John Linton In a perverse sort of way the "GFC" seems to be 'not happening' for Exetel. While I, personally, remain extremely cautious about what will really happen when the problems around the world begin to seriously affect Australia combined with a Federal Government that has run out of ways to 'print money' we are certainly, as a company, acing as if times were booming. For an exceptionally conservatively run company I look at the decisions we have made recently and find it a little strange that we are making decision after decision to more aggressively operate the core businesses. Perhaps working too many hours a day for too many days for too many years has made me lose touch with reality lately but it isn't for lack of understanding that the economy of the USA may well have fundamentally changed and with it the economies of much of the rest of the world.
The financial press this morning was universally gloomy around the world and the unemployment figures due to be released in Australia later this morning will not improve that view. Notwithstanding those obvious and very serious situations our business has had very strong start to the calendar year with January and February both registering record months and March starting with an impetus I haven't seen for quite a while.
Yesterday we made an offer on buying our own floor in a building 100 or so meters from our current office. While that isn't an Earth shattering' magnitude investment it will cost us close to $A2 million by the time all of the set up and moving costs are actually added up and a sensibly specified data centre is built there. If our calculations are correct we will, having spent a great deal of money up front, have reduced our rental monthly costs by close to 33% courtesy of the current very low interest rates (fixed for five years) and the sharp falls in commercial property prices in business areas of Sydney. Of course our offer may well be rejected but it tends to demonstrate that this particular "ill wind" can be good for some people (and entities). I also have little doubt that commercial property prices will continue to fall so it isn't all upside by any means. So if our offer is accepted we will move into our own owned premises which have about 25% more space than we have now and, if everything goes to plan, better facilities for our technical development work as well as the opportunity of reducing our co-lo costs over the coming year.
Steve and I mulled over our options regarding IP bandwidth yesterday and the necessity of now transforming our GigE based network to an increasing number of 10gb connections as we will now replace the current direct IP carrier transits to capacities in excess of 2.4 gbps in Sydney and moving to 10 gbps in the not so distant future (if current plans come to fruition). We have built the current network on Cisco only equipment plus some Foundry switches and are reluctant to move to a third manufacture for the Layer 3 switches we now require to terminate 10 gbps IP feeds from the selected IP provider but 'financial considerations' may make that necessary. Black Diamonds or 10 gbps Cisco line cards plus two additional Cisco 6500s aren't the cheapest 'boxes' to procureĀ but to reduce our current IP costs we will need to spend that sort of money just to terminate the larger capacity links. While this will please our network engineers who love new boxes to play with it does give us another "got to speculate to accumulate" scenario - and that isn't something you would normally do in such uncertain times.
Some time this month our total employee numbers will increase to 50 with two more people currently being hired in Sri Lanka which represents an increase of 66% to our personnelĀ 'establishment' in a little under nine months. While still a tiny number of people compared to any other ISP of our customer size and service complexity it is a very significant increase for Exetel; though in salary dollars to revenue, because of the way we have gone about it, it is actually a reduction giving us a slightly greater level of efficiency than in past years in that metric. Our total monthly salary cost (including all taxes and levies) will remain at about the same level it was a year ago. One reason is that our working directors are paid far less than any other even 'middle management' in other companies of our sort of size and the disparity between SL and Australian remuneration for skilled people.
We continue to significantly increase our investments in automation and software development with our spending on these activities now approaching 18% of our total monthly salary costs. This is another area of company expenditure that is almost always an early 'candidate' for decrease in recessionary times; but we have almost doubled our investment in automation over the last two years. We have built the company's ability to be and remain the lowest cost operator in our chosen markets and services by eliminating as much cost as possible from the provision of services and, without knowing details of how any other provider operates in Australia, believe the past 5 years of constant development (and re-development) has given us a very significant cost advantage over any current or likely future competitor. There are so many financial and operational benefits from these investments we would be crazy not to continue them no matter how tough the recession eventually turns out to be.
So, in some ways, Exetel is adopting the 'classical' counter cyclical view of dealing with tough times of increasing our investments in our tiny company, taking more risks than the people we compete with and predicting faster revenue growth than in the boom' years. It will be interesting to see how it all turns out.
Hopefully, we are correct in counting all six.