KCOM Regulatory News (KCOM)

Growing revenue in our Enterprise segment to offset the decline of network-based revenues

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As noted last year, we continue to move away from the delivery of network-based services and are focused strategically on the provision of complex communication solutions and cloud-based services. There is a risk that, during this transition from old to new technologies, revenue from legacy activities may decline faster than revenue from the new services grows.

There has been a lot of focus internally over recent years on clearly defining the strategy for the business. The Executive Leadership Team has participated in a number of strategy days where the strategy has been discussed and tested using various scenarios. There has also been strategic advice sought externally from industry experts, all of which has supported the strategic direction of KCOM.

We believe that our experience and skill-set give us a unique position in the market to provide our customers with new and more efficient ways to collaborate and interact, which in turn will lead to significant growth in the Enterprise segment, to offset the decline of legacy revenues.

We have updated our reporting in the year to separate out the legacy network customers from the complex IP solutions customers, which gives us greater transparency in relation to the progress being made in the strategic focus area.

Substitute technologies entering the consumer market

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Much of our consumer business is currently based on the provision of services over a fixed-line network. If substitute technologies were developed to the extent where similar services could be provided without the use of a fixed-line network then this would clearly present a competitive threat to the consumer part of our business.

We are always seeking to improve our services to our consumers and to provide a speed and quality of service that would not be achievable over a wireless network. Our fibre deployment is part of this aim.

We also provide bundles of products and services that offer our consumers value for money and which would provide a clear alternative to a substitute technology, should one enter the market. We have also appointed a Director of Product and Technology Innovation in the year to drive our thinking around new and innovative products and services that we can offer to our consumers, either on our own or through our partnership arrangements.

Upgrading of our network equipment

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The equipment used to run our network in Hull and East Yorkshire, and to provide some of our national network-based services, requires upgrading as demand for broadband and cloud-based services continues to increase at a fast pace.

We are continuing with our investment plan to mitigate the risk of service failure from obsolete equipment. At the same time we are investing in the continued deployment of our superfast fibre-based broadband in Hull and East Yorkshire which provides market leading broadband speeds and which is on track to be available to approximately 150,000 properties by the end of December 2017.

Accuracy, security and confidentiality of customer data

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The security, confidentiality and accuracy of our customer data is of paramount importance to us and to our customers.

We have clear and comprehensive policies in place and have run mandatory training in this area for all employees. The forthcoming implementation of the General Data Protection Regulation, in May 2018, means that there will be more stringent requirements in this area and we have formed a Steering Group, consisting of representatives from across the business, to focus on compliance with the new requirements. We also have a Data Strategy team in place to look at other data matters across the business, whose primary focus in the year has been the accuracy of customer data.

Customer service and delivery

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Our aim is to provide exceptional service wherever we can. The risk of not achieving this is therefore a key risk for the business.

Last year we reported that we were aware of some issues in the customer experience we were providing in our Hull and East Yorkshire business. During the year we have implemented new technology in our call centres and provided additional training to our people which has resulted in a reduction in our call waiting times. Our fibre deployment is key to ensuring the service received by our customers meets or exceeds expectations but we also continue to invest in our copper network to improve the experience for all of our customers where possible.

Security and resilience of our networks and IT systems

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We need our networks and IT systems to continue operating in order to continue to provide service to our customers. It is therefore essential that we have secure and resilient systems and networks in place.

We hold a number of standards that relate to security and resilience, including ISO 27001, the Information Security Management standard, and ISO 22301, the Business Continuity Management standard. We have a Head of Security and Compliance who is responsible for ensuring a consistent approach to security and resilience across the business and we have detailed policies and processes in place. We regularly test our resilience plans and have held a specific test in relation to our systems resilience in the year. Any lessons learnt from such tests are fed back into the resilience planning process, which in turn is continually reviewed and updated on an ongoing basis.

A breach of our regulatory obligations

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As a provider of telecommunications services, we are regulated by Ofcom and there are multiple conditions and regulations with which we need to comply. We take our regulatory responsibilities extremely seriously and seek to ensure we are compliant in all regards.

We have an in-house Regulatory team which is responsible for ensuring we understand our obligations and that these are communicated to the appropriate people across the business so that we can ensure the necessary controls are in place. We have undertaken a number of internal reviews in the year to check our compliance and also work closely with our suppliers to make sure that our obligations are passed on and complied with in areas where we are reliant on third parties for the provision of services.

Health and safety

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The health and safety of our people is of paramount importance to us and we have a number of people who undertake high risk activities, such as climbing telegraph poles, working in confined spaces, working alone or working next to roads. It is important to us to mitigate health and safety risk as far as possible to try to prevent incidents from occurring.

We have an in-house Health and Safety team which has significant experience in the health and safety issues specific to our industry. We have a comprehensive training programme in place which provides general training to all of our people through mandatory e-learning and specific training to those who undertake higher risk activities, which is then followed up by on-the-job checks to ensure our engineers are practising what they have learnt. For large projects which contain increased health and safety risks, such as our fibre deployment, we have brought in external health and safety advisors to work on the project full-time to ensure we are complying with all of the appropriate health and safety requirements.

Flooding

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Flooding has become an increasingly regular occurrence in many parts of the country in recent years and Hull, where much of our business is based, is no exception. There were extreme floods experienced in Hull in June 2007 and there has been smaller-scale flooding experienced at times since. There is a risk that such flooding could impact upon our business if we do not take the necessary steps to mitigate the risk where possible.

Prior to the 2007 floods we had already sought to mitigate the risk of flooding in the design of our telephony network and through using raised floors in some of our buildings. This meant that the impact of the floods in 2007 on our business was minimal. We have continued to improve our defences further since that time, installing powerful water pumps and flood alarms at key sites and flood defence barriers where appropriate. We monitor flood risk closely and are always alert to increased risks caused by extreme weather and high tides, so that we can activate our defences as necessary if and when required.

Where we rely on partners to provide services we seek to work with them to ensure that their services are resilient to flooding wherever possible.