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Compass points in new direction

Friday 17th November 2000

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Tycoon backs NCM process - with 'sight-unseen' deal, writes NICHOLAS BRYANT

Business dignitary John Fernyhough may be getting long in the tooth but it can't be said he doesn't move with the times. He signed on for his latest venture without even meeting the lads he was backing.

"It was a virtual introduction, virtual dealings and a virtual deal if you like, as all correspondence was by fax," Mr Fernyhough said this week of his becoming cornerstone shareholder of Compass Communications.

"I'd never not met the other parties when doing a deal before."

Five years ago Englishman Karim Hussona, Compass chief executive, and his Kiwi mate Paul Carter, chief financial officer, were working for Cable and Wireless in the UK and needed money for a business providing, fittingly enough, enhanced fax services. They did it successfully but fax technology had obsolescence written all over it.

The company evolved and now operates its own nationwide telecommunications network providing voice, fax and data services to business and residential customers.

It is the likely key acquisition (the name sort of gives it away) of Compass Communications Group, which will list on the Stock Exchange's New Capital Market (NCM) in a week.

The deal, as per NCM rules, is contingent on a vote by shareholders excluding the three founders. Compass is hoping to raise $600,000 through the issue of 1.2 million ordinary 50c shares for its NCM listing.

But despite being likely to receive good interest on the "flavour of the month" NCM, analysts are asking how a small telco can make it in what Mr Hussona admits is a crowded market.

Its communications competitors include Telecom, Clear, Telstra-Saturn, Global One, World Exchange, Newcall, Call Plus and Ihug, and then there's the country's 150-odd ISPs.

The recipe for success stems from "looking at the detail and squeezing the margin," according to Mr Hussona, something the ex-Cable and Wireless software developer and his accountant offsider believe they are well skilled to do.

"For a start we have no parent company saying 'go in and get market share at any cost,' all facets of our business must operate profitably," Mr Hussona said.

Being small is in fact seen as an advantage. "We make a living when others don't by picking a niche," Mr Carter said.

But how, in what is essentially a commodity business, will it succeed?

Not surprisingly much of that recipe is commercially sensitive, but unlike many start-up companies going public, its likely key acquisition is already making money.

Compass has made profits in the past two years, $200,000 and $300,000 respectively, and expects $400,000-$500,000 profit on turnover of about $10.5 million when it reports its 2001 financial year results next March.

Early this year it was a free internet pioneer when it launched Freenet, the country's first free ISP.

The site is now being developed as an online channel for Compass services to the residential market.

A signal of future movements was shown in Compass' bidding in the government's radio spectrum auction, but it pulled out when the bids "got a bit rich." However, it intends to utilise spectrum, including 3G, from others still in the process.

A speedy main board listing is intended, along with a further share issue, perhaps as early as January.

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