John Linton
.....based on the fact that new/churn ADSL applications are running at 70% over the same period in 2009 and yesterday set a new order intake record - unheard of in January - at least it is for us. I'm not complaining in any way other than to wonder what is actually happening in the ADSL market places that we address and why the recent changes should have, apparently, had such a dramatic effect on our order intakes when similar changes in the past six years haven't had anything like the impact - except for when we first 'launched' the ADSL residential service in late January 2004. It is, of course, only ten days of a usually 'quiet period' but the trend line is clearly upwards and follows a record December. It is also a contradiction to our estimations and planning that we would struggle to maintain our current order levels and would expect our churn away levels to substantially increase as the 'marketing' efforts of the large suppliers increased over the coming year - perhaps, being the unimaginative people they always appear to be they 'turn off' their marketing in this 'quiet period of the year' and will only resume them later in January?
I suppose it could be that we made our new plans too attractive in the expectation that the 'saturation' of the ADSL market apparently demonstrated in the August 2009 ABS figures and the comments by Telstra that their ADSL customer numbers were reducing (albeit very slightly) clearly signaled that the ADSL business was not going to grow any more. I, personally, took the panicky double change by TPG of its key ADSL offering in October then again a few weeks later in November to be a more obvious sign that their high growth rate had been severely impacted at the 40/40 level and that if TPG's customer growth had been impacted given their price attractiveness and saturation advertising then significant, downward, changes were almost certainly being experienced across the whole spectrum of ADSL price points, marketplaces and supplier order intakes.
Then again it could just be a short term aberration and the balance of January will go back to previous order levels. I will be more interested than usual to see the half yearly announcements by Telstra, Optus and TPG to get some real idea about what is happening in their marketplaces and to see just how "flat" "flattish" is in Telstra's figures. If the half yearly reports are '"flattish" or worse it will be interesting to see what the companies most affected by any real saturation in the ADSL market do about it. Some current suppliers are more dependent than others on the "strong growth" they predicted in their last annual reports and at least one or two are very dependent on meeting their forecasts. Exetel, being the size it is, is always dependent on meeting our forecasts though we don't have the public pressure of having a listed company with shareholders who have a deep interest in receiving the expected dividends and gaining the comfort of the company growing in all important respects....particularly profits and market share.
One of Exetel's two major advantages that allows it to compete with far larger companies and to continue to offer lower prices than companies with far lower 'cost of service prices' is that we don't have to make much profit - enough to fund our capital purchases and our endangered wildlife protection programs - that takes care of wiping out the financial disadvantage under which we operate and the other major advantage is our level of automation which reduces our operating costs to way below that of any competitor. At least that's what we believe and over the past six years we have been able to remain in business while selling services at costs continually below any other provider in Australia.....which has allowed us to continually reduce our prices over the period of our existence including so substantially reducing them from December 1st through January 1st that has, apparently, produced the dramatic increase in new orders.
Perhaps we've finally reached a size where our twin operating advantages are being complemented by a buying 'power' sufficient to cut the 'buy cost discrepancy' between us and the much larger competitors to a level where they now have no ABILTY to reduce their prices (they never had any DESIRE to reduce their prices) because of their basic operating inefficiencies and their need to produce enough profits to meet their shareholders demands?
It will be an interesting few weeks.