John Linton I had an interesting meeting yesterday with two smaller ISPs than Exetel is who both viewed the future of their businesses with some serious doubts. They had previously had discussions between themselves and had reached a conclusion that they would struggle to survive the coming year after being in the communications business for more than ten years in one case and around eight years in the other. They had approached Exetel because we are one of the few medium sized ISPs left in the Australian market (their words) and they had approached two other ISPs larger than us but had not got anywhere.
Their proposal, which has no chance of success as far as we are concerned, was to somehow combine the 'buying power' of several small ISPs so that they could get enough price reductions to help their rapidly shrinking bottom lines (which they were quite open in disclosing 'real' figures). This obviously wouldn't work which is why, I assume, they had not got anywhere with the previous companies they had approached. What was surprising in the discussions was the relative inefficiencies they had in their operations in terms of personnel numbers and lack of automation within the various sectors of their businesses - considering how long they had been in their various businesses.
The other aspect they shared that surprised me was the relatively high prices they were paying for base services such as IP and back haul which seemed way too much even considering their lesser volumes. However both of the companies had managed to steadily grow their businesses until around 12 months ago at end user pricing that was considerably higher than Exetel's. It has only been since Telstra Retail started discounting ADSL2 end user services even more steeply over the past 18 months that they have seen their customer base start to shrink to the point that they have lost around 10% of their customers since January this year....a very worrying decline in itself but even more worrying because they both have cut their prices twice in the past few months without arresting the decline.
I wasn't able to offer any information about the current and immediate future that they were not already aware of. I explained that Exetel wasn't planning any real growth in our ADSL customer base and was more than happy if we could keep it at only a slow monthly reduction. I advised them that our objective was to replace any loss in low margin residential business (around 3% profit) with relatively high profit corporate and VoIP business (around 30%) and if we could actually accomplish that we would have a good year but that it was much too early to say that strategy was working out as we planned it to do because in the first seven weeks of the current financial year we actually had a slight increase in customer numbers in residential ADSL and didn't do as well as expected in new business sales.
We had a friendly enough chat as they were both sensible people who appeared to be genuine in their views and what they could offer to a plan to reduce buying prices. The problem, if that's the right word, is that people who have spent a considerable time building their own business, by definition, have a personality type and career background that doesn't make it easy, if possible at all, to cede 'control' to other people. Even with the significant pressures of 'staying alive' in today's communications markets the discussions we had showed how practically impossible it would be to set up the sort of 'co-operative' they had in mind. It was not a cheerful meeting and as it reached its end I made the point that technologies always reached this point and the only thing any company could do, big or small, was to move on before the financial problems always associated with the 'end of life' of any technology caused them irreparable harm. I outlined the most obvious of the steps that Exetel was taking but they didn't seem to find those of any interest.
As I drove home I considered what had been said and what had been proposed and found myself 'lost' in the problems of looking for solutions to problems beyond your direct 'control'. Perhaps it's my personality trait - rooted in the far past genetics of my Celtic/British forefathers but I have never seen how working with other companies with whom you compete (however lightly) can ever work for very long. It may well be simply my personality and background; perhaps other people can realistically work with 'competitors' or 'partners' but I always seem to see self interest overwhelming mutual interest in such scenarios - how could it be otherwise?
I have another such meeting later this morning. I doubt it will be any different to the previous ones I have attended over the years but you never know - which I suppose is why I continue to attend them.
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