John Linton As I've mentioned previously I continue to work on the operating plan for the period commencing 1st July 2008 for the subsequent 4 years with the self imposed condition of reducing Exetel's operating expenses (with the exception of payroll) by 50%. While I 'plucked the 50% figure out of the air' as a starting point I've been pleasantly surprised, or maybe that should more correctly be made really angry at my previous laxness, to become aware that so many expenses that are being incurred by Exetel are capable of being significantly reduced.
I have to admit though that most of the possible reductions all come with 'strings' and some come with considerable capital investment that won't please someone involved in such decisions who tends to think that after 4+ years no more investment money should be required to grow Exetel but such investment should come from retained profits. Nice thought.
I can't take much credit for many of the planned reductions as they come 'naturally' from our reaching the end of 2 or 3 year contract terms and now have greater volumes and a good track record with the various providers that almost automatically give us lower pricing. But it does make an amazing difference to the monthly P and L each time even a relatively small recurrent expenditure is reduced by 50%.
We re-signed the first of the supply contracts today for a 50% lower cost than we had paid each month for the past three years which was a small, but significant, indication that an 'across the board' cost reduction process will produce very real results.
Producing the same result with Telstra will definitely be a challenge.
However, like all things that are considered to be impossible at first, or even second or third, consideration - all that's really needed to be done is to look beyond the road block and see if there's a completely different solution.
The different solution in the case of Telstra ADSL1 is not to 'negotiate' with Telstra for a better price (and a 50% reduction on current tail costs and GigE connections seems highly unlikely to me at the moment) but to 'turn 180 degrees' and look at the issue completely differently. So if Telstra won't reduce their costs by 50% then the next alternative is to get 100% more revenue from the same cost.
In the case of ADSL1 the suggestion was to use a wireless router to share a service with a neighbour as just an example of the concept of 180 degree thinking. Sure there's all sorts of issues with such a concept and that particular scenario may never work but it does start the process of not believing reducing the ADSL1 tail and connectivity costs by 50% is impossible - it can now be seen as quite possible.
A different example, again with tail costs but this time with the tail costs for SHDSL services we pay to Optus and Powertel, is that there is, in my opinion, less than no chance of getting those two companies to reduce their current prices by 50%. However Exetel has a growing number of business SHDSL/Ethernet users and plans to treble those numbers in the next twelve months. The tail cost is already over $100,000 a month and is planned to grow to over $300,000 a month by the end of 2008 using the current services at the current costs.
So we met with a wireless base station provider this morning to discuss how we could implement wireless Ethernet in the Sydney CBD and North Sydney where the majority of our business customers are at the moment. If all the difficulties of doing it can be resolved (and they dont, to me a non-technical person, look too difficult) then we could reduce an SHDSL/Ethernet monthly tail cost not by 50% but by 90%.
I've previously referenced the ways of reducing ingress/egress bandwidth costs and the more progress we make with those current and possible suppliers the more likely it looks that the 50% savings on those costs can be made.
Similarly with lesser costs such as premises and communications we have been able to hold those planned future costs at the current levels while the revenue and personnel double so they too will result in a 50% reduction in future months.
So, I'm not sure whether to be really pleased that such a difficult project is turning out to be possible or to be seriously annoyed that I didn't start this process three years ago.
Maybe we need a financial controller?