John Linton
I read this article with some interest yesterday:
http://www.itwire.com/content/view/15399/127/
As an avid 'devourer' of telecommunications articles from around the world I get a lot of information and ideas from what's published on various industry web sites and news letters; not just the facts that are always useful in some way but often the marketing "facts" are equally useful. I've been around long enough not to think too unkindly of what is ascribed to various people as the 'journalists' who do the reporting do make mistakes or mis-hear what is said to them.
The only 'true' sources of statistics regarding the number of ISPs operating in Australia and the number of broadband and other types of customers come from Telstra (who know down to the last user how many ADSL users there are in Australia and to whom they are connected and they don't tell anyone except themselves and the BigPond sales operations) and from the ABS who report on ADSL numbers but as they use questionnaires filled in by individual ISPs those figures can't be called reliable within probably around 20%.
The only other source is the individual annual reports of the various publicly listed ISPs and, sometimes, the press releases from such companies (though the press releases seem sometimes to be at variance with previous press releases and as they aren't subject to the same scrutiny the annual reports are they aren't really reliable).
The IT Wire article cites iiNet (a large WA company) and a small WA company, Eftel, as being active in pursuing the purchase of smaller ISPs to increase their customer bases. Fair enough - it's a 'strategy' that both make a point of in their annual reports and other published information. Not a very successful strategy for either company though based on their ongoing losses made since they embarked on this 'strategy'.
iiNet declare the sale to Vodafone of iHug in their current annual report (the proceeds from which sale seemed to comprise the majority of their annual 'profit') and if memory serves me correctly they seemed to sell iHug for less than they paid for it some three years previously.
Eftel make a note of two acquisitions in FY2007 which turned out even worse than the iHug acquisition for iiNet. In FY2006 Eftel reported a $A799,000 profit and, after acquiring aanet on 10/7/06, they reported a $799,000 loss in FY2007 (allowing for the tax adjustment) - not a great acquisition - paying $A1.6 million for a user base that lost a further $A1.5 million in the first year you owned it. It seems the aaNet customers were losing an average of $8.00 a month each at the time of acquisition (at least) so why pay anything at all for such customers?
Other information in these annual reports also indicates that further acquisitions might not be the way to go. Maybe iiNet could borrow more money than it already has after borrowing big time to pay for its acquisition of OzEmail and other 'investments' but a quick 'banker's look' at the iinet balance sheet as at 30/6/07 shows that there is only a tissue paper thin positive difference between current assets and current liabilities. The same situation is shown on the Eftel balance sheet with a major deficiency in the current asset/current liability ratio. However I may be misunderstanding the summary figures shown there - although they seem pretty hard to misunderstand.
The other curious figures in the Eftel annual report are what seems to contradict the statement in the IT Wire article - "Eftel have around 40,000 ADSL customers after the acquisition of aaNet doubled their customer base". Eftel reported revenue had increased in FY07 over FY06 by around $A8 million ($A26 million to $A34 million) which included revenue from aaNet from 10th July 2007. While I have no knowledge of the exact situation of the defunct aaNet's ARPU it would be reasonable to assume that it was around $50.00 per month per customer (and I only base that ARPU on what Exetel's ADSL1 ARPU is). If this figure is anything like correct then it would suggest that the number of customers that aanet had on acquisition was something less than 15,000 which the IT Wire article quotes as "doubling the Eftel customer base" and the annual report justifies the acquisition by describing aanet as "fast growing". I think aanet always wildly exaggerated the number of customers they had before they went broke but I hadn't realised by quite how much.
So iiNet and Eftel, both from WA, are going to further consolidate the ISP population of Australia - I just wonder where they intend to find the money to do that and, based on previous experience, why they would think it's a good idea.
I suppose this concept of growing a customer base by buying customers from another company makes very little sense to me - it's clearly my problem in grasping the financial benefits - pretty much like my inability to grasp the value of advertising. If I wanted to grow the Exetel customer base by, say 40,000 ADSL users, I think it could be done for less than $50.00 a customer over a period of 6 - 9 months which is probably half the cost and pretty much the same timeframe as trying to buy 40,000 customers from other ISPs - and it's so much safer.