Interview: Mark Kellett, Magnet Networks

26 Jul 2017 | 03.18 pm

Interview: Mark Kellett, Magnet Networks

Turnover set to double after Imagine takeover

26 Jul 2017 | 03.18 pm

Magnet Networks doubled in size in 2016 and CEO Mark Kellett sees further scope for expansion, writes John Kinsella

 

Kenneth D. Peterson Jnr has had to be patient with his Irish investment in niche broadband provider Magnet Networks. The company had accumulated losses of €104m at the end of 2015 and a negative net worth of €4m after Peterson’s Columbia Ventures Corporation (CVC) had invested €100m since 2004. However, for the patient investors in the telco/broadband space, there is usually a reward.

Peterson, based in Vancouver in Washington State on the US west coast, graduated as a lawyer and his first foray into business was an aluminum smelter. Subsequently he founded CVC and in 2003 bought a transatlantic internet cable for $17m from bankrupt 360Networks.

That was a bargain, as laying the submarine 12,200 kilometre fibre optic cable had cost hundreds of millions of dollars. The Hibernia Atlantic system had cable landing stations in Nova Scotia, Boston, Liverpool and Dublin, and at the time it was the only direct telecommunications link between Ireland and North America.

CVC used the cable as the basis for building up Hibernia Networks as a provider of data transport in North America, Europe and Asia. In 2015, Hibernia laid another 4,600km submarine cable called Hibernia Express linking Nova Scotia with the UK, including a spur to a landing station in Cork.

Hibernia Networks was a long-term play. It didn’t turn a profit until 2016, and in September 2016 accumulated losses stood at $83m on the back of $145m equity invested by CVC. However, nine-month operating profit amounted to $26m on turnover of $139m. The company had finally turned a corner.

In November 2016, NYSE-quoted GTT Communications entered the picture. GTT bills itself as the leading global cloud networking provider to multinational clients, and the Hibernia assets would fit nicely into its infrastructure portfolio. GTT decided to pay $515m in cash and $75m worth of GTT shares for Hibernia Networks, equivalent to three times turnover and nine times the net asset value.

It was a bumper reward for Peterson and CVC, so he’s a player who has to be taken seriously. The numbers at Magnet Networks suggest that Peterson should have walked away long ago, but instead he is still investing in the Irish venture.

Step Change

Since being established, over the years Magnet has tried various business strategies. Under CEO Mark Kellett, appointed in 2007, the company now has around 11,000 SME and corporate customers, with a focus on the SME segment.

In March 2016, Magnet paid €14.2m and another €1.8m contingent payment to acquire the Irish retail business division of Imagine Communications. That was a good result too for Imagine principal Sean Bolger, after the Imagine group booked a net loss of €4.7m in 2015 and ended the year with liabilities of €42m and net liabilities of €8.3m.

According to Kellett: “The acquisition of Imagine’s retail business division was a step-change acquisition for Magnet, placing us as the third largest telecoms provider to the business community in Ireland. Our strategy is to provide a credible choice to businesses of all sizes across Ireland based on the quality of our network and range of services.”

Imagine’s strategy is to concentrate on rolling out a 4G Long-Term Evolution (LTE) network that can offer high-speed broadband services in regional and rural Ireland. Magnet is using this network to enhance the reach and range of cloud telecoms services available to regional SMEs.

Magnet Networks Ltd reported turnover of €12.4m in 2015, and the Imagine deal will double that figure for 2016. Magnet’s prior investment has given it access to 40 unbundled eir exchanges that pass 600,000 premises. Except in the case of big corporate customers like Amazon, Magnet is no longer digging up roads to lay down fibre, relying instead on bundled copper solutions and wireless internet to provide broadband to customers.

The Imagine deal was financed with funding from Bluebay, and Kellett envisages further acquisitions in the future. For the existing customer base, the focus is on selling more services, especially IP telephony. “The soft phone is effectively the screen on your mobile, your laptop or your PC,” says Kellett. “With the smaller SMEs that we engage with, some say they don’t want that technology yet, but then in a year or two they may want to upgrade their system.”

Cyber Protection

A recent initiative from the company is Magnet Protect, a cyber security firewall product priced from €25 to €100 per month. “This is not just about businesses protecting themselves from malware,” Kellett explains. “What I’ve picked up on my travels around the country is constant complaints about broadband speeds.

“Sometimes the reason is that Johnny or Mary in the office are downloading lots of movies, or the three staff in the customer support centre are on YouTube all day. With Magnet Protect the business owners can also look across the network and lock down Facebook at certain times of day or block certain websites.”

In Kellett’s view, more SMEs should be taking advantage of cloud possibilities. “We try to have a genuine conversation with customers about the ways a business can use this technology to improve revenue and productivity but also to think differently about how they conduct their business.”

According to Magnet’s regular business barometer research, businesses within the M50 are more prepared to invest in technology that elsewhere. “I think this is because there is more peer-to-peer learning on the east coast,” says Kellett. “I have increased our sales presence regionally to take advantage of what I see is under supported market base.”

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