John Linton
....and when you think about the following few sentences you may well feel like Rowan Atkinson with your own personal 'Baldrick'.
I spent some time yesterday looking at the different scenarios that are becoming apparent in the ADSL1 part of Exetel's business. Exetel actually commenced its business on the basis that Steve and I thought we knew a great deal about providing reliable ADSL services and had the personal dedication to do that better than any then current providing company - even the most pragmatic of people are prone to over rate their capabilities on occasions. Since February 2004, Exetel has provided ADSL1 services to a constantly increasing number of end users - starting in NSW only for the first 15 months or so and then spreading coverage to everywhere in Australia that Telstra had ASDL enabled exchanges. Recently we have had to stop offering new user services in Tasmania due to various back haul issues but we expect that problem to be resolved in the not too distant future.
As part of the 'five year plan' we have been constructing we've looked at the 'future of ADSL1' in several different ways - the most important way being trying to second guess what Telstra will do in terms of continuing to provide ADSL1 access in the exchanges where it has enabled ADSL2. Two things occur to me in this part of the marketplace that seriously affect Exetel's future planning (indeed could be seen as affecting Exetel's whole future).
The first is that Optus pulled out of offering ADSL1 services to its direct customers some time ago as obviously it could see there was no future in providing an ADSL1 service via Telstra when Telstra was going to provide an ADSL2 service from the same exchanges but only to Telstra's own users. You don't have to be a genius to work out that an ADSL2 port/back haul costs much less than even a discounted 256/64 Telstra Wholesale price and that Telstra would offer ADSL2 at far below the cost that a wholesale customer could offer a Telstra Wholesale supplied ADSL1 -
game Telstra - change ends.
Apart from Telstra then being able to dominate the 'market' for ADSL2 services in those unique to Telstra 500 or whatever the exact number of exchanges actually is by aggressively offering their own ADSL2 service they could by at the same time 'freezing' investment in any further ADSL1 ports in those exchanges ensure that no other Wholesale ISP could sell any more ADSL1 services to customers connected to those exchanges. The customers attached to those exchanges would have a choice between Telstra ADSL2 or.....well...there would be no other choice -
set to Telstra.
OK - everybody saw that coming and started to build out their own ADSL2 infrastructures (or paid someone else to do for them on a lease back basis). Sigh of relief, self congratulation on appropriate foresight all round - well done - great job. Telstra waits until enough competitors are heavily committed and the ACCC has finally got it into their head that "if another carrier/provider has ADSL2 services in any exchange then Telstra does NOT have to offer ADSL2 as a wholesale service in any other exchange where that carrier/provider may not have ADSL2 services because they could build out their own infrastructure if they wanted to do that". Hmmm....not so good if you're not Telstra.
Then, surprise, in April/May 2008 Telstra approaches Australian ISPs and says "how would you like to buy ADSL2 as a wholesale service?" Mild interest from most, less mild interest from the stupider ISPs. Finally one ISP announces it will offer Telstra ADSL2 wholesaled services - but big catch - they are ridiculously expensive - personally I doubt that more than a couple of truly ignorant people would actually buy themĀ - they turn out to be more expensive that the Telstra Retail list prices and approximately double the Telstra Retail 'special offer prices'.But that isn't the key issue. The key issue is that Telstra is offering ADSL2 as a wholesale service and therefore - well therefore..........
So what was in Telstra's mind? Who would really know but - if Telstra is offering ADSL2 as a wholesale service and as everyone knows that ADSL2 is faster and cheaper than ADSL1.............wouldn't it then make sense and justify Telstra saying that investing in ANY more ADSL1 ports in ANY exchange isn't viable in the near future because the faster and cheaper ADSL2 will be offered and because of the imminent announcement of NBN.....
game, set and match to Telstra.
So, back to future revenues from ADSL1 for inconsequential companies like Exetel. What is to be done? I don't know. What I have done is to eliminate ADSL1 revenue from Exetel's future business income from January 2011 and scaled down ADSL1 revenue from a peak of $A2 million a month in July 2009 with a rapid decline month on month for the following 18 months. If that doesn't happen then every dollar still earned will be a bonus but it is now impossible to plan for ADSL1 to still be a contributor for more than another 27 months or so.
One decision I made yesterday afternoon was to re-adjust the pricing of many of the ADSL1 residential plans to take into consideration the slight reductions in cost we have been able to achieve in new IP pricing that will come in to operation early next month and the ongoing success of the 12 midnight to 12 noon 'absorption' of a continually increasing percentage of total P2P downloads. The pricing from TW hasn't changed, for Exetel, for over two years so nothing really attractive can be done to our ADSL1 pricing to 'stave off' the rapacity of TW's ADSL2 offers but it will be something of benefit for new and current users.
And it's still only 9 am on Monday morning!