After a downturn that has seen the European telecom sector dwindle tenfold, Colt Telecoms aims to capitalise on VoIP, writes Jamie Smyth, Technology Reporter.

Colt Telecom is on the verge of achieving a historic milestone. The European telecoms operator, which connects 32 cities from Dublin to Rome with its fibre optic network, will stop losing money sometime later this year. And, all going well, it should begin to generate profits in 2007, according to Jean-Yves Charlier, Colt Telecom's chief executive, who took over the reigns of the firm last August.

"This is the first big milestone and means we aren't going to run out of money," says Charlier, who was formerly a top executive at British Telecom's global services division.

This statement would smack of limited ambition for a business that generated revenue worth £308 million in 2004 in any other industry. But in the cut-throat world of alternative telecoms operators, very few firms ever survive to turn a profit - and simply surviving the carnage of the dotcom era represents a massive achievement.

Almost two years ago, Colt Telecom faced down an attempt by one of its shareholders, the hedge fund Highberry, to shut it down and liquidate its assets. The fund argued Colt Telecom would run out of cash before it could ever reach breakeven, prompting a radical restructuring at the firm.

Two years on and there has been deep cost-cutting at Colt Telecom, which has "offshored" almost 10 per cent of its workforce to India and cut back on capital expenditure. But, unlike other rivals, it has survived the storm.

"We estimate that there were about 4,000 telecoms operators in Europe in 1999 but there are now only about 400 companies," says Charlier, who emphasises that Colt Telecom has the competitive advantage to become a clear leader in Europe.

Colt Telecom is unique among the legions of alternative telecoms operators that compete in Europe, as it owns and operates city networks across many countries. Formerly known as City of London Telecoms, the firm was founded in 1992 to target large firms that wanted an alternative to the state incumbents that dominate the sector. It now has 52,000 customers across Europe and is expanding to offer a wide range of voice and data services to small- and medium-sized firms as well as multinationals.

"Our big advantage is that we own and operate our own metropolitan networks and have built fibre directly into customer premises," says Charlier.

"This means we don't have to unbundle the local loop and use the copper that belongs to the incumbents."

In Dublin, as in the vast majority of the cities in which it is present, Colt Telecom operates a fibre optic network that targets the business parks where firms set up operations. By directly connecting these businesses into its pan-European network, the firm can offer services more efficiently than incumbents which are saddled with old technology.

Charlier cites the launch last month of a flat-rate pan-European Voice over Internet Protocol (VoIP)service as an example.

"We are the first firm in Europe to offer this type of a service at a flat-rate of about €50 per employee to our customers. VoIP and flat-rate pricing is clearly the future for telecoms, but incumbents are slower to launch the service because it cannibalises the voice revenues they can generate from their traditional PSTN networks."

VoIP is a technology that enables telecoms firms to transmit voice calls over the internet rather than use the traditional switched telecoms network.

Using the technology, voice calls are carved up into small packets of data sent via the internet to their destination, where they are reassembled again into the voice call. Because sending data over the internet is free, the cost of carrying calls is negligible.

Unlike residential services such as Skype, which send data via the public internet, Colt Telecom sends its voice packages over its own managed network, thereby guaranteeing the quality of the call for customers. Most analysts agree that VoIP is the future of telecoms services.

"The interest in the two weeks since we launched the service has been phenomenal. Not since the days of the internet bubble have we seen so many calls about a product," says Charlier, who also emphasises the additional functionality offered by VoIP as an attraction.

For example, VoIP enables business travellers to take their landline with them when they are on business abroad.

"The first wave of adoption is going to be among multinationals and medium-sized firms and the second wave will be SMEs."

Colt Telecom's Irish operation is mostly concentrated in the Dublin region where it has its own fibre network. However, the firm has not ruled out using the Government's new metropolitan area networks in other cities as a means of extending its services, says Charlier, who is pleased with his Irish unit.

"We are grabbing market share in Ireland and expect to grow revenues 30 to 40 per cent compared to last year. We will also be profitable here this year."

And for the first time in a few years, Colt Telecom is back investing in infrastructure in the Republic. This year it will spend more than €1 million introducing new high-speed services and undertaking Colt Telecom's first trials on WiMax, a new wireless broadband technology standard.

"We are mostly a fibre company but we think that a mix of fixed and wireless will enable us to reach more small- and medium-sized businesses," says Charlier.

However, Colt Telecom is still withholding investment in the Republic in certain critical telecoms areas such as digital subscriber line technology and unbundling the local loop.

"We need a rational DSL offering from Eircom before we can enter the Irish market and we haven't got that yet," he says.

Eircom still has 80 per cent of the wireline market in the Republic, which means it still has an effective monopoly, says Charlier.

There is no point in attempting to unbundle the local loop in Ireland until the regulatory situation is solved, he adds.