Tuesday, September 30. 2008
Since Exetel “opened for business” in January 2004 it has maintained a steady growth rate from $0.00 as a ‘green fields’ start up to a company with revenues exceeding $A3,700,00 a month in the current month. September 2008 will be the 55th consecutive record month for Exetel and the 3 month period ending 30th September 2008 will be our 18th successive record quarter both in terms of revenues earned and new customers acquired.
Exetel has ten broad business offerings and nine of the ten recorded record customer growth in the quarter and three of the newer service offerings (VoIP, FAX via email and SMS via Email) all 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 (recent ABS half yearly report).
We had almost 30 'major' objectives/tasks to complete in this first quarter of the new 2009 financial year and we have been able to complete all but one of them roughly on the planned schedule. That is a great deal of work for a company of any size and a very great strain on a small company with very limited personnel resources. The largest, most complex and easily the most difficult objective for the quarter was to get the HSPA service to the market on 15th September which, by the skin of our teeth, we made happen with the first 100 HSPA users now 'live' or at least able to connect when they decide to do that.
The second most difficult and complex task was to completely change the topology of our Australian network to move from a 1 gb based implementation to a 10 gb based backbone and to complete the decentralization to the six States and two Territories. We accomplished all of the work that was planned for the quarter (with the exception of the Tasmanian PoP which is still on hold pending resolution of back haul pricing) pretty much on time and without any significant customer down time which is a great tribute to the people involved.
The third of the major tasks was the bringing on line of the support facility in Sri Lanka which we have largely accomplished thanks to the dedicated efforts of the person we sent to manage the operation and a great deal of logistical work on making a communications network between Australia and a less developed country work at a level that we can now see is 'unusual' in less developed countries. This is an ongoing project with the current 10 personnel continuing to increase on a monthly basis for the next nine months.
So we have almost all of today to 'rest on our laurels' before we begin the processes involved in completing the 30 tasks planned between now and Christmas. We don't have the same weight of major changes to accomplish over the coming months as we had over the last three months but the changes we need to bring in to effect are of equal importance - principal challenges are making the HSPA 'numbers' we have set and the even more challenging changes to the structures of offering ADSL services (which I alluded to recently in these ramblings).Changing the out dated (but accepted) method of 'buying' an ADSL service will be a challenge given the dead weight of lazy thinking that exists in every aspect of that process. However, nothing like a 'paradigm shift' to shake up an old and tired way of doing business.
'Breaking into' the HSPA marketplaces in which we have decided to 'operate' is going to be very difficult to do as we will continue to use no advertising or 'marketing' processes. We need to get 1,000 customers for HSPA services over the next six weeks for our 'strategy' to work and that's a very, very difficult thing to do. As with all new ventures you begin them with a set of expectations (I won't dignify these expectations by using the word 'plan') which usually don't work out even close to what you had expected/hoped for. So, in launching' the HSPA service we have multiple 'paths' to pursue in the expectation/hope that one or more of them will produce the required impetus. However if that doesn't happen over the next two weeks we have no Plan B to fall back on.
Similarly, but less critically, I think that 'single handedly' attempting to make Australia's ADSL buying marketplace sectors see that a pay for what you use basis of choosing an ADSL service (against every other ISP's slavish 'follow the leader' approach to 'bundled download plans) is a fairly big ask. However as it is the only sensible way of both buying and providing an ADSL service it has to be appealing to the sensible percentage of the ADSL market. (mind you the mobile market has, for many years, born out PTB's observation that "It's impossible to underestimate the intelligence of the average buyer").
In some ways I think the events in the US congress earlier this morning (our time) may make these two 'impossible' tasks easier to achieve than I thought yesterday afternoon.
Yesterdays plunge on the NYSE and two more banks, this time in Europe, having to be bailed out by their respective governments together with the uncertainty as to just what it will take to stop the US, and therefore the world's, financial processes from collapsing isn't going to make life in Australia, at all levels and areas, any easier. It appears that there will be major misgivings and therefore a great deal of 'conservatism' in decision making in every part of Australian life as well as business in the coming months which, of course, presents its own opportunities for the more 'nimble footed' of the participants in any specific area of endeavour.
Interesting times are getting even more interesting.
Monday, September 29. 2008
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.
Sunday, September 28. 2008
As part of the 'release process' of Exetel offering data over Optus mobile network we, and 20 or so customers who volunteered to test the service, have used various versions of VoIP from various VoIP providers using a range of mobile hand sets. The testing, and it is at this stage just testing, shows no problems in using VoIP instead of the 'standard' mobile services from Telstra, Optus, Vodafone and '3'. We will continue to push the testing over a much wider area and using many more different handsets over the next few weeks now that we have begun shipping sims and modems in greater numbers to 'real' customers and I'm hopeful the results will be equally positive.
I, due to other commitments yesterday, haven't bought my 3G handset yet but I will try to do that either later today or tomorrow. As a two year plus VoIP over wire line user I have never had any problems using VoIP to run Exetel's business and, based on the testing done over the past three months, it would appear that VoIP over 3G will provide a similar experience. I'm looking forward to trying out the VoIP over HSPA service in different areas of Australia over the coming weeks.
I think this will be appealing to personal users (who have already bought a 3G capable handset or who will be buying one in the near future) - unless of course they are going to attempt to get "cheap/free" handsets as part of a mobile "plan". People who do that aren't interested in reducing their living costs, by definition, so reducing the cost of mobile calls to the minimum is not an important aspect of their personal economic decision making. As sch buyers account for a very, very large percentage of the Australian market it's not going to overly concern the carriers that a tiny company like Exetel is aiming to do something that they can't, commercially, do themselves.
I never thought it would be a generally appealing opportunity for the wider mobile user market but that it would appeal to the more thoughtful mobile user who understood how their money was spent in using a mobile telephone service and as that was probably in excess of 5% of the total (around 750,000 users) that was a very big market for a company that was able to offer the service as there would not be many providers who would be able to combine HSPA/VoIP/Data services in an economical 'bundle'. In fact all of the carriers and most of their 'tied' resellers would be desparate NOT to promote such a concept I would think.
I think the major market for VoIP over 3G are the 250,000 small businesses who pay for their own and their employee's 'business' use of their mobile telephones. I have no way of realistically knowing what the size of this marketplace is but my estimate is that it's well over a million users. Together with the 'informed' pay your own bills personal user this is a potential marketplace of perhaps 2 million end users but it's a very unusual potential marketplace in that almost every 'provider' wont actively try to provide such services to this marketplace but almost all providers will do everything they can to NOT provide such services.
If that assumption is correct then Exetel has a pretty unique opportunity to provide services based on brand new technology that saves the end user a great deal of money with not only NO competition but with the competition actually promoting the concept by vigorously and very publicly 'advertising against it - thereby promoting it.
I don't think that there is a single business that is run by owner/operators who wont look at the opportunity of cutting their mobile bills by 75% very seriously. I know the mobile pone decision makers in 11 large companies using around 7,000 handsets (publicly listed companies with decisions on mobile phones and services made by middle/lower level management) who don't make such decisions based on their personal whim on what new 'free' handset they can get for themselves as a 'bribe' to accepting a provider's proposal but do make decisions on what's best for the company. So my estimate of around 2 million end users may well be larger than that.
Untimed mobile calls to any wire line in Australia plus mobile calls at 15 cents a minute with no 'flag fall' is a very appealing financial proposition. Add free calls between employees and the compulsion begins to become extremely difficult to resist.
All I have to do now is to find a way of contacting those potential decision makers - oh wait - Exetel has always known how to do that.
PS: I had a great day out with my two eldest daughters yesterday and could see early in the second quarter that Geeong were not going to win so had plenty of time to reconcile myself to that fact and act and speak in a sensible and responsible way. I think I surprised them, Annette when I eventualy got home late last nght and myself at this unusual display of quasi-maturity!
Saturday, September 27. 2008
Last year there was no doubt, virtually from the opening bounce, and of course they went on to win by a record margin. This year, relieved of the 'history' of only being at a grand final when Geelong loses and, much worse, paying for my two elder daughters to be there when they lose - this year we will go and watch the best Cats since the 1952/1953 team play the team that has always been their bete noir (though some people might ascribe that title to West Coast) and for the first time since September 1967 I believe I will be able to deal with an unfavourable result (I still can't bring myself to use the 'L' word) if that is to be the case.
Keren and Vicki have been going to Geelong games since almost before they could walk and have been 'infected' with their sad parent's unwavering mental entanglement with the highs and lows of the performance of a provincial football team in a State that we left to come North more than 25 years ago. As a parent I didn't now what terrible angst I was wishing on my two eldest children when I took first one and then the next to the freezing (most often) standing terraces at Kardinia with the long trek to and from Geelong down the old Geelong Road on so many winter Saturdays.
Their mother and I (long before they were born) had been there in 1967 to see our first ever grand final after moving to Victoria from Sydney earlier in that year - Geelong lost to Richmond by 9 points and we walked back from the MCG along Bridge Road past the Richmond town hall and deliriously happly crowds to our rented flat in Hawthorn without exchanging a word.
We were there in 1989 to see the last VFL final, and probably one of the greatest, and one of the most physically tough, football games of all time when Hawthorn beat the Cats. We watched the Cats win the fights in the first two quarters but trail by six goals at the end of the first quater and by 35 ponts at half time - and still trail by five goals at three quarter time only to see them score goal after goal in the last quarter to get within a heart breaking one straight kick when the final siren sounded.
One of the greatest players to ever play the game kicked 9.1 and took the mark of the century that day. A kid called Gary Hocking got cleaned up by Dieperdemenico 20 kilos heavier and seven years more experienced resulting in eventually needing 11 stitches in one of the wounds inflicted in that cowardly piece of gamesmanship but still picked himself up and with blood streaming down his face (before the 'blood rule') tried to kick the goal that he normally would have slotted but his kick wobbled off the boot and missed everything. (his brother Stephen had previously been kneed in the groin so hard one of his testicles had burst and he was carried off the ground)
Brereton's fractured sternum (payback by Mark Yeates for a Brereton illegal tackle in the home and away game earlier in the season) and Dieperdemico's broken ribs (retaliation for the Hocking attack by Gary Senior) and the Norm Smith medal for 'God' were no consolation for those fantastically talented and very brave boys. Two young girl's tears were also not nice.
We were there when Geelong lost twice to West Coast and I didn't have the heart to take hem a year later to see Carlton wipe them off the park - I left at half time.
So Keren and I will fly to Melbourne a little later this morning and meet Vicki (who will be flying in from Hobart) at the airport and make our way to the MCG to watch 'the boys' try and make it back to back flags.
For a few hours the vagaries of ADSL and Australian marketplaces can look after themselves.
Go the Cats.
Friday, September 26. 2008
....what hope have their children got of staying out of gaol or even making a sensible life in Australian society?
I read this article while I was waiting to meet with our solicitors and the Senior Counsel they had recommended to provide advice to Exetel on the constant stream of allegations of copyright infringement sent to us by an entity called 'AFACT':
I realise that such articles are usually, if not always, simple 'beat ups' by very junior journalists (of which the Fairfax press seems to have more than their share these days). However, and assuming the pseudonyms' actually were real persons, what has Australian society come to when it provides a 'platform' for such whining, pig ignorant and just plain distressingly self obsessed people to make their incredible comments in a broad sheet newspaper?
"I was forced to beak the law because I'm too f***ing bone idle to read my TV guide"??????????
"TV programs aren't real like Movies and songs so it's OK to steal them"????????
OK, it's clear that these four pseudonyms have come from multi-broken homes and they never went past the first year of primary school (what other explanation can there be for such a lack of basic understanding of right and wrong and to progress to an adulthood where it's OK to break the law because an American TV program is the most important thing in your life) but who on Earth allowed them to breed? What are their children learning from these losers - that no regard for anything but your own basic self satisfaction matters a damn?
I stopped reading the article in utter disbelief that anyone, no matter that their IQ wouldn't register on any known test result, could actually say the things those 4 'pseudonyms' were quoted as saying.
Not the best mood to be in to discuss the serious issues of copyright infringement allegations and their ramifications to an ISP. It's very difficult to think that with people like those four losers proudly proclaiming their theft in a major newspaper that anyone, ever, should get in the way of their swift demise.
However, the discussions with the partner handling this issue for Exetel and the Senior Counsel they suggested as being the most suitable to provide the advice we were seeking was very productive from Exetel's point of view. Listening to people who are experienced in not only copyright law but its applicability to the internet (they were involved in 'defending' Kazaa) so there was no 'technical terms' barrier and they had a very comprehensive understanding of the various aspects of the copyright act and other applicable legislation. I have less than a comprehensive knowledge or understanding of the various copyright and other laws and it was somewhat of a relief to me that, as explained in the context of the AFACT scenario, they were as commonsense and as clearly ethical as you would hope they would be.
That isn't to say that an entity, such as 'AFACT', couldn't attempt to 'twist' the meaning of the current laws and their amendments via throwing a lot of money at litigation but it was good to hear from someone experienced and designated as an expert in his field that, admittedly at first perusal, Exetel seemed to be doing more than the current laws required rather than being exposed to legal 'danger'. I was interested to hear that, in fact, Exetel may be exceeding the requirements imposed by the current laws but it seems to me that it will be much easier to do less rather than have to do more should that turn out to be the case. While I understand the commercial negatives of that situation it seems to me that, at least in the longer term, the commercial advantages may in fact outweigh the commercial disadvantages. We will provide the additional material on our processes and methodologies of handling allegations of copyright infringements before that very hopeful verbal advice can be both confirmed and put into written advice on which Exetel can rely but, as I walked back to my car, I felt very much better about how Exetel conducts its business in both a commercial and an ethical sense.
From my understanding of what was said at the 'conference' Exetel, and Exetel's customers, are fully protected by the current processes in operation at Exetel for dealing with allegations of copyright infringement and in fact probably do more to protect the interests of copyright holders than any other ISPs currently do though the major UK ISPs will be doing something similar in the very near future. In summary, and of course subject to written confirmation, by logging and then passing on the allegation and then logging the customer's response Exetel has more than complied with the requirements of the current laws - based on the fact that one party has made an allegation and the other party has denied the allegation. The remedy to the 'alleger' should they wish to prove the 'denier' is untruthful is via the established court process and Exetel cannot be involved in determining which party is telling the truth outside that process.
When you read the total cr** allegedly stated by those whining losers (Mark, Kim, Shane and Amber) you have to believe that the "copyright protectors" aren't totally in the wrong though.
Thursday, September 25. 2008
I gave some more thought to what actually is happening with the provision of 'raw' and 'cached' bandwidth in Australia (and possibly other countries) as the apparent contradictions and confirmations from various sources seem to be capable of rationalisation. I also attempted to work out what was happening to the ADSL take up and user bandwidth growth over the past 12 months and what it might be like over the coming 18 - 24 months. With so little information to use these sorts of mental exercises are seldom truly useful but they are necessary in any macro planning that a business might do based on the knowledge that any conclusions should never be regarded as anything but a rough guide.
I read this:
with a degree of amusement at what was trying to be said by the people that contributed to it but it served to reinforce the base rule of business - you can't stay in business in the long term by selling products/services below the cost of supplying them - yet, apart from Telstra (who as a monopoly is able to use the 'whatever it costs me I add 100% to arrive at the selling price' methodology of all monopolies) the ISP 'industry', like the mobile industry, in Australia seems to be based on doing exactly that. Of course, in reality, it doesn't do that at all but it certainly, at least currently, is a 'captive' of the "down loads included in this plan" end user pricing methodology - similar to the mobile phone 'capped plan' pricing methodologies.
Telstra has always been a proponent of the 'user pays for what user uses' ADSL pricing models with some large percentage of their user base paying a monthly access charge that 'includes' a tiny download allowance and if the allowance is exceeded pays a massive premium for additional usage. That has begun to vary over the past 18 months as Telstra has used its ADSL2 'special offers' to attack its wholesale ISPs customer bases but it pretty much is their pricing model.
Every other, at least to my knowledge, ISP uses pricing based on a range of included allowances with many using 'shaping/limiting' to dramatically slow a user if they exceed the plan's included allowance and the others simply charging at various rates from very low to almost Telstra like for down loads above the plan's allowance.
Virtually every ISP, including Exetel, offers plans with a range of download allowances which, if every user used the allowance exactly to its limit, would make the business either unprofitable or not very profitable. The reality of end customer usage, once a sufficiently large user base has been developed, is that only a very small percentage of users actually use the whole of their plan's allowance in any month with the overwhelming majority being cautious in selecting a plan that they believe will cover their most heavily used months. All ISPs who keep sensible usage records know exactly how much the users on each of the plans they offer actually use and the time frames in which they use it - a rule of thumb is that the average usage (across any 12 month period) is less than 40%. (this figure wouldn't apply to Telstra).
The costs of offering ADSL in Australia for a small ISP like Exetel have changed quite a bit over the past three years - almost always downwards in discrete terms but in actual end user usage terms they have remained pretty constant because the average amount of data down loaded has more than doubled on average. Doubtless those ISPs who have installed their own ADSL2 DSLAMs will have reduced their back haul and 'port' costs but those savings will have been reduced by the costs of finance and capital involved in the deployment and the uncertainty of the 'life' of any amortisation in terms of the twin impacts of "NBN" and HSPA/LTE. Irrespective of those future unknowns their current depreciation schedules would show a cost reduction compared to their previous pricing from a wholesaler.
So with 4 million ADSL users currently (according to the ABS) and with a growth of 1% a month with an 'end in sight' for further growth there are some changes that must inevitably occur. Another 'rule of thumb' would be that the total ADSL market would equal the current 4 million plus 80% of the remaining dial up users (approximately 1.5 million). At the current rate of (ABS sourced figures) 40,000 net new ADSL users per month this means that the ADSL market will have become saturated within three years at the current rate of growth and, depending on the impact of "NBN" and HSPA/LTE it may well cease growing long before that and have begun to contract.
Now, no such figures can be used as any sort of guide as they, as I said yesterday, don't seem to make any sense. However, and here's the thing, there is going to be a significant change to the use of ADSL versus HSPA and an even bigger change if "NBN" ever becomes a reality. It seems that, as with so many markets, just as everyone has got comfortable with the 'status quo' events will conspire to un-status the quo.
Which brings me back to the price of 'raw' and 'cached' IP and the method of pricing data services over any infrastructure (current, proposed or not yet dreamed of). The 'article' I referenced briefly touched on the possible 'sea change' within the US network providers methods of charging and how the final end to 'unlimited' as a catch all marketing position was imminent. Go a little further than that and the other analogies of petrol, electricity etc begin to have some sort of grim foreboding - or - if you're a reasonable person - some clearly logical outcomes.
Maybe ISPs will now stop offering 'plans' ( a curse from the mobile marketing legacies and the horrendous Telstra ADSL excess usage bills of the early days) and will become simply a monthly access cost (depending on service type) plus a per gb traffic charge? Something like:
ADSL1 - Monthly Port Charge 256 = $27.50, 512 = $32.50, 1500 = $37.50, 8000 = $57.50 with a traffic charge of $1.00 per gb peak/25 cents per gb of peak
ADSL2 - Monthly Port Charge $25.00 with a traffic charge of $1.00 per gb/25 cents per gb of peak
HSPA - Monthly Access Charge $5.00 with a traffic charge of $10.00 per gb
NBN (no matter who wins the 'tender' or if it ever gets built the charges will be 2 - 3 times these)
It is far too radical to be introduced in 'one hit' but, now we have started the process with HSPA, we will introduce a new range of plans on this basis over the coming months.
Wednesday, September 24. 2008
I commented yesterday about what I saw as an anomaly in the June half year ABS statistics on broadband use in Australia - a monthly growth of around 1% in total Australian ADSL users. I only singled out that aspect of the report as my interest had been in how wireless broadband had grown in that period and that number really surprised me.(TPG/SPT's annual report on the same day announced that TPG was signing up 8,000 new ADSL services a month which would have meant that TPG accounted for 20% of the total ADSL market over the last six months of FY2008 - a truly magnificent achievement).
What also surprised me was the, apparent, fall in the amount of data that the various ISPs reported which fell despite the actual number of users increasing. Now, I could understand if the amount of data rose more slowly as I would think that the new' ADSL users are, by and large, migrating from dial up and would not use very much in their first 6 - 12 months of broadband. Similarly the wireless users would not be heavy down loaders because of the cost of downloads (and uploads). But to actually fall?
I was still 'playing around' with those strange figures when I got two calls within 40 minutes of each other from suppliers of IP bandwidth. While they represented opposite ends of the 'spectrum' in terms of apparent size and reputation the pitches were almost identical:
"due to bringing forward a major capacity upgrade we are able to offer Exetel amazingly good pricing on SX IP if........."
While I'm always grateful to be offered lower prices for essential infrastructure I am always very cautious of 'out of the blue' offers - especially when they are at prices lower than my 'research' has indicated would be available. So I said what I always say: "please put the offer in writing", thanked them for thinking of Exetel and ended the call. Right now Exetel can't consider any major change to our IP bandwidth providers as we have only relatively recently signed new 12 month supply contracts with our long term suppliers. Pity about that as it turns out as the prices being offered are around 30% lower than our current buy pricing and that sort of saving would be very useful right now.
The third, coincidental, incident (perhaps that should have been 'coincidence'?) was a call from Steve asking me to look at some data on the PeerApp MRTG which, although it was a 'mistake' (in the network configuration which was immediately rectified) gave a dramatically improved view of what the new topology of the network could deliver once we have completed the last of the reconfigurations. In essence the new configuration of the network will allow Exetel to triple the P2P traffic that can be delivered from the PeerApp cache by the end of October. If we activated the 'transparent proxy' capabilities that are a standard part of the PeerApp (which we have never used) then the amount of traffic deliverable from the cache would dramatically increase to over five times what is currently being delivered.
Interesting scenario. If other ISPs are using proxies and similar equipment/software more than they have in the past then it might account for a decrease in the reporting of bandwidth usage (depending on how they answered the bandwidth questions which, in turn, would account for why two IP providers are suddenly looking to reduce the costs of IP bandwidth). Then again it might mean nothing at all and I've concatenated three incidents in to meaning something that they don't mean at all. What it does mean, inevitably, is that caching will continue to reduce the amount of 'raw' bandwidth needed by the customers and therefore continue to reduce, at a steeper rate, the cost of delivering the end user services - providing that the end users don't continue to increase their bandwidth usage faster than the cost reductions can absorb - which may well not be the case.
So the ABS statistics seem to indicate a slowing demand for ADSL and at least two IP wholesalers seem to indicate their is a slowing demand for IP. But SX is quadrupling the capacity of its trans-Pacific cables, Telstra is doing something similar and Pipe is planing to add a completely new IP cable. Or are we just about to return to 2000 and the height of the insanity of the dot com boom predictions of cable demand which resulted in IP prices falling by 80% over a two year period?
Someone has to have got it wrong - surely?
Added to this 'conundrum' is the dichotomy between ADSL2 wholesalers like Optus apparently running out of ADSL2 port capacity and being reluctant to add new hardware to increase ADSL2 port capacity (probably part of the NBN 'tender' debacle) and at least three other ADSL2 port deployers lowering prices and seeking to buy up 'wholesale' customers to use their spare ADSL2 capacity or, failing that, buying up other ISPs to use their idle ADSL2 port capacity. All these companies publicly indicate that their businesses are 'booming' but the above referenced three major indicators of user growth overall seem to be saying the opposite.
I will be interested to read the next set of ABS figures to see if there has been a 'correction' to the trends evident in the June half year report. I will also be interested to see what the price of IP bandwidth is in February 2009. Anyone want to take a guess? My guess would be sub $A100 per mbps.
I guess it's best to go back to the old standby of believing only 50% of what you read and absolutely nothing you hear. So if you're still reading this then you better delete every second sentence.
Trouble is which sentences do you delete?
Tuesday, September 23. 2008
And Then There Are Statistics. (Leonard Courtney or Benjamin Disraeli)
I actually prefer the second part of the quote, if you do ascribe it to Lord Courtney:
"still there are some easy figures the simplest must understand, and the astutest cannot wriggle out of" (despite the strangely 'uneducated' grammar for such a well educated man.)
This particularly jaundiced view of numerical data was called to mind when I received the latest email from the ABS which they send to all participants in their ISP surveys:
This particular survey is part of a series that has been produced for some years now and because the data is 'volunteered' by the individual ISPs contacted by the ABS cannot be regarded as anything but a broad indication of trends - it certainly can't be regarded as 'factual'. One issue they appear to have removed from these figures is that now they only count the information submitted from ISPs with 10,000 or more customers which may lead to some understatement but almost certainly removes a fair bit of previous over statement by 'double counting' the myriad of tiny resellers whose 'customers' were almost certainly already reported by their wholesaler.
One of the reasons it cannot be factual, assuming I'm reading it correctly, is indicated by the low increase in the number of ADSL connections over the past 15 months (and especially over the past six months) which if you read this report the same way I do amounts to 1% per month:
31/3/07 - 3,365,000
31/12/07 -3,702,000 (a 9% increase in 9 months)
30/6/08 - 3,936,000 (a 6% increase in 6 months
According to these statistics, the number of new ADSL services grew by just 234,000 over the past six months or slightly less than 40,000 a month. Exetel's ADSL customer base increased by over 2,000 net users each month in that period which, if these ABS numbers are correct, would mean that Exetel is achieving 5% of the total monthly growth in ADSL connections over that six month period - an absurd 'statistic'. Our own estimates are that Exetel has a little over 1% of the Australian ADSL market and possibly increases that percentage by a one or two tenths of a percent each six months.
Should these ABS numbers be correct then there have been more than a few ISPS telling quite a few 'porkies' about their achievements recently.
So bear in mind that these figures, irrespective of their highly credentialed source, are highly questionable in my opinion because, even allowing for the fact that certain 'spokespeople' for various commercial entities in Australia couldn't lie straight in bed these statistics seem strangely disconnected to the statements made by ISPs over the past six months (with the exception of Simon Hacket of Internode who did say that "the ADSL market was slowing" (or words to that effect) recently - something I saw no evidence of at the time and still see none.
The figures that interested me most were the ones concerning the growth of wireless broadband over the past 15 months and particularly the last 6 months. If the ADSL figures are in any way correct perhaps the rapid growth in wireless broadband explains the dramatic slow down in DSL - but somehow I doubt it.
The wireless broadband numbers were reported as:
31/3/07 - 227,000
31/12/07 - 433,000
30/6/08 - 809,000
which means, if you do the simple arithmetic (and you believe in the accuracy of the ABS numbers), that almost as many people signed up for wireless over the last 15 months as people did for ADSL but the amazing figure is that over the past six months almost DOUBLE the number of people signed up for wireless as did for ADSL.
For those people who have bothered to read my ramblings here over the past 15 months you would have seen me write many times that HSPA would quickly become the preferred low end broadband services but these figures indicate that has already happened and goodness knows what the next ABS survey will show.
Makes you wonder about the whole 'value' of CK and SS's NBN 'tender' and also at the 'value' of the 'investments' in ADSL2 DSLAMs by small ISPs over the past 2 years.
Then again - the statistics are probably wrong (I'm sure more than a few people in a few ISPs are hoping that's the case before they front their next director's meeting).
Monday, September 22. 2008
....and when you think about the following few sentences you may well feel like Rowan Atkinson with your own personal 'Baldrick'.
I spent some time yesterday looking at the different scenarios that are becoming apparent in the ADSL1 part of Exetel's business. Exetel actually commenced its business on the basis that Steve and I thought we knew a great deal about providing reliable ADSL services and had the personal dedication to do that better than any then current providing company - even the most pragmatic of people are prone to over rate their capabilities on occasions. Since February 2004, Exetel has provided ADSL1 services to a constantly increasing number of end users - starting in NSW only for the first 15 months or so and then spreading coverage to everywhere in Australia that Telstra had ASDL enabled exchanges. Recently we have had to stop offering new user services in Tasmania due to various back haul issues but we expect that problem to be resolved in the not too distant future.
As part of the 'five year plan' we have been constructing we've looked at the 'future of ADSL1' in several different ways - the most important way being trying to second guess what Telstra will do in terms of continuing to provide ADSL1 access in the exchanges where it has enabled ADSL2. Two things occur to me in this part of the marketplace that seriously affect Exetel's future planning (indeed could be seen as affecting Exetel's whole future).
The first is that Optus pulled out of offering ADSL1 services to its direct customers some time ago as obviously it could see there was no future in providing an ADSL1 service via Telstra when Telstra was going to provide an ADSL2 service from the same exchanges but only to Telstra's own users. You don't have to be a genius to work out that an ADSL2 port/back haul costs much less than even a discounted 256/64 Telstra Wholesale price and that Telstra would offer ADSL2 at far below the cost that a wholesale customer could offer a Telstra Wholesale supplied ADSL1 -
game Telstra - change ends.
Apart from Telstra then being able to dominate the 'market' for ADSL2 services in those unique to Telstra 500 or whatever the exact number of exchanges actually is by aggressively offering their own ADSL2 service they could by at the same time 'freezing' investment in any further ADSL1 ports in those exchanges ensure that no other Wholesale ISP could sell any more ADSL1 services to customers connected to those exchanges. The customers attached to those exchanges would have a choice between Telstra ADSL2 or.....well...there would be no other choice -
set to Telstra.
OK - everybody saw that coming and started to build out their own ADSL2 infrastructures (or paid someone else to do for them on a lease back basis). Sigh of relief, self congratulation on appropriate foresight all round - well done - great job. Telstra waits until enough competitors are heavily committed and the ACCC has finally got it into their head that "if another carrier/provider has ADSL2 services in any exchange then Telstra does NOT have to offer ADSL2 as a wholesale service in any other exchange where that carrier/provider may not have ADSL2 services because they could build out their own infrastructure if they wanted to do that". Hmmm....not so good if you're not Telstra.
Then, surprise, in April/May 2008 Telstra approaches Australian ISPs and says "how would you like to buy ADSL2 as a wholesale service?" Mild interest from most, less mild interest from the stupider ISPs. Finally one ISP announces it will offer Telstra ADSL2 wholesaled services - but big catch - they are ridiculously expensive - personally I doubt that more than a couple of truly ignorant people would actually buy them - they turn out to be more expensive that the Telstra Retail list prices and approximately double the Telstra Retail 'special offer prices'.But that isn't the key issue. The key issue is that Telstra is offering ADSL2 as a wholesale service and therefore - well therefore..........
So what was in Telstra's mind? Who would really know but - if Telstra is offering ADSL2 as a wholesale service and as everyone knows that ADSL2 is faster and cheaper than ADSL1.............wouldn't it then make sense and justify Telstra saying that investing in ANY more ADSL1 ports in ANY exchange isn't viable in the near future because the faster and cheaper ADSL2 will be offered and because of the imminent announcement of NBN.....
game, set and match to Telstra.
So, back to future revenues from ADSL1 for inconsequential companies like Exetel. What is to be done? I don't know. What I have done is to eliminate ADSL1 revenue from Exetel's future business income from January 2011 and scaled down ADSL1 revenue from a peak of $A2 million a month in July 2009 with a rapid decline month on month for the following 18 months. If that doesn't happen then every dollar still earned will be a bonus but it is now impossible to plan for ADSL1 to still be a contributor for more than another 27 months or so.
One decision I made yesterday afternoon was to re-adjust the pricing of many of the ADSL1 residential plans to take into consideration the slight reductions in cost we have been able to achieve in new IP pricing that will come in to operation early next month and the ongoing success of the 12 midnight to 12 noon 'absorption' of a continually increasing percentage of total P2P downloads. The pricing from TW hasn't changed, for Exetel, for over two years so nothing really attractive can be done to our ADSL1 pricing to 'stave off' the rapacity of TW's ADSL2 offers but it will be something of benefit for new and current users.
And it's still only 9 am on Monday morning!
Sunday, September 21. 2008
It seems to me that I take much longer to make decisions lately than at any previous time in my life. It would be nice to think that is because of a belated maturity or that with advancing age comes greater wisdom - but I actually think its because I'm far less well informed these days on many key subjects and my mind is far less incisive than it used to be. Too much alcohol over the decades has obviously depleted the available 'little grey cells' to dangerously low levels. Unfortunately, whatever the reason(s) may be, it/they are coinciding with a time when the decisions are becoming bigger, more serious and more dangerous.
I thought through what the well presented 'M and A adviser' discussed with us last Friday morning which, in summary, didn't tell me anything I didn't already know in basic detail though he added some 'colour' to the various scenarios. In fact I think we already knew more than he did - or a more likely scenario would be we knew more than he was prepared to let on. Either way we gained no new information but undoubtedly added considerably to the information he wanted to know about Exetel.
While we have access to some money we firmly told him they we aren't in any way interested in buying other businesses based on my repeated observation that no buyer of "distressed assets" or to use an even more mealy mouthed phrase - "synergistic assets" in the communications industry has ever benefited from their acquisition. This left him with the other half of his business - our interest in selling Exetel. To which our response was - equally negative unless he could find us a Soul and a David Teoh type payment - then we would be mildly interested.
So we then enjoyed an interesting 40 minutes or so sharing (or more likely only partially sharing) our respective views on the various transactions that occurred over the past few years and our, somewhat divergent, views of the current status of the four possible 'acquisitors' that he knew that we knew he could possibly have in mind. I publish my basic views of all the ISPs he could have had in mind but we had an amusingly scurrilous time sharing some less restrained views of incidents and the people involved over the past few years - sort of a bar conversation after three drinks but without the drinks loosening the control.
We had a few laughs at our mutual views of business practices and personal characteristics of the people at Eftel and dismissed that kluge of failed businesses as being within a heartbeat of disappearing. Our views of Optus and their 'over lords' were similar as were our views on Internode and iiNet. His views on TPG were a little different to mine as he has no personal knowledge of the people there but we shared a deep respect and admiration for the Soul/TPG 'sale' transaction and both shared the same view as to why the SPT/TPG entity was presiding over the demolition of its share price since the 'merger'.
So over the past 48 hours I've thought about why he wasted almost two hours of his time (plus the travel time to and from the CBD) to talk with our small company. There could only really be two reasons. The first, and most likely, would have been that he had run out of real 'deals' and was 'prospecting' at much lower levels that he was accustomed to deal at. The second, less likely reason, was that he had been given a list of companies that some putative buyer had in mind as possible acquisitions and he was making initial approaches to gauge the level of availability (and gullibility) of the prospective targets. I also wondered why I had allowed a 30 minute meeting to go for almost two hours - not at all like me.
As far as I can see there is only one company in the current marketplace that would have the money, and the slightest realistic interest, in buying even a small company like Exetel and we have rejected their approaches twice over the past 18 months and certainly don't need the assistance of a 'middleman' to reject any further 'advances'. So, from our point of view it was a waste of time except that it was an enjoyable chat.
However, as we decide whether we should invest more money into Exetel (either to buy our own CBD premises or to fund HSPA hardware and leasing or any of the other 'opportunities' that are on our minds at the moment) I suppose last Fridays chat was a reminder that we also need to consider exactly what Steve, Annette and I want to do with the next five years of our lives and what is in the best interests of ourselves, our employees and our customers before Exetel gets to a size (if in fact it ever does) that severely limits those decisions. By investing over $A2 million in a property for Exetel would ensure that we would have to commit ourselves to the next few years which would rule out any 'sale' of Exetel as would any significant UK investment.
I don't expect to hear anything back from the very pleasant visitor because, despite my obvious incompetence in almost every area of business, I think if we ever decided that we would investigate the sale of Exetel I would send 3 - 4 emails to the only organisations I would consider selling to (and who might have the amount of cash we required to part with the results of many dedicated years of our lives).
One more iteration of 'planning' for eventualities that are improbable but need to be considered - but not at all seriously right now as there are too many other time demands at the moment.
Saturday, September 20. 2008
It's very early days in our HSPA initiative so its impossible to make any real judgements on how it will progress over a realistic amount of time but some things are a little clearer.
As with every new iniative we have been involved in we have written the required code more quickly, and far more cleanly, to interface to a supplier's systems than they have although they aren't doing it for the first time (merely adding another wholesale customer to a process they must already have in place). As we have gone through that experience several times the HSPA start up glitches haven't surprised us or even caused the levels of frustration such isssues have on previous occasions.
There were some minor issues with our own systems (particularly with 'porting' mobile numbers which are more serious in terms of automation which we didn't expect ) and we will need to quickly address those issues over the next few days. The logistics of despatching sims and the end user processes of validating and enabling the sim on line once it has been received all worked without a problem and the first HSPA customers are connected and, based on the feedback so far, are happy that the service performs as they had hoped - and as our own and our 'volunteer customer' testing had indicated it would.
There are already people using the Exetel SMS over IP application and at least three people using the Exetel VoIP from three different handsets so it may well become 'true' that by using HSPA on a mobile hand set the customer can take advantage of the very real cost savings of VoIP versus the lowest available 'mobile' call charges.
I don't know whether to be unhappy or happy with the number of applications we have received so far as I didn't have any particular first week number in mind and there's still two days to go to the end of the 'official first week'. What I am happy with is the quality of the work done by the programmers and the provisioning personnel involved who have completed a complex set of tasks in a very short time frame. It is another reminder of what first rate personnel Exetel has.
I can see that there will be many changes to our original broad plans for HSPA and that those changes will have to be made after we have had a chance to digest the information we will get from the first few hundred HSPA users. I will buy myself a Nokia N96 (providing the VoIP facilities can be validated as being available) or some other handset if they can't to ensure that any claims we may subseqently make about ease of set up and quality of use are valid for the non-technical phone users such as me.
I have no concerns about the computer users as the HSPA 'stick' is plug in and go and my simple tests of using it in North Sydney, Mosman and in the car show it works just fine.
One issue we are going to have to address is to find a source of E169s that allow us to sensibly compete with Telstra and Optus/Optus Virgin and, to a lesser extent against Vodafone and '3'. The current price of an E169 to Exetel from Optus is a major cost burden and we have to solve that problem by finding a, legitimate, source at a realistic price. We can source the old version for less than $A50.00 landed in Australia but that isn't a good solution. My view is that if a $A50 cost is available for a superseded model then the new model should be available somewhere in the world for not too much more than that.
The same applies for 3G handsets. Exetel definitely doesn't want the hassles of providing subsidised handsets on long 'contracts' but there has to be some way of providing a benefit to end customers without having to take silly financial risks. I know very little about those processes and even less about which 'hand set' will be the best way to go so that's a difficult task for us.
I see that Optus continues to get bad press (though a good deal of it seems to be derived from Telstra's new bad-mouthing hack - querulous quilty) about 3G coverage, congestion and slow speeds. Personally, my own testing has shown none of those issues to be present and the testing of another 30 people in different areas of Australia have also shown no issues - I wonder what the reality is?
I must go and buy myself a new mobile handset on this beautiful Sydney 'summer's' day.
Friday, September 19. 2008
Anyone who has sailed off shore between one land mass and another in the open ocean would have felt the slight, but noticeable change in motion of the boat as the water depth, in the space of a few hundred meters, plunges from around 140 meters to many hundreds of meters as the continental shelf becomes the continental slope. Of course the depth change and distance from shore varies enormously depending on where you are around the world but the sensation is almost identical irrespective of the location. This feeling also gives you a sense of 'never being the same again' or something along those lines.
Sometime yesterday I experienced a similar feeling but as I was on dry land at the time it obviously had nothing to do with a geographic continental shelf. I don't know what it was but it was an almost tangible 'feeling' that things had changed and from now on conditions would be different and required actions would be very different. It occurred as we were winding up Exetel's September board meeting. There was nothing momentous, or even very unusual, discussed at the meeting which was basically 'problem free' as such meetings go. So I don't know what came over me but I've lived long enough to know that things have changed for both me and for Exetel and they will never be the same again.
Whether this is good or bad for either 'entity' - I don't know - for the time being all I feel is that they are different and it will take me a while to work out just how different and what particular way(s). One manifestation of either that 'feeling' or a lack of sleep over the past few days was that I slept soundly and unbrokenly last night for the first time that I can remember. I'm not particularly 'emotional' as a person - possibly quite the reverse unless the red wine or the single malt has been flowing too freely - so I've learned on the few occasions that I've felt this way to take notice rather than dismiss it.
Meanwhile there is another day's challenges and another deluge of information to be absorbed, skipped over or ignored and the usual decision making processes to be gone through. A little later this morning this will include a meeting with an 'investment adviser' who contacted me 'out of the blue' to see if he could 'help us'. I get a number of odd calls in any given week and can mostly work out what they are about but I have no idea what this person wants to talk with us about. Perhaps the current financial climate is so bad that tiny companies such as Exetel have made it to the horizon of 'money/deal manipulators'? Then again, perhaps in this non down turn M and A opportunities and therefore more importantly fees, are much scarcer than they once were.
Despite what those dorks masquerading as a Federal Government might say there very definitely is a significant 'down turn' in at least one aspect of business in NSW and that is Sydney CBD property prices. I mentioned late last year/earlier this year that we were investigating buying our own office building (actually one floor in an office building of a little over 400 square meters) as it would save us money in the longer term by allowing us to set up our own data centre in the same location as our Sydney based personnel. The election of Labor and the correlated plunge in business confidence and the uncertainty introduced by CK and SS with their NBN 'tender' nonsense made us too cautious to proceed at that time so we advised the various people we had been in contact with (including our banks) that we were putting that process on indefinite hold.
Over the past 6 months or so Annette has kept her eye on what has been happening in that area of business and, despite what certain ACT based idiots might say, or even the more optimistic of Sydney estate agents might try and claim, two things are very obvious. The first is that almost no sales of floor space are taking place in the Sydney CBD and that the few that are happening are at significantly lower prices that were being asked for late in 2007. So Annette found a suitable office floor at some $500,000 less than very similar space in the same area as we were very seriously considering a few months ago. (incidentally that space is still on the market and the agent advised us that they would be 'open to an offer').
I still have very serious reservations as to how the current 'non down turn' is going to last but the numbers at $500,000 less than we were working on last time are, obviously, more attractive. It would be nice to have our own data centre, not just financially but for many operational reasons, and there is a persuasive reason for locating our personnel in the CBD rather than North Sydney. However I'm still very conscious that business is tough and shows every sign of getting tougher and I very much doubt that whatever falls in Sydney CBD real estate prices have occurred so far are unlikely to be the last. Despite there being no down turn this particular floor space is on the market as a mortgagee sale and therefore will be sold at a realistic price - but how far will prices continue to fall?
The other major question is just how much 'office' space we need over the next year or so. At the moment we have the same amount of office space in Colombo as we have in Sydney and our plans are to only hire support, admin, programming, provisioning and accounting personnel in Sri Lanka in the future so we will need less space in Sydney than we have now for those position types (approximately 325 square meters in each location). Perhaps we don't need an office at all at some future time that may be not that far distant with almost every Australian Exetel person working from their home? It is not an easy decision to make at any time let alone in these financially troubled times.
We will met with our bank later today to confirm the terms and rates of their offer of finance and then think about it over the weekend. Perhaps it's the implications of making a further $A2+ million commitment to Exetel that provoked the 'continental slope' feeling yesterday?
Thursday, September 18. 2008
I've never understood what the attraction of "pre-paid" mobile, telephony or data services was to the customer - the concept is very attractive to the seller because of the obvious reasons of no credit risk and cash flow 'injection'. Not ever having any understanding of the prepaid concept made it as hard as ever for me to understand why the Telstra announcement of pre-paid NextG was of any impact on anything:
I was interested that the 'over the counter buy price was really attractive and as I read this brief article further the pricing became absolutely amazing:
"Customers will be able to buy a $149 pre-paid wireless broadband pack, containing a USB model, a Telstra Next G SIM card and $10 start-up credit. The modems are pre-loaded with self-installing software that runs on
compared to the, literally, cost price of $195.00 that Exetel have to charge for the same hardware. As the retailer must be getting a substantial commission to handle these sales it makes the price that Optus are charging for the HuaWei stick way over the top. (Recently I was looking for sources of U169s which are becoming available from various overseas companies at prices well below $A50.00 which makes the price offered by Telstra to end users as expensive as you would expect but makes Optus pricing to its wholesale customers an incredible rip off).
What puzzled me was the cost of the data usage which seems to be a fraction of the price that Telstra charge on their post paid nextG service:
Am I reading this correctly that data on this service is around $16.00 per gb compared to the Telstra post paid plan price of $60.00 for 1 gb? A quick search of the BigPond web site doesn't enlighten me.
But I became even more confused when I read this:
"By comparison, 6GB of data costs $70 with Optus Pre-Paid Wireless Broadband; $100 will purchase 9GB of eligible data."
If this is correct then Optus is selling HSPA data at a retail level at a fraction of the cost it's selling the same data to Exetel for - about 50% at customer retail which would make it around 30% of what Exetel pays at the likely retail store buy price.
Now I'm really confused. Perhaps it's long past time that I stopped kidding myself I can contribute to operating a small communications company and retire and take up a simple hobby in my twilight years - like bringing about world peace or finding a cure for all known cancer types or teaching George Bush to put a six word sentence together correctly and expressing a clear meaning.
What is so attractive about getting paid in advance for HSPA data that allows Telstra and Optus to sell it at a fraction of the price a post paid service is sold at? Is credit default so endemic at this level in this market that pre-paying is worth a 70% discount?
That can't possibly be the case so there has to be some other reason. Some guide to a possible reason could be Telstra's new 'offensive' against Optus' 3g roll out. there's more than a whiff of panic in Telstra's concerted efforts to try and portray Optus as not being able to roll out a 3G network and therefore couldn't roll out an "NBN". It appears to me that Telstra is hell bent on trying to portray itself as the ONLY company capable of building a 3G network and therefore the only company capable of building the NBN. That Quilty d***head is really cranking up the emotion in his language and sentence content in trying to 'rubbish' Optus' network building competence.
But back to the reality of today's HSPA ricing - I suppose the really good thing about HSPA/3G pricing like this is that it will accelerate the build out of additional HSPA/3G capacity because why on Earth would any dial up customer continue to use that service? Even at the 1500/256 ADSL1 level why would anyone continue to use ADSL1? Perhaps Telstra's unprecedentedly vicious attacks on Optus are simply that it is seeing its dial up customers 'flocking' to the new 3G services of its competitors. What other reason can there be for the vitriol pouring out of Quilty's poisoned pen all directed at Optus.
Irrespective of Telstra's latest 'dirty tricks' campaign against Optus' engineering and financial planning competence this latest 'chapter' of the HSPA 'wars' again illustrates that the cost of HSPA will continue to reduce and the speed will continue to increase making the remaining revenues from dial up customers a critically endangered species with the revenue from low end ADSL users only a 'heart beat' behind it.
I think I'd better re-negotiate my Optus buy prices to get something only 100% more expensive than they are selling at to pre-paid retail customers.
Wednesday, September 17. 2008
If I was as stupid as CK takes me, along with the rest of the Australian population, for, I would have been heartened by the 'top' (if you can use such an adjective when applied to this bunch of ill educated dorks) Labor party (though it hadn't previously occurred to me how meaningfully the words "Labor" and "party" go together) apparatchik's comments yesterday that "the current problems in the USA financial sector won't have any affect in Australia' (Lindsay Tanner). That's good to know - I must slip out a borrow some money later today.
(I am using the word apparatchik in it's non-specific Communist party usage: "appointed to positions in any government, on the basis of ideological or political loyalty rather than competence.")
If our country isn't being affected by financial difficulties in the USA it makes you wonder why our ASX index keeps falling and is currently predicted to fall by a further 12% to 15% over the next six weeks? Telecommunications is an industry that should be less affected than any other, by 'financial issues in the USA'. However that appears to be far from the situation - at least as far as I read the various share performances over the past 6 months or so. I commented earlier this month on the unfortunate timing of Michael Malone's sell down of his shareholding in iiNet which, predictably has either caused iiNet's shares to fall 20% in a couple of weeks or, an unkinder observer might 'observe', he sold down the day before the shares began their latest steep decline:
(note the date of the sale of M Malone's 3 million shares and the immediate decline in iinet's share price from $A1.75 to $A1.40 down, in turn, from it's most recent 'high' of $2.40)
The current closing price of SPT/TPG's shares hit a new low yesterday (and lower again when the ASX opened this morning) which continues to make you wonder how a company that is stating it will make $A100 million in profits in the current financial year can be valued by the 'market' at less than its stated planned annual profit?
(You would think with two major shareholders owning the bulk of the shares that this ongoing sell down wouldn't be happening - but that in itself raises interesting issues if you think about it for a few seconds)
While those two companies 'stand out' in telco land the news from the top end Telstra and Optus is not really good either with both those companies (that you would think would be immune to 'financial issues in the USA') showing a steady share price decline over the past six months.
So, if overseas situations aren't affecting Australia's economy why is the overall share index declining and why is it that communications companies (who almost always see increases in revenues and profits in 'tough times') are being eyed so badly by Australian investors? Perhaps it's all due to the No Bandwidth Now 'tender'? Telstra has stated publicly that Terria will have extreme difficulty in borrowing the money needed to proceed with an NBN so I would have thought that was one view indicating that Australia was being affected by .........
It's all too hard for me to form any view other than everyone I talk to seems to think that business is tough and getting tougher and if that spread of people in different parts of the Australian economy are, without exception, holding that view then I would think it's more likely to be correct than the current 'government's' views. I think business is tough - but then it's been tough for us since we started the company in January 2004 and I can't really distinguish between 'tough' and 'tougher'.
One result of the toughness (should the Labor party be wrong of course) will most likely be of benefit to ADSL customers as I think that many ISPs will attempt to cope with any slow downs in their new application rates and increases in their churn away rates by raising/increasing the 'content' of their ADSL plans (particularly their ADSL2 plans that they desperately need to fill up ports on to pay their lease charges) and if that doesn't work they will find ways of offering new customers lower prices (watch out for the "XX free months!!! deals etc). The preferred option may be to use lower back haul and raw IP costs to provide increased down load allowances but - I would think those savings had already been taken in to account for other purposes.
The more conservative companies will think about raising prices (the only certain way of protecting revenues and profits in tough times - at least according to 'conventional' financial wisdom). For companies such as Telstra and, to a lesser extent, Optus - this will take the form of less "XX months free!!" offers and a wind back in their advertising and freebies generally as they have locked their customers (and therefore themselves) into 2 and 3 year contracts which reduces their 'wriggle room'.
So it will be a good time to buy from the smaller ISPs between now and Christmas and not such a good time to buy from Telstra and Optus.
Of course - if the Labor party is correct and there is no recession - then it will continue to be a good time for everyone.
Tuesday, September 16. 2008
Some months ago we reached a stage where our original network design/topology which had operated virtually faultlessly for over 4 years began to show its limitations as the number of data and VoIP users continued to increase on a month by month basis and, in the case of VoIP users had begun to grow extremely rapidly. Our network had been built around using gigabit Cisco routers (7300s) and Foundry 24 port and 48 port switches and almost 40 of those devices were in operation in the network which was then shortly to comprise 2 PoPs in Sydney and PoPs in all other mainland capital cities and the ACT (Tasmania was, even then, beginning to slip due to hold ups in getting access to the BassLink connectivity between Victoria and Tasmania.
We therefore made a decision to replace the multiple 7300 LNS, core and border routers with the next level up of Cisco equipment - 10000s for the LNS services and 6500s for the core and border routers. We also made the decision to provide direct IP connections in the inter-State PoPs over the first part of the 2009 financial year. These changes together with the 'simplification' of our external feeds and changes to the integration of the Pipe, WAIX, Akamai and PeerApp caching and sourcing links was, and is, a major set of changes to a live network that supports 3 gigabits of traffic for almost 80,000 users. Naturally any planned changes had to be carefully considered and even more carefully implemented.
It's far beyond my level of knowledge to understand, let alone implement, these sorts of engineering issues - except for the financial issues and the impact on our customers. It's clear to me after two years of using the NetEnforcer P2P management system that there will always be issues with that sort of bandwidth enhancement process. Similarly after almost a year of using the PeerApp P2P caching system it's equally obvious that it is a valuable resource to provide faster downloads for popular downloads and contributes financially as long as IP bandwidth charges remain in excess of $A100 per mbps - which is very true today but may not be true by this time next year.
Our challenge is to provide double today's average bandwidth per user at equal to or hopefully less than today's costs - in other words to achieve a 50% reduction in our overall bandwidth delivery costs. Irrespective of what anyone else in larger ISPs may be able to do, I think this is a very, very difficult objective to achieve despite all of the planning and 'pain' Exetel has gone through to put in place the mechanisms, skills and knowledge to be able to sensibly address these issues. What makes this objective probably more daunting is the very high likelihood that even doubling the average bandwidth per user may not be enough to satisfy the growth in bandwidth demand over the next 12 to 18 months.
This means that as well as doing everything possible to reduce our costs of delivering traffic we have to look for other 'efficiencies'. Providing less traffic per user paid dollar is the reverse side of the reduce the cost of traffic 'coin'. Part of our interest in HSPA is that it will have a totally different demographic of user usage than our current ADSL1 and ADSL2 user base - much lower usage on average per customer. We could add 50,000 HSPA customers at less than one fifth of the infrastructure costs required by another 50,000 ADSL customers and, strangely, make more net profit. Similarly VoIP traffic generates twice to three times the profit that 'data' traffic does. Both of these aspects of service delivery are very important to Exetel in the balance of the current financial year, and in subsequent years, in terms of meeting both our revenue and our profit targets.
We have never made very much money out of providing ADSL services; and we don't have any plans to ever do that as Exetel's raison d'etre was and remains the provision of services at lower costs than any other Australian service provider (if you sell at the lowest cost and if you don't buy at the lowest price, because of your small size, you're never going to make much money). We did figure that after five years (assuming we stayed in business) we would have built a sustainable ability to do that but we did recognize that we needed more than ADSL services (which by definition when we began business we realized would have to be sourced either directly or indirectly from Telstra) and therefore we would have to have in place a plan that would mean that we would buy no services from Telstra over the second five years of Exetel's theoretical existence.
So VoiP, HSPA, Mobile, Free Mobile, SMS via email, fax via email and three other currently planned services are the future 'back bone' of Exetel's business with ADSL still important but not a basis for continuing growth and development. Finding a way to keep Exetel's current 'model' operating at a small profit is very important but the ability to build Exetel's business already no longer relies on services derived directly or indirectly bought from Telstra.
Re-engineering the Exetel network is going to be a difficult set of tasks but it is the 'corner stone' of everything else we have planned.
Making it all work is something no other service provider has ever done - at least as far as I can see.
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