Saturday, December 6. 2008First Of The Penny Dreadfuls Bites The Dust........John Linton ...first sign of 'final solution' of too many ISPs....or just coincidental last rites for companies long on their corporate "death beds"? I read about PeopleTelecom's agreed sale to M2 late last week which was hardly unexpected: http://www.itwire.com/content/view/22112/127/ It has always seemed to me that if a management team can't make a profit out of a company for five successive years at revenues that at one stage topped $A100 million then there was no reason to believe that they would ever make a profit - some business fundamentals are well and truly wrong in such a scenario. The apparent selling price of $A17 million was around two and a half times the share price before news of the deal 'leaked out' so a good result for the major shareholders (at today's prices) and the end of a pointless involvement in an archaic business model with, at best, indifferent calibre management and personnel. As the major part of the consideration appears to be M2 shares, themselves not exactly stellar performers in today's markets, the completion of the deal that for some reason has to await until the next PeopleTelecom AGM on March 31st next year can't be regarded as certain in such economic times as we are currently living through. In these times, more than usually, you get to hear all sorts of rumours and innuendos more often than not based on absolutely nothing other than some viciously minded moron's desire to make trouble. I hear my share although I seldom take any notice of them. The Pipe financing difficulties and the rumoured PacNet takeover of AAPT seems to have 'sparked' a noted increase in the number of speculative statements being made about all sorts of communications companies - large and small. Macquarie Telecom is a larger version of the archaic business model of PeopleTelecom - large portion of revenues coming from fixed line reselling and mobiles to a corporate sector that itself is declining in terms of spending and 'loyalty' to over priced sevices. Like PeopleTelecom, Macquarie can't seem to make a profit even though its revenues are more than twice PTs - around $A225 million last time I looked having been as high as over $A250 million based on my failing memory. There seems to be some strange attraction in the Australian communications industry for people to set up and buy up entities that lose money year after year until the then current shareholders eventually lose patience and get rid of the entity in the best way available to them at the time - mostly receivership with the occasional fire sale to a bottom feeder like M2 - whose business model seems to be to take over the Optus resellers who have trouble paying their Optus bills and Optus induces them to 'sell out' to M2 via some compelling debt forgiveness. I suppose in the PeopleTelecom/M2 transaction Optus will 'persuade' M2 to re-change PeopleTelecom one more time from Telstra to Optus as its major supplier. PT, in terms of internet customers, would have been around the same size as Exetel I would have thought and it adds some emphasis to the question as to whether small communications companies have any reason to exist in the Australian communications marketplaces at all. In the 1990s there was the start up phase of internet, and its associated services, in Australia and it was a good time to start up an ISP and all of today's real ISPs did start at that time along with several thousand other start ups from then until now. Almost none of them survived for very long and with a few exceptions (Telstra, Optus, TPG and Internode spring to mind) no other ISP exists today from the 15 or so year 'history' of Australian ISPs. ABS reports some 200 or so organisations described as ISPs but the reality is that there are almost certainly no more than 20 or 30 (probably not that many) that have much hope of existence beyond 2009 and the top two (Telstra and Optus) account for over 65% of the total market - or some figure close to that. It seems inevitable that AAPT will be sold off to some other entity within the foreseeable future and I can't see any reason for iPrimus to exist at all. If this were to happen then there would be 3 or 4 'specialist' ISPs desperately looking for a longer term raison d'etre and the two large carriers together with whatever Vodafone and 3 evolve into via mobile data carriage. All of this could happen in less than a year with the current spur of the GFC and its antipodean consequences biting deeply into the 'flanks' of more than one falteringly managed operation. I don't know what 'future' Exetel has other than I have no doubt that we will continue to survive and probably continue to grow incrementally (in our very small ways) but we are a completely different company in our objectives than any other company with which we compete. We continue to improve our operating efficiencies to levels that most commercial entities can only dream about. This isn't because we are uniquely brilliant or insightful but because we operate a business model that was constructed from the first day on maintaining the lowest operational costs in our 'industry' and we have maintained that 'philosophy' in everything we do up to and beyond today. We may get exhausted from overwork but we are unlikely get into financial difficulties by taking unjustifiable risks or not working on improving the efficiency of every single aspect of our business - no matter how tiny. It will be interesting to see what different strategies some of the current marginally surviving communications companies put in place over the coming weeks. Trackbacks
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Any idea who owns www.idx.com.au? I was a dial-up customer of theirs before I moved to ADSL. I know they've been around 10+ years and are still going (offering ADSL plans too now). No idea how big they are though or if they're just re-sellers of someone else.
T. Comment (1)
Sorry - I've seen the name over the years but know nothing about them.
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Of the penny dreaduls, next off the block could be eftel!
Interesting to see how internode perform, given they are a private company. I saw they tapped the market for equity this year. I agree that there will be only 5 or so ISP going forward. Telstra, optus, tpg/soul, iinet & maybe 1 other. Comment (1)
It's difficult to see how iinet will survive in the next year or so - they have no reason to be in business nor anything 'different' to offer.
A bad business 'model' and a directionless approach to the marketplaces they attempt to address. Comments (5)
A long time and a lot has changed since 2003, which really was a golden year for them.
A part of me is dissapointed to see this happen. They had the best plans and service at one stage. A snapshot from 6mths ago and another mid next year will be interesting reading for the industry. Comment (1)
Personally, I feel the same way - for obvious reasons.
However a "marketing genius" called Colin Marland, knew far better than I did what the then embryonic ADSL market required and after PeopleTelecom bought out Swiftel he scrapped my three year plan (then less than one year old) and introduced his own understanding of how to run an ISP - something he had no knowledge of and had never been involved in. The rest, as they say, is history - Swiftel/PT went from a promising 'contender' to oblivion in less than 12 months as he changed everything I had done and abandoned everything that had been planned. Comments (5)
Personally I think you are being too tough on the Tudehope brothers at Macquarie Telecom. Yes while a part of their business is still dumb resell of voice and mobile, the majority of the value of their business is in their data and hosting business. The hosting business particularly is now the largest in the enterprise space in australia.
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My comment was that if you spend years not making money at around revenue of a quarter of a billion then there is no reason to think the future will be any different.
"Part" is probably correct - a very big "part" of the business is in terminal decline. Data? Priced ludicrously high and just as vulnerable. Comments (5)
The comment about lack of Macquarie Telecom profitability over recents years are fair. You will find however that data/hosting now represents the majority of the company's earnings, and the company is finally profitable, with a profit guided expected in 2009. They have cash in the bank and may have built a sustainable IT/telco business, which is more, than most can say in the Australian small telco sector, over the last 20 years.
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You may well be correct - but these are troubling times and the fact remains that the company has very large revenues and doesn't make a profit - management can only be judged on what they deliver - not what they, yet again, promise.
Each year the company has made promises about profit that it never delivers on. My point on the hosting/data services are priced ludicrously high and their customers will look at those costs more critically next year than in previous years. I don't wish anyone ill luck but the facts are the facts. Comments (5)
Allot of techno's have problems paying for IT/telco services because they have run servers and simple IT infrastrcuture themselves. Yes everyone can do this cheaply, but at the high-end, the equation is all about attracting and retaining application and hardware IT specialists and running data networks 24/7. This costs MONEY both inhouse and out-sourced.
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