Monday, September 29. 2008No Sign Of "Plateauing" Yet?John Linton
Exetel has ten broad business offerings and nine of the ten achieved record customer growth in the quarter and two of the newer service offerings (VoIP and FAX via email) grew between 150% and 200% in the quarter. Both Exetel’s main revenue contributors (ADSL1 and ADSL2) also grew very strongly despite indications that the overall growth of these services in Australia had slowed overall over the past 3 – 6 months. These results, as has always been the case since we started Exetel, are very encouraging in general terms as it certainly beats looking at figures that show your business is declining or even not growing at the same rate the overall marketplaces in which you operate are growing. However beyond the brief, once a month, feeling of satisfaction they don't really mean much. With the 'financial' news from around the world, and within Australia, remaining uniformly bad and almost certainly worse now than all the 'experts' had previously predicted some 15 months ago this is not a good time (assuming there ever was/is/is going to be a good time) to consider that things will continue to go smoothly without even more intensive efforts than have been necessary so far. Sometime in the next few days we will need to decide whether we buy a floor of a building in the Sydney CBD to house both our current Sydney based personnel and a data centre to allow us to move our two rented Sydney PoPs to our own premises. Such a decision will require us to borrow money for the first time in Exetel's brief existence and my feelings are not positive about doing this at such a time as we are currently experiencing. I have no knowledge, skills or abilities in the areas of forecasting real estate movement and general financial conditions but even I can see that these are times of considerable uncertainty. Certainly Sydney CBD real estate prices have fallen, and in the case of one of the floors we were and are now again considering have fallen almost 20% in the last six months (good decision not to have bought six months ago). You have to wonder how much further the current prices might fall over the coming few months. The other consideration is that Exetel is currently at the size were it is still relatively easy to manage (although that is becoming more difficult quite rapidly) but any serious growth will require several key changes to the current management methods to more 'conventional' management processes. While such a change isn't particularly difficult in 'normal times', assuming it's sensibly executed, in our case it may prove to be more difficult and therefore bring a possible level of 'danger' that would be made more dangerous if the Australian financial 'landscape' did change more than is currently predicted over the next 12 months. I think that there are too many 'unknowns' concerning too many aspects of our business and the wider Australian economy for 'brave' decisions to be made by small companies. However I also have a very, very clear memory that the best investment I have made in my life when I took the greatest financial risk of my life and that was at pretty near the depths of the 1988 -1991 financial slump when there were truly fantastic investment bargains to be had if you were able to take advantage of them. One quarter certainly doesn't make a financial year and last year at this time the ' financial storm clouds' were only just appearing over the 'planning horizon'. I have no idea what is going to happen and I'm certainly not as reckless as I was some two decades a go but............. ......perhaps I'm as self delusionary as Simon Ehrenfeld whose comments I read in the Eftel 2008 annual report earlier this morning made my head spin trying to reconcile his statements (to the ASX and therefore on the public record) to any semblance of reality (or what I think is reality). If you need a laugh to start your day go to: select the announcement of the Annual Report to Shareholders and go to page 4. Among the gems of cloud cuckoo land craziness are: "[Eftel] is now in the top 500 companies by revenue" - ?????? - with revenue of $A36 million - not in the top 5,000 "[Eftel] is now a top 10 Internet company" - ?????? - with a revenue of $A36 million it would be lucky to make the top 20 "[Eftel] had a 6% organic growth while many competitors suffered flat or shrinking revenues" - ??????? - As far as I can see ALL publicly listed ISPs reported growth much larger that 6% and Eftel's growth is barely above WA's annual inflation rate - so considering they raised their prices during 2008 they certainly suffered from "flat or shrinking". (I guess he missed the latest ABS report that showed the ADSL market growing by almost 14% in the last year too!!). and the rest of the report reads similarly. There really is a great deal of strange information about the state of this industry around at the moment.
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Eftel are in neither of these two lists;
BRW Top 500 Private Companies BRW Top 500 Public Companies Comments (2)
JL wrote... and a data centre to allow us to move our two rented Sydney PoPs to our own premises
I'm not sure this is a bright idea. A small fire or blackout would disconnect a lot of customers. I suspect SW would prefer some capacity in a separate location for redundancy. Regards C Bumkin Comment (1)
Redundancy is always an issue (which is why we currently have two Sydney PoPs) but we don't have such redundancy in other States and Territories.
Steve is actually the most enthusiastic of the directors about having our own data centre. Comments (3)
One thing I have seen in the CBD property market is the desperation amongst vendors, a company I worked for recently got two years rent free just to take a lease and at more competitive prices than they had when in the suburbs
If looking to buy now I would be pushing for move in now and 12 month delayed settlement to help offset your costs of the move etc, deals like this are not unheard of and give you a bit of extra protection against the possibility of still falling property prices Comment (1)
A medium term lease and an option to purchase sounds like a good approach in this current environment.
My sources indicate that prices of capital city commercial real estate may suffer over the next 2 years. Many commercial property loans will be "reviewed" in the next 6 months as credit becomes tighter and stricter compliance is implemented ...... H. Comment (1)
It's interesting to see that Simon Erhenfeld pays himself the same base salary that Michael Malone of Iinet receives - how does he justify that?
Comments (2)
Wasn't one of the reasons for expanding the Exetel presence at Verizon due to Telstra refusing to commission a second GigE link to your PowerTel PoP?
Have you got a new set of tactics to get Telstra to give you two links in the same place? If so, I'm sure lots of people would like to know how you're planning to pull that off. Comments (2)
Yes it was a condition of going over 1 gb of traffic.
We have no magic wand and certainly no influence with TW at all. We just plan to decrease the level of business we do with them and therefore there will be no requirement to have the two connections. Comments (3)
I hope you succeed.
One of my contacts runs a data center on a floor in an office building here in Melbourne. They've got a long list of issues they encountered when setting up, two of the biggest ones being getting UPS and cooling systems onto their floor (involved removing walls and windows) and getting space in the basement for their diesel generator. They "cheated" when it came to their diesel generator and leased capacity off the building management (as the building had the option). I'd love to follow the progress if it happens. Comments (2)
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