An Indian tale about Bulgarian internet

In the meantime, in May 2022 the company announced a bridge funding of 10.5 million euros on a 100 million euros valuation. All of the money is coming from Bulgarian angel investors. They will be used for expanding the business into the Mumbai market. The plan for a bigger round of financing from institutional investors is pushed back 18 to 24 months, but for good reasons - 20 million euros might be too small of a sum, and 50 million might be more like it.

From Orbitel to Excitel

The history of Excitel is inextricably linked to that of Orbitel, the independent Internet provider in Bulgaria, established in 1997 by Gorchilov and Frances. Shortly after, they are joined by Konstantin Petrov, at first as an investor and soon after as an executive, who would later establish the venture capital fund NEVEQ. Orbitel is an example of one of the first successful entrepreneurial stories, as well as a company with a disproportionate burden on the entire sector in which it operates.

Orbitel was initially funded by business angels. At the end of 1999, the company received a 1 million dollar investment from the Europa Capital Management Fund, and in 2005 Orbitel was acquired by the Deutsche Telekom Group through the Hungarian unit Magyar Telekom for 8 million euros. "We became a benchmark for startups. We were probably the first Bulgarian company to follow the classic startup path - angel financing, VC, strategic investor. Then people believed that this was possible in Bulgaria, because we started in the most turbulent years, when people thought they could get nowhere without a briefcase", says Nikolai Gorchilov, with "briefcase" meaning slang for "money from the communist regime".

Between 1997 and 2006, however, something else happened - "the fight against the windmills", as Gorchilov called the attempts of small cable suppliers to break the monopoly on the infrastructure of the then still state-owned BTC. Orbitel, along with other independent providers such as Megalan and Spectrum, wanted to deliver far faster internet than BTC offered, but this required deregulation, which the state wouldn't allow.

Back then the "windmills" actually succumb to the pressure and within a few years there is a regulatory holiday that allows suppliers to "throw the cables on the street" and only later bring order when they already have a customer base and the financial ability to lay the cables underground. In practice, this is not so much a regulatory holiday as a general state policy of closing one's eyes in order to give children more freedom.

"The critical difference between Bulgaria and other places is that here the cables did not have to be underground. This is the so-called regulatory vacation. When a regulation came into force that the cables must be underground, the price rose tenfold because we had to dig the streets, and then the small entrepreneurs were no longer on an equal footing, "says Gorchilov. He adds that by the time the regulatory holiday was over, they already had the capital to put the cables underground. The problem is that if there was such a requirement from the beginning, only telecoms would have had the financial means to do so. In the end, the idea of "throwing some cables on the street and then thinking about it" is successful and a super-fast internet service is developed in Bulgaria at very low prices.

"There were no disadvantages for Bulgaria at the time - everything was a plus, because when the regulation came, everything was arranged and built. The outdoor cables disappeared, the Internet was already fast and we did not pay the price paid in Britain, Germany or the United States. You have regulation - you don't have internet", says Gorchilov.

Orbitel's problem is in the scale. The company deals solely with the supply of the Internet to business customers - a niche that is quickly filled. Victor Frances says that after a while "you have no choice but to go out of business or become omnivorous". For him and Gorchilov, the answer is to get out of the business. The deal for Orbitel was closed in 2006, and three years later the two began to look in another direction - to India, where the market is even stranger than it was in Bulgaria ten years earlier.

The Ruse-Delhi flight

Excitel's idea is the opposite of Orbitel - to deliver household internet, not to sell to business customers. For this purpose, Gorchilov and Frances are joined by Plamen Petkov from the Ruse provider Networx. "Plamen, for example, came to India directly from Ruse. The Ruse-Delhi flight, as we call it. Back then we only had the idea that we would make a supplier. All of this happened between 2010 and 2013, when our five families lived in one place, a bit like a commune, " says Frances.

Even before Excitel was born, the three founded another business, Extreme Peering, which sells subscription software to Internet service providers. Extreme Peering has over 100 customers, mostly in India, but not only: for several years the company has been operating in other emerging markets such as Bangladesh, Cambodia, Afghanistan and Iraq. Since 2016, another business line has been operating - Extreme IX, the largest internet exchange for the exchange of traffic between content and access providers in India. It is currently used by 400 companies in five cities.

The important thing in the story of Extreme Peering is that this business gives the three an outlook at what the Internet environment in India looks like. "We've gathered information that no one but the telecoms have. And things are very fragmented there. Nobody in Mumbai knows what's going on in Calcutta, for example - it's a bit like expecting a supplier in Sofia to know what's going on in Oslo", Frances says.

From 2009 to 2015, Excitel is almost entirely a business in theory only - the three Bulgarians, together with the fourth co-founder, the Indian Vivek Raina, are making plans on exactly how they will enter the market and what they will need. When the business starts in practice and the first investment comes - 1.5 million euros from the second NEVEQ fund, led by their former partner Konstantin Petrov, Excitel has only one hundred end customers. "Not thousands, only a hundred", said Frances. "That was all: 100 clients and a prototype made with our own hands. In fact, mostly with Plamen's hands."

The promise of the three to NEVEQ is that with this amount they will be able to reach 100,000 households. The reality is different - when the time comes for a second investment, they already have 200,000 customers. The second round, worth 4 million euros, comes three years later. It is once again led by Bulgarian funds - in addition to NEVEQ, it also includes Black Peak Capital. Today, Excitel covers 560,000 households and grows by tens of thousands of subscribers per month. With one huge clarification: in fact, the company's cables do not reach any end customers.

Internet, the Indian way

"In India, everything is hyperlocal", says Nikolai Gorchilov. "We work with local cable operators who works not even at the neighborhood level, but at the level of four streets. Many hyper-small operators that work with three, four, five thousand households. Everything in India is like that - you have the neighborhood shop, the neighborhood milkman, the neighborhood taxi driver and the neighborhood internet user. Consolidation is impossible because the environment is not amenable, it is not universal. We need to adapt neighborhood by neighborhood, with the local council, with the woman on the second floor."

This is also Excitel's business model - it's the "Uber for fixed internet", as the three call it. The company maintains the basic infrastructure, which allows the inclusion of hundreds of small suppliers. Excitel, for example, operates 10,000 kilometers of optics - the vendor's backbone network - but its partners maintain ten times more cables that go to end customers. In other words, Excitel is bringing order to the unorganized part of India - where there is no planning, no cadaster and no interest from the big telecoms.

"Telecoms can't enter the market because they need cables, which are assets, to get in. But you can't dig the street and run a cable because there is no cadaster there. Someone will dig it in four hours for something else and they will give up", says Frances. According to him, the big difference between Bulgaria and India is that in the former, consolidation has finally come, while in India this seems impossible at the moment.

What Excitel is doing is also not consolidation. The company does not buy small suppliers. Instead, it gives them branding, takes on their administrative burdens, gives them their own process management software, and monitors how they perform. Small suppliers maintain and replace end cables when necessary. The revenue share is 60% for Excitel and 40% for small suppliers.

"In five years, we have become one of the top 10 with over 200 operating ISPs. Our partners put in their own money, maintain the cables, change them. They want to do business, but they don't know what a sales reporting system is, how a sale is reported - they know nothing. If they can't touch it, it's not real for them", says Gorchilov and adds: "The other opportunity we give them is to collect money - with us 40% of the payments are online. However, there are still 60% cash payments, and we don't touch cash."

According to Frances Excitel gives them something else - a reputation that comes from the company's presence in the media. "People know who the Excitel man is in the neighborhood", he said. Selecting partners so that the service is always up to standard also plays a huge role. Excitel is growing as a consumer not only because it adds more and more providers to the network, but also because they themselves are growing. It is significant that on the company's website, for example, two of the main promises to customers are no speed limit, constant speed throughout the month and without interruptions due to storms, for example - things that are a serious problem for most suppliers in the country.

"This is a case of a guerrilla army against a regular army. The regular army plans and writes strategies, whereas we catch up and go chaotically everywhere. We made the first 100,000 customers in a year and a couple of months. The second - in a year. The third - in 9 months. And now - 100 thousand every 6 months", says Gorchilov. "We're like Uber, which doesn't have a single car, only we don't have a single last mile cable. We haven't invented this model of work, but we're probably the first to implement it successfully."

When the harvest comes

At the moment Gorchilov, Frances and Petkov do not operate Excitel operationally. The current CEO of the company is the fourth co-founder Vivek Raina. The three Bulgarians are only part of the board of directors and strategists. Their work is divided between India and Bulgaria, where together with a team of 20 people they develop software that manages processes in the company and with smaller suppliers - installation, payments, ticket system and others. At the same time, there are 1,500 direct employees in India. Given that much of the physical work there is done by 4,000 people working for the chain's partners, the logical question is why Excitel needs so many employees.

There are two answers. The first is that the company needs a huge sales department and a huge maintenance department. "Just under 10% of our online sales happen online. We sell online, but it happens offline, on the street. The second huge group of people working for us are people in the call center, because with so many people you also have a lot of complaints. India is a place where all infrastructure fails, cables are constantly broken. We want to take care of all the problems, do inspections and control the quality of service", Petkov said. He adds that in India there is the thinking that "everyone has to do something, whatever it is, no matter how small".

The second answer is directly related to the way of doing business in India and the adaptation to the still undeveloped corporate culture in the country. "How do you know that someone has left you? When they don't show up for a week at work", says Gorchilov.

This means that in order to ensure all the processes in the company, you need to constantly have a higher number of employees than you actually need. "When the harvest comes, for example, 30% of your staff just leaves. They go back to the village, go to harvest and most often don't come back at all because their family wants them to stay", he added. The three accept these features with humor and a smile. Their overall opinion of India and the quality of the staff there is high. There are two problems. The first is education, and the second - that initially there is no access to real quality staff.

"We were left with the wrong impression that there is no good management potential in India. It turned out that we were wrong. When we started attracting people from hot startups, then a completely different class of workers came in," says Frances. "We've seen where these CEOs of Google, Microsoft, come from. But to get to them, you have to be in a big glass building. The garage there is not interesting to them. The big glass buildings are what picks up their interest."

The next round (and a warning)

Resembling Orbitel's impact on the Bulgarian market 20 years ago, Excitel has led to major shifts and changes in India. When the three of them start working, the better packages in Delhi, for example, included a speed of 512 kbps with a limit of 3 GB of traffic per month, ie. internet at the level of Bulgaria two decades earlier. Five years later, after Excitel decided to implement the "Bulgarian model", there is almost no Internet provider with traffic restrictions. The minimum package of Excitel is 100 mbps for the equivalent of BGN 12 (in Bulgaria such a package costs about BGN 20), and the reason why the company still does not release a gigabit package is that it wants to keep a card up its sleeve. "But in practice we can release it tomorrow", says Gorchilov.

All three say this with one caveat: while India and other similar markets are pulling forward, almost nothing has changed in Bulgaria in the last ten years since telecoms bought out independent suppliers. In fact, consolidation is an ongoing phenomenon. Currently, for example, BTC is buying the few remaining regional Internet providers one by one, including Ruse's Networx, which is where Petkov comes from.

"Things stopped developing here more or less when we left and consolidation happened. India will overtake Bulgaria, you can write that down. Bulgaria was in the top 5 in the world 15 years ago in terms of fixed internet speed, now it is already in 52nd place. India was one hundred and one, now it is in 66th place ", Gorchilov said, citing Ookla's industry rating at the time.

Frances adds that the country is not going backwards, it has simply stopped developing. "When we were Orbitel, Megalan, Spectrum, etc., Bulgaria was fifth in speed and first in price. The world is developing, but we are not. Romania was then with us in the top 5. Today they are still there, yet we're not."

However, Excitel's ambition is not just to offer faster internet. The idea, according to the three, is for Excitel to become a platform for all digital services that go into a household, such as smart appliances and the Internet of Things. Running the cable to homes is only the first step. The ultimate goal is for Excitel to reach 20 million households.

Gorchilov says that with this model "we will grow endlessly even without funding", but the idea is to make it happen in a shorter time. That is why they are already looking for their next round of funding - 20 million euros to help expand into more cities. The big money burning happens when the company enters a new market, where there is no critical minimum of about 30 thousand users, at which the supplier starts working from zero.

The next step in the plan is another round of funding in a few years, probably a 100 million euros. Only then will the three of them think of a way out - listing on the stock exchange or selling.

In the next round, there will probably be no more Bulgarian investors, mainly due to the scale of the deal, which does not fit with the portfolio of local funds. However, the way Gorchilov expresses his gratitude to them is perhaps the best summary of their entire history: "We are very grateful to them, because it takes courage to give such money to three Bulgarians who went to India to bring the Internet to the people. "