John Linton
There seems to be no 'let up' in the competitiveness of the international IP supply market and not as many of the suppliers have seemingly taken their annual holidays over Christmas this year....but there's a new 'twist' in the approaches we are receiving....it seems to be based around "now that TPG have taken over Pipe it would be a good idea to lock in today's heavily discounted pricing before our head office in [Hong Kong, Japan, Singapore] removes the special discounts we have offered you" or the other company's approach along the same lines of "perhaps you should consider signing a long term contract as with Pipe gone from the market prices are likely to rise rather than fall next year". I thought that was a nice 'touch' for so early in the new calendar year but it does cause a sensible person to consider the whole 'buying from a wholesaler who has a retail interest greater than its wholesale interest' scenario....which was Pipe's, when it was an independent company, major attraction (apart from its competitive pricing). It was also the major attraction of Powertel prior to its takeover by AAPT....buying from a wholesale only company was a significant plus in both cases.
The reality of the telecommunications market in Australia, for companies of Exetel's size is that if we want to offer residential services the only residential network of any size at all is owned by Telstra with companies like Optus and AAPT having smaller networks but, like Telstra, dependent on their retail offerings for their major revenue and profit streams. Hardly new news but, for a variety of reasons, something that people like me sometimes 'forget' in the maelstrom of dealing with the day to day issues of trying to remain viable in highly competitive marketplaces. The latest approaches by two international IP providers is a jolting reminder that in losing Pipe as an automatic consideration for inter-State and intra city connections there is a loss of flexibility that had become quite 'comforting' and that reminds a cautious person like me that other current 'wholesaled' services may well not remain as 'viable' as they have been in the past as the suppliers concerned try to retain their residential market shares in the post sun set/saturation scenarios of ADSL, telephone call and even mobile telephony services.
It's hard to see, having no information, how the increasing pressure caused by falling revenues on the PSTN in terms of lower call usage and higher cancellation of actual lines can cause anything but an increase in rental charges for the remaining lines - the arithmetic is very, very simple for any fixed cost service that has less and less users - maintenance costs decline more slowly than customer loss = higher cost per user. Similarly ALL suppliers (from Telstra downwards) deployed ADSL boxes in local exchanges based on whatever their personal estimates were of the 'growth' of ADSL demand.Telstra's predictions of no revenue growth and the need for companies like TPG and iinet to meet the aggressive growth forecasts in their various capital raisings are the most obvious aspects of what MUST happen to retail pricing in both wire line telephone rental and ADSL pricing over the coming year. All of these companies have got a fixed cost 'network' based on various estimates of how many customers they would connect to those networks - unless they all had the foresight to predict the current scenarios then they all face the same problem Telstra does with the PSTN - declining revenues against fixed costs and, as you see in their 'deck chair shuffling' in the last quarter of 2009 - no ability to decrease their end user pricing to meet competitive actions because that would just turn a difficult situation in to an impossible one.
So these companies will face very difficult revenue/profit issues over the coming year and an inevitable outcome of their retail revenue issues is almost certainly going to be an impact on their wholesale pricing and desires.....I think their 'desires' will be to attempt to fix their retail revenue streams at the 'expense' of their much lower wholesale revenue streams. Which brings me back to the Pipe situation as it is the most obvious example of the dangers of buying services from suppliers that are having retail problems. It would be very silly to continue to buy services from a supplier who competes with you at a retail level and is having problems meeting its retail revenue and profit targets....they have too many ways of damaging your business 'unintentionally' - and if you think I'm being alarmist then I can only say that, right at this moment, we appear to be experiencing this scenario from one of our major suppliers.
There is no solution to this problem that I can see. It is simply a cyclical aspect of booming then dying technologies. What we can do in the immediate 'now' is going to be the key question for today and until we move away from buying from companies who have this problem. It would be nice to be able to sell a 'unique' product/service instead of a wholesaled one...one can only dream.