer co-operative

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The original concept evolved

• Original idea: Joint-purchasing by NGOs with high international bills

• Later widened to all types of customer• We only found out later that there are telecoms co-

operatives in many other countries

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Getting started

• 2 year trial phase

• Built up traffic in spare time acting as an agent with two telecoms carriers in order to prove concept

• It was difficult to persuade a carrier to sell wholesale to us (nowadays they call us all the time trying to sell to us!)

• Started trading as a service provider in 1998

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Turnover Growth

£0

£2,000,000

£4,000,000

£6,000,000

£8,000,000

£10,000,000

£12,000,000

Turnover

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Our industry is contracting

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Profit before Distributions

19981999

20002001

20022003

20042005

20062007

20082009

20102011

2012 (f/cast)

-£100,000

-£50,000

£0

£50,000

£100,000

£150,000

£200,000

£250,000

£300,000

£350,000

£400,000

Profit Before Distributions

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What we did with the profit (2007-8)

• Profit: £338,000

• Dividends to members: £58,000

• Co-operative loan fund: £58,000

• Share interest to members: £92,000

• Taxation: £50,000

• Allocation to reserves: £80,000

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Financially strong

• No borrowings

• Cashflow very strong

• Good trading record

• Financed by members not by external investors or banks

• Compares favourably with our competitors

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Net Assets

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

Net Assets

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Who are our customers?

• 20,000 Home users–Joining because:

• they like our approach • through affinity schemes • through acquisitions

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Who are our customers?

• 3,000 business users including:–Other co-operatives–Charities–Social enterprises–Local authorities–Many other businesses–Political parties

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Living our co-operative values

• Starts with promoting our membership – Having an active and vibrant democracy draws on our

members’ energy and enthusiasm for us to do the best we can

– Member ownership and strong member-led governance are at the heart of what we are about

– Our members have encouraged us to have a stronger ethical approach

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Living our co-operative values

• We publish an ethical policy – Our members approved this at the AGM– We have an ethical policy committee to oversee it

• We do lots of things to show our support for other co-ops and the wider community

• Strong environmental policy

• We report on what we do using the Co-operativesUK framework

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Environment

• Policy is driven by members

• What gets measured gets managed!

• We report on business travel – 86% by public transport

• We provide free bikes for staff, and pay mileage for cycling and walking

• We also report on emissions from our buildings

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Environment (continued)

• We offset what we can’t reduce – includes supplier emissions

• We have launched a Sustainability Fund – each time a customer switches to electronic billing, we put some of the postage savings into this fund. – It is used to improve our environmental performance in

other ways

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Investment in renewables

• We have invested in several co-operatives that produce renewable electricity– Westmill Windfarm Co-operative (£20,000)– Torrs Hydro New Mills (£7,500)– Westmill Solar (£20,000)– Drumlin (£20,000)

• We invested in the Energy Prospects Co-operative– spreads the risks of getting local renewable electricity

projects off the ground.

Investment in renewables

• In the last year we’ve invested £450,000 in solar PV on 5 sites

• We’ve formed a joint venture (a co-op), called Co-operative Renewables Limited with two other organisations

• CRL installed 4 of the 5 sites for us and has also installed 4 sites for Midcounties Co-op.

• Now looking at other technologies as well

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Employee stakeholding• We are a consumer co-op, but our employees are

recognised as partners and as a key stakeholder. We have:

• An employee council to act as a forum for employees

• A profit-sharing scheme which pays 11% of profits to employees based on hours worked.

• A sales-related bonus scheme operating across all staff

• 11% pension contribution – no employee contribution required (invested ethically).

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Ethical business

• Ethical purchasing where possible– Fairtrade products– Recycled and from other co-ops/social

enterprises – We don’t use high pressure techniques– Transparent pricing

• Marketing – where we spend money– Affinity partners make up the majority– We have contributed £600,000 to charities and

NGOs over the years in revenue-share

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Community and co-operative investment• Co-operative and Social Economy Development

Fund– In most years the board has recommended the same

amount as dividend is allocated to this fund each year

– Total value now over £165,000 – Provides loan finance for new and developing co-ops– More recently we have invested in co-op share capital

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Why do customers join The Phone Co-op?• They like the fact that it’s a co-operative

• Ethical stance

• All about trust - not there to “rip them off”

• Like to support an alternative to privately owned businesses

• Good value

• Dividend

• Affinity schemes

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Acquisitions

• Main focus is on organic growth, but we have also made 10 acquisitions since we started

• Consolidation in our industry means we need to grow fairly quickly

• Issues:– Acquired customers are not people/organisations who

chose us– Potential for higher churn– Integration/cultural

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Acquisitions (continued)• In September 2010 – the telecoms business of

SAGA.

• Adds around 8,000 customers

• As part of this deal we have a marketing partnership with SAGA under which they promoted our services to their 6m customers over 2 years.

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Mobile

• We are now an MVNO (Mobile Virtual Network Operator)

• “Phone Co-op” as network name

• Major area for expansion

• Currently over 2,000 handsets but growing fast

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Major surveys conducted in 2 different years• 1500-2000 non-business customers received survey

forms with their bills

• 40% of them returned forms - a very high response rate

• Very high customer satisfaction rates

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Reasons customers choose The Phone Co-op

28.3%

24.0% 22.0%

9.7%

4.0% 2.3% 2.0%

0%

5%

10%

15%

20%

25%

30%

Per

cen

tag

es

more ethicalsupplier

prefer to buyfrom a co-op

low cost calls simple pricing 0845 number formy incoming

calls

receivingmembersdividend

other

The reasons

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External Recognition

• Overall winner, Enterprising Solutions Award (Oct 08) for best Social Enterprise in the UK, 2008

• Winner, the Green England Award for Customer Service, December 2008

• Winner the Federation of Communications Services Green Award, 2009, 2010, 2011 and 2012

• Winner Co-operative Excellence Award, for reporting to members, June 2009

• Finalist, National Business Awards, November 2009

• Honourable mention, dotCoop Global Awards

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External Recognition – most recent

• Finalist in Midlands Entrepreneur of the Year Award, 2012

• Winner, in 2011 of the FCS Reseller of the Year Award

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Future growth plans• The Phone Co-op’s Board wants to see co-

operative model make a real impact in telecommunications, and perhaps more widely

• Acquisitions – ready for more

• Growth of the mobile model – potentially through new channels

• We’ve looked at expansion in other European countries

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Challenges/issues we faced

• Started with very little money (£35k) made up of loans from members, retained revenue share and a loan from ICOF.– Had to keep costs low– Operated from a spare bedroom for 2 years (it got

crowded as we grew!)– Took time to develop in embryonic form before it

became a full-time job

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Our financing model

• We are 100% owned by our members

• Members invest in withdrawable share capital

• We tell members if they invest 1-2 months’ phone bills we won’t require external finance

• This has been the case since very early on

Share capital growth

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

Share Capital Growth

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Next steps• Our co-operative identity has helped us grow

• Customers trust us and we retain them

• We have better customers– Low bad debt ratio

• But we sometimes struggle to get recognised

• This led us to consider a new approach

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Next steps• We have watched how the Co-operative brand has

transformed perception of the “traditional” Co-op

• This brand isn’t just used for food, pharmacy, travel and funerals

• We now have:– The Co-operative Legal Services – The Co-operative Childcare– The Co-operative Energy

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The Co-operative brand – the way ahead for us?• We carried out extensive research using focus

groups

• We found:– People hate their telecoms providers– They trust The Co-operative brand– They have a pretty good idea what a co-op is and stands

for, and they identify with that– They haven’t heard of The Phone Co-op and when they are

prompted with the name they aren’t sure what we do– They understood what “The Co-operative Phone and

Broadband” would be all about and liked it.

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A difficult decision

• There were many reasons to adopt the brand

• But we also had to consider some risks– Would it be hard to communicate that we are an

independent co-op people could join?– Would it undermine our governance in the long-term?– Would people think we had been taken over?– Would people see us as another non-core offering from a

supermarket?– Would we be lose our operational independence by

through over-tight controls we couldn’t live with?

In the end we went for it

• The brand has a very high level of trust

• A great deal has been invested in it (remember the Bob Dylan adverts?)

• Cross-selling opportunities via retail co-op societies

• Size perception will help us to sell to larger organisations such as local authorities and larger charities

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At the heart of the Co-op Movement

• In less than a month, we will be moving our Manchester office into Holyoake House, Co-operativesUK’s HQ

• Puts us at the heart of the Co-op Complex in Manchester

• Combined with the new brand, this places us in a good position at the core of the Movement, from which we can grow

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Getting even

• Since before The Phone Co-op started, I was an active board member in the co-op movement

• A lot of co-op managers at the time saw the co-operative identity as a hindrance and had no vision for how it could support growth

• I wanted to prove them wrong

• Now with the adoption of the brand and the move into the heart of the movement, it feels like “closure” on that particular battle!

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Conclusion

• The success of The Phone Co-op shows how a new consumer co-operative can start up in a highly competitive area of the economy and can build mass membership

• Consumers are looking for a different model of business at a time when trust in established plcs is at a very low ebb

• “We’re doing it ourselves”

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Be part of the story!

• We hope you will join The Phone Co-op and help us grow

• You can be part of it!

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How to contact The Phone Co-op

• Contact details:

• www.thephone.coop

• Tel 0845 458 9000

• Fax 0845 458 9001

• enquiries@thephone.coop (general)

• Vivian@thephone.coop (Vivian Woodell)