John Linton
Since Exetel installed its own VoIP gateways in late 2006 our VoIP business has steadily grown - we only offer VoIP services to our own ADSL, wireless broadband and SHDSL/Ethernet customers and since the introduction of 'naked' ADSL the growth has accelerated significantly.
Since early 2007 we have made small but growing profits on the provision of VoIP services which have justified the continual upgrade of the initial switches and line capacities. The very low costs of VoIP mean that you have to deliver an awful lot of calls to make any significant contribution to total monthly revenue but we have always looked on our investments in VoIP as being strategically important to Exetel's business in the second decade of this century (always assuming we 'make it' that far).
My attention was drawn to the latest ASX report from Engin:
http://www.asx.com.au/asx/research/CompanyInfoSearchResults.jsp?searchBy=asxCode&allinfo=on&asxCode=ENG#headlines
which continues to show very large losses and, I imagine more worryingly for them, rapidly increasing personnel costs with very little increase in either revenue or numbers of subscribers.
If you look at the financial summary on page 3 of that report you see a very curious/worrying/horrendous set of numbers which state that revenue in the 6 month period ending December 31st 2007 increased by $A1.9 million (from $A7.9 million to $A9.8 million) over the previous six months
BUT "Personnel Expenses" increased by $A2.6 million ($A4.4 million to $A7.0 million) in the same period! This, unsurprisingly, resulted in an $A1.6 million increase in the loss made in the latest six months from $A6.4 million to $A8.0 million. As far as I could see there were no 'explanatory notes' ameliorating what looks like an 'out of control' situation.
I always thought that it was an unusual business plan to offer a single service and when that single service is VoIP and its 'go to market' concept is via retail 'partners' I always believed it would never succeed - which in Engin's case it didn't with the company being bought by Seven after it had racked up too many losses for its original owners to keep funding.
The pressure created by Engin, on itself and every subsequent offerer of VoIP services, with its unlimited time STD calls for 10 cents (apochryphally caused by a printing error in the original advertising which was meant to be $1.00 instead of 10 cents and was noticed too late to change) is possible to deal with by a low overhead VoIP provider but not by one reliant on heavy advertising and the give away of margin demanded by retail chains (resulting in a half year remuneration cost of $A7 million and a 'marketing' cost of $A3 million that, in itself, exceeds total revenue before a minute of traffic is carried or billed).
Exetel's conservative/very conservative VoIP plans were/are based on not losing money while we first established and now continue to grow our small VoIP business and to use VoIP as just one of a set of 'integrated' services that will, over time, allow Exetel to deliver the least cost service across a wide range of end user services and deliver the economies that services that use the same infrastructures allow.
It seems inevitable that VoIP will now rapidly replace 'standard' wire line telephone services and whether that replacement is via IP over DSL or IP over mobile is irrelevant. Sometime in the not too distant future Telstra will have to reduce the prices it charges to the currently uninformed or 'unadventurous' users of wire line telephony to the current costs of the more aggressive VoIP providers. Whether they do this by 'stealth (the current promotions of low cost calls if you buy their DSL services and 'corporate pricing') or by general tariff cuts (unlikely) the end result will be the same over the next 2 - 3 years.
....which makes it pretty essential for any company basing any significant part of its business activities on VoIP to consider what will happen when VoIP doesn't have the 'slam dunk' selling point of being a fraction of Telstra's costs?
.....and based on BigPond's current raft of 'special broadband offers' that scenario has to be taken very seriously.
....and the answer is.......well, for companies like Exetel the real advantage of VoIP telephony is the huge array of fantastic business advantages it gives a small company in terms of the affordability (via Asterisk et al) of all the voice functions that can be very inexpensively integrated in to data base functionality (auto dialing customers with installation and fault resolution updates etc).
So, like every 'go to market' advantage that exists at any point in time it is an inevitability that such advantages don't have an indefinite 'life'.
I think that we understand many of the ramifications of building a VoIP offering that will continue to deliver benefits to end users and to Exetel over the next five years but, from what I read in the media, there appear to be a number of 'major players' that need a radical re-think to their VoIP services and pricing positions.