The presentation was from the Business as Mutual conference held at Anglia Ruskin University on 12th September 2012. To find out more visit www.businessasmutual.co.uk

1. 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 Woodell
Chief Executive, The Phone Co-op
1

2. The Phone Co-op’s story
• One of the UK’s fastest-growing and most
successful consumer co-operatives
2

3. 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
3

4. 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
4

5. 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
5

6. 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
6

7. 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
7

8. 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
8

9. 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
9

10. 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
10

11. 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
11

12. Turnover Growth
Turnover
£12,000,000
£10,000,000
£8,000,000
£6,000,000
£4,000,000
£2,000,000
£0
12

13. Our industry is contracting
13

14. Profit before Distributions
Profit Before Distributions
£400,000
£350,000
£300,000
£250,000
£200,000
£150,000
£100,000
£50,000
£0
-£50,000
-£100,000
14

15. 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
15

16. Financially strong
• No borrowings
• Cashflow very strong
• Good trading record
• Financed by members not by external investors or
banks
• Compares favourably with our competitors
16

17. Net Assets
Net Assets
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
17

18. Who are our customers?
• 20,000 Home users
– Joining because:
• they like our approach
• through affinity schemes
• through acquisitions
18

19. Who are our customers?
• 3,000 business users including:
– Other co-operatives
– Charities
– Social enterprises
– Local authorities
– Many other businesses
– Political parties
19

20. 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
20

21. 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
21

22. 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
22

23. 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
23

24. 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.
24

25. 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
25

28. 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).
28

29. 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
29

30. 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
30

31. 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
31

32. 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
32

33. 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.
33

34. 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
34

35. 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
35

36. Reasons customers choose The
Phone Co-op
28.3%
24.0% 22.0%
30%
25%
Percentages
20%
9.7%
15%
4.0% 2.3% 2.0%
10%
5%
0%
more ethical prefer to buy low cost calls simple pricing 0845 number for receiving other
supplier from a co-op my incoming members
calls dividend The reasons
36

37. 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
37

38. External Recognition – most recent
• Finalist in Midlands Entrepreneur of the Year
Award, 2012
• Winner, in 2011 of the FCS Reseller of the Year
Award
38

39. 39

40. 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
40

41. 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
41

42. 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
42

43. Share capital growth
Share Capital Growth
£4,000,000
£3,500,000
£3,000,000
£2,500,000
£2,000,000
£1,500,000
£1,000,000
£500,000
£0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
43

44. 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
44

45. 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
45

46. 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.
46

49. 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?
49

50. 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
50

51. 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
51

52. 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!
52

53. 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”
53

54. Be part of the story!
• We hope you will join The Phone Co-op and help us
grow
• You can be part of it!
54

55. 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)
55