Krudd has urged Australians to approach 2009 with optimism but that is an almost criminal abuse of his position as he very well knows that 2009 shows every indication that it will be the toughest year in the history of Federation with the possible exception of 1932. Absolutely NOTHING in any expectation or analysis indicates that any individual or any company should "approach 2009" with anything except extreme caution.
The first indication of the fearsome 'sea changes' that have begun to affect even the communications industry were contained in this article in yesterday's SMH:
You may take the view that large mobile phone reseller chains are particularly vulnerable to minor 'down turns' in the economy and you may well be right. Similarly you may also well say that PCs (in this case Apple hardware) would also be one of the products that would be an early 'victim' of any "softening of the economy" and, again, you may well be right.
Similarly you may take the view that Vodafone bought out Crazy Johns for sound long term change of strategy reasons or, like me, you may take a more jaundiced view that Crazy Johns, having settled its non-payment of debt to Telstra by a court action still had an unsustainable business model (give away everything possible) that quickly put it in the same position with Vodafone whose only financial recourse was to 'buy' the company.
Irrespective of what the real situations might be these are very real indications that as Ms Horne is quoted as saying:
"due to weaker consumer demand and increased competition"
It's axiomatic that as demand for any product falls the competition for the lower number of customers increases so that comment is actually tautological but irrespective of the semantics she 'eloquently' summarises the situation that FoneZone and all other mobile resellers are now facing and have been facing for some time - falling demand, lower margins due to increased competition for the smaller number of available customers, store closures, cash flow problems and a very, very bleak outlook.
Closing stores, of course, means people losing jobs and people losing jobs mean less money spent in their local communities and more money required from the Federal Government for social security and less tax receipts to pay it. I know - this is sounding like national economics for the very young - so I assume the point is made.
Which brings me to the point I had intended to start with as I did my final review of the amount of capex that Exetel may be able to use over the next 12 months. I eliminated for good (well, until the next capex review) any consideration of investing in DSLAMs. My reasoning was that, although it is now possible to get DSLAMs installed 'for nothing' (on no payment for 24 months and at literally 40% of the quoted cost 12 months ago) terms and the cost of the dark fibre needed to connect the DSLAMs is now about half the price it was 18 months or so ago the concept makes even less sense today than it did when we first considered it.
Think about it - Telstra, Optus, AAPT, iPrimus, TPG, iinet, Internode, Adam and others have installed their own DSLAMs in the same, relatively few, exchanges. If Exetel can get interest free 24 payment terms you have to believe that all these other companies got better terms than a tiny company like Exetel can get which means that, increasingly, these companies have begun to reach the end of their 'payment holidays' and are now having to pay for their DSLAM equipment. Not a problem - they've had 2 years or more to build a realistic customer base on each of those DSLAMs so they are now cash flow and EBITDA positive on their investments.
That could easily be the case - listening to the sales pitches from DSLAM providers/installers/financiers that certainly sounds like it should be true - so almost undoubtedly it is - at least at this point in time.
The mobile phone situation echoes what I think may well be the case with ADSL2 - which is very good news for customers (whoops - unless of course they signed up for 24 month or longer contracts recently - they knew there must be a reason for that didn't you?). With all that competition in the top 150 exchanges and with the rapidly declining amount of 'disposable income' available to buyers of internet services there is going to be two things that are going to happen to ADSL2 prices over the coming 12 months starting very soon (probably have already started).
The first thing that is going to happen is that each of the companies that has installed DSLAMs will have projections of how many additional customers they will get each month both during their 'payment holiday period' and then in each succeeding month. These forescats would have been made, for the most part, before the 'the economic slow down' of 2008 and while they would have been continually 're-adjusted' there would have been a 'floor' below which the sales forecasters wouldn't have dared to go. It will now become apparent that those forecasts are going to have to be revised downwards and quite considerably downwards. As this can't be financially accommodated for more than a few of these companies the end result will be to lower end user prices to give credibility to not reducing the sales numbers to what they point to.
A major win for end users - there will be a series of offers that will be increasingly attractive but will always involve 24 month plus contracts.
The second thing that will, almost certainly happen, is that even at the new lower pricing, increased advertising budgets and increasingly 'hysterical' marketing 'give aways' the total forecast new users for all of these DSLAM deployers is going to fall increasingly short of the number required to make the investments in DSLAMs make a profit or even, for some, break even.
Until now the DSLAM deployers have been 'cushioned' by the two factors of 'payment holidays' and a growing wire line broadband market.
The wire line broadband market (overall) is not growing anywhere near as fast as it has previously (according to the ABS anyway) and the upgrading of ADSL1 users to ADSL2 is also 'naturally' slowing as the number of ADSL1 users on ADSL2 exchanges decreases via transfers over the past 3 years.
Now there is the looming 2009 'financial slow down' which will reduce the total number of broadband buyers to something approaching 70% of 2008 numbers and this occurs in conjunction with the growing use of HSPA (for low end users) further negatively affecting ADSL take up and 'ADSL1 conversion'.
Ms Horne's statement will apply to ADSL2 just as surely as it does to mobile phone services and Apple computers:
Less Demand = Lower Sales = Lower Prices = Lower Profits = No Profits - Quite Shortly
I could be wrong but I think it would be better not to have to pay a monthly leases on ADSL2 equipment in 2009.
« previous page
(Page 1 of 1, totaling 1 entries)
next page » Frontpage