John Linton's Personal Musings

I read the articles in the various business sections of the more reputable newspapers and business journals yesterday outlining Telstra's "secret" moves to use the money previously budgeted for their FTN roll out to upgrade their current fibre network used for Foxtel. Nothing really sinister in that in isolation but it's either being used as a lever for their ongoing 'war' with the Federal Government or something a little more worrying.

Telstra's decision not to wholesale their ADSL2 services was difficult to understand in any way other than it marked a change in how it saw regulation - it justified the decision by saying there was already sufficient competition in the exchanges because one or more other companies had installed ADSL2 DSLAMs in them and Telstra would only install DSLAMs in exchanges where another company had already done so.

The clear conclusion was that Telstra was saying it was just one communications company retailing its own services in competition to "similar" companies that had already done the same thing! This is a new premise that "poor Telstra" was just one player in a competitive market doing the best for its shareholders with no other obligation than that to its shareholders.

It will now be able to do the same with FoxTel/the upgraded fibre network only more so as, at least at the moment, Foxtel is only jointly owned by Telstra who can reasonably claim that Optus and Austar are already viable cable providers and it has only commercial obligations to compete in the fibre marketplace.

Fair enough - at least a case can be made.

It's also understandable that Telstra will become a purely 'commercial company' one day in some unspecified future time.
My concern, as a planner for a company that has built its current business by buying services on a wholesale basis from Telstra, and to a lesser extent from Optus, is that Telstra is giving out clear signals that it's war is with its large wholesale customers (Optus and AAPT) and its smaller wholesale customers (and I only care about Exetel) will be harmed in that process.

While we saw the dangers of being totally dependent on Telstra Wholesale from the very start of Exetel and took a lot of trouble (not to mention pain, grief and loss of money) to diversify our suppliers by buying base services from Optus, Powertel, Unwired and Vodafone it seems that there is not as much time to complete that diversification as we originally thought.

So, just as Exetel has reached the more comfortable financial and operational stage of development being well in to its fourth year of operation, a much scarier scenario has arisen.

I suppose the only saving grace is that we didn't mortgage our personal and business assets to "invest in our own infrastructure". That was a very brave call by those companies that made it and one that looks like either making or breaking them over the next three years.

At least we still have all choices, whatever they might turn out to be, available to us.

I had a meeting yesterday with a possible new supplier to Exetel and as he was from the USA, and he was such a pleasant and knowledgable person, we had a quick lunch together after our formal meeting had ended. As his company's proposal to Exetel involved some considerable expense on our part and the solution we were/are considering is, to say the least, "cutting edge" much of our discussion had centred on the risks involved and how it might be possible to reduce those risks. We may have reached a mutually agreeable solution on accepting a revised proposal from them based on them accommodating the several requests I had made, and Steve in previous discussions, had made to mitigate what we saw and see as significant business and financial risks to Exetel.

As his company is attempting to deal with Telstra and Optus (as well as several other carriers/providers) in Australia our lunch time conversation extended to talking about how the much larger carriers in Australia were making it even more difficult for small ISPs (such as Exetel) to find new ways of competing to address future offerings. He made the point that 'risk taking' is a key advantage for a smaller company and we agreed that, at least in Australia, taking risks was probably the only remaining advantage a smaller company has in today's Australian communications marketplaces.

Scary thought.

Being on the sales side of his company, albeit at a very senior level, he was optimistic about his company's chances of providing his solutions to the very largest of Australia's carriers with whom his company had been dealing for at least as long as they had been talking with us. He made the point that he was nowhere near as advanced in the discussions he was having with Telstra, Optus and AAPT as he was with Exetel although his company had put far more effort in to their contacts with them (as they obviously should). He also made the blindingly obvious point that he would never get to talk with any senior executives within those organisations but was dealing with the lower technical levels who were extremaely conservative and ultra-cautious in looking at actually doing anything 'new' and involved them in any uncertainty.

As I understand the situation, the solution that Exetel is considering is already being installed by a very small ISP (of whom I had never heard until an engineer from their company mentioned the name a week or so ago and I subsequently looked it up when I returned to the office) who clearly is more open to taking risks than Exetel is or, as probably, has management that see through the difficulties I'm having problems with more clearly or, perhaps, has a lot less to lose and more money than we have. In any event it does illustrate the point that small ISPs can and almost certainly must take risks that larger companies will never consider doing. That has certainly been true in the past in many instances for Exetel and not the least of those was our decision to adopt the Allot Net Enforcer technology in late 2006 to smooth out the bandwidth required to deliver P2P sourced traffic to our customers - a very courageous decision at the time when we were the first ISP in Australia to buy that particular solution. Of course now many ISPs have bought the Allot solution or similar products from Allot's competitors now that Exetel has "removed the risk" and it is no longer regarded as a risk to do that.

What a lot of sheep there are in this industry!

I don't like the thought that taking risks that others are too cautious to take is the only true competitive advantage left to Exetel - however it may well be true.

Being a person who spent much of the first 25 years of my working life in various sales roles (Sales Engineer through Director of Marketing at major multi-nationals) I have to say that I've been very surprised at what sales people seem to think (and presumably with good reason) what a sales person should be paid today.

I have been reading the resumes of people applying for corporate sales positions with Exetel which we advertised on our Forum and in one of the on line employment sites. It must be my total ignorance of what has become the "norm" for people who sell communications services to businesses because I was completely astonished at what some applicants were asking for as an expected remuneration package. It seems that a salary of $120,000 pa + commission + a car + a laptop + a mobile telephone is a reasonable expectation (and this is for people with very, very 'iffy' track records).

I suppose my surprise was coloured by the fact that I've built Exetel's revenues to well over $30 million a year based on no sales people/advertising/marketing and only using a web site. I also have some detailed current knowledge of what very competent sales people are paid by Telstra and Optus and the sorts of track records that those people have. I'm undoubtedly also influenced by my previous decades of employing and training so many sales personnel who became extremely successful in selling IT equipment and services (from PCs to the largest mainframes delivered in Australia).

So - bit of a shock.

The other 'shock' was the apparently very low volume of business that some of the applicants thought was worth the $14 - $15,000 a month that their requested 'package' would cost Exetel. Looking at the resumes the highest annual sales achieved was $1,500,000 but most were well below $1,000,000.

Either the companies that previously employed these sales people had massive margins or they didn't last very long - probably the latter given the length of time the applicants seemed to spend in any single job. I don't know what other communications companies remuneration as a percentage of revenue is but Exetel's is lower than 7% (and that includes all director's salaries and 'dividends'). An OTE of $140,000 for delivering a total billable revenue at the end of a full year (which assuming an even quota achievement is $80,000 of revenue a month) is around 25%.

Looked at another way, Exetel's net profit after tax is less than 8% of revenue which means that we could only make a very significant net loss from employing any sales person on such a package.

Like so much else in this industry at the moment I really must be missing something.

Maybe I should increase all of our business service prices by 50% and then Exetel could afford the remuneration at least some sales people believe is expected in this industry?

Maybe I should apply to be a sales rep with one of the companies who offer such remuneration? (I could obviously earn a lot more than I do at the moment).

Maybe I'm just too old for this business.

Over the past week I've received two more 'enquiries' from ISPs who wanted to know if Exetel was for sale or was interested in merging on some basis. Both these companies were significantly more substantial than the previous two and, I would have thought, were of sufficient size to be uninterested in growing by paying for another established business that wasn't being sold off by a liquidator (in other words they would have to pay real/cash money).

While I haven't taken any of these enquiries seriously and doubt that, in reality, they were actually serious enquiries rather than 'fishing for information' exercises it still intrigues me as to what is causing even a 'fishing trip'. Is something happening that I have missed completely? It's obvious that the plethora of "free" offers by Optus and Telstra and their leveraging their GSM and wire line assets into their ever more attractive 'bundles' is making life difficult for any company that doesn't have a GSM network and a very low call cost scenario.

Perhaps the "free" activation and "free" modem offers have not only removed a longstanding source of month on month profit for those ISPs who've decided to follow the Optus/Telstra leads but has added a significant, previously unknown, additional month on month cost? Depending on what costs and selling prices an ISP previously offered, "free" activation and "free" modems would change monthly profitability quite a lot. Exetel doesn't do it but if we did it would be quite financially damaging - along the lines of:

ADSL1 new customers per month - 1,500

Profit on activation 1,500 x $47.00 = $70,500

Profit on modem sales 1,500/3 x $20.00 = $10,000

giving a total of a net $80,500 profit contribution per month - which would now be relaced by:

Loss on activation 1,500 x $88.00 = $132,000

Loss on modem 1,500/3 x $45.00 = $22,500

giving a nett additional expense of $154,500 to which has to added the lost profit normally achieved of $80,500 which devastates the monthly P and L with a net loss of $235,000 EACH MONTH.

Exetel wouldn't survive more than three months in that scenario.

However, a quick look around some of the larger ISPs web sites earlier this morning showed an awful lot of free activation/free modem offers so for well established businesses to be giving away more than $250,000 (they all claim to be much bigger than Exetel so that is a conservative estimate) just to try and generate new customers seems to be indicating some sort of panic - and you don't give away that sort of money per new connection unless you are desperate for customers and your previous customer sign up rate had radically declined.

So there are some very real signs of serious concern with new customer sign ups being exhibited by more than a few ISPs out there if you combine the increasing number of "free" offers with four seperate approaches to Exetel from ISPs wanting to buy our business.

If only they had the money and a real interest maybe this is the time to sell?

Annette raised a question over lunch yesterday about the situation with new ISPs and the apparent lack of new ISPs offering ground breaking plans and options that has been the case in Australia since Microtex, which became OzEmail, first offered their email service in the late 1980s? (or was it early 1980s?).

Neither of us have paid that much attention to the lower/smaller end of the ISP market for some time but we continue to run across statements in various press reports of there being "over 800 ISPs in Australia" and that "a consolidation of the ISP industry will be taking place in the near future" (always a favourite of mine because how could anybody have any idea about the timing of such an event?). However, Sunday lunch at a favourite Chinese restaurant is a suitable time and venue to discuss such an amorphous subject and, in the absence of anything else more immediately interesting or stimulating, we chatted about it for a while.

The first thing that becomes immediately apparent when you attempt to remember things that you are sure you know intimately is that your memories seem to be vague and confused or you have forgotten entirely. It took a while for us to piece together a basic chronology of the various companies that have come and gone since our arbitrary starting point of Microtex as being the first 'ISP' with our guessed start date of 1987 (probably decided upon because it was exactly 20 years ago which appeals to a sense of neatness).

Anyway it seemed that if Microtex/Ozemail was the first Australian ISP then we knew that its demise date was 2006 when it was bought out, for the second time, and shortly thereafter the OzEmail name was gone from the Australian industry. A pretty good run in existence terms by subsequent ISP standards. It was also, by far, the largest ISP to disappear though that is not really true as its US owners (MCI/Worldcom) had to sell it to obtain money to prop up their globally failing comms business rather than because OzEmail was insolvent - so when you think about it - Ozemail achieved another 'first' in the last transaction of its corporate life to go along with first Australian ISP, first Australian ISP to list on the NASDAQ, first ISP to list on the ASX, first ISP to make multi-millionaires out of its founders - and I'm sure there are many more firsts.

However I'm digressing almost as much as if I was still at lunch.

Other notable disappearances included iHug (an NZ based company with the temerity to try their Kiwi luck in a real country who got absorbed by iiNet then spat put by iiNet and retreated to NZ), the strangely ambitious DavNet (a company that pioneered wireless for data in CBDs who got some financial backing and went public, got into trouble, got bailed out by NTT, got into more trouble and the remains were absorbed in to Powertel), the Packer (or was it News Ltd?) funded Comindico who rolled out an Australia wide network to 66 cities on very generous deferred payment terms from Cisco before going spectacularly broke and doubtless others that neither Annette nor I could remember. All of those companies either were of very real size or had very real infrastructures and cutting edge ideas and ambitions.

If there were "over 800" ISPs in Australia in 1996 (and I'm pretty sure there weren't but that statement keeps appearing without any real information source/attribution) there probably are "over 800" companies claiming to be 'ISPs' today but probably all but 30 - 40 of claimed ISPs are simply VISPs (broadly defined as small organisations who have no real investment in the business who 're-package' internet plans packaged by other larger companies) and who come and go by the dozens every few months.

I may well be biased but I think the last ISP that survived more than a couple of years that introduced some sustained 'differences' in to the ISP industry was Exetel in 2004 (you may well argue that DODO is a major innovator but I just can't bring myself to consider that company seriously - again clearly my personal bias). At the time Exetel was created there were several 'larger' ISPs that had been around for a year or so that subsequently disappeared and there were hundreds of 'ISPs' whose names appeared briefly over the past 4 years and then disappeared without a trace.

Independent ISPs that have remained in business for more than three years (of which Exetel is one of the smallest) don't seem to be very innovative any more with al of the real innovation coming from the very large ISPs and I include BigPond in that assessment. If you want a shortish contract, value for money and have a need for downloads in excess of 2 gigabytes then an independent ISP still provides the best and lowest cost solution. However if you want less than (and it's an arbitrary figure) 2 gb and don't mind a longish contract (you're a long term renter or you own your own house) you will almost certainly find a lower cost (often much lower cost) solution from Optus, Telstra or even AAPT.

....and I think this explains why there are no more start up ISPs and why the independent ISPs that remain are all a bit "ho hum" - Telstra and Optus have taken over providing innovation at very low pricing which leaves the current independents and any enthusiastic new player with almost nothing to offer!

At this stage we had finished the wine and the meal and started the long walk home in the surprisingly warm winter sunshine and decided we would think about the implications some other time.

I started to watch the Sydney Channel 9 program - Business Success while having breakfast this morning. It was just a 30 minute ad for Cisco and and a small consulting company who is co-incidentally located in the same building as Exetel is in North Sydney. I guess Cisco got the promotion because it 'donated' a free $50,000 Cisco IP telephone solution as a viewer prize and the consulting company got the exposure due to their employment of John Eales who has extensive Channel 9 contacts.

As Exetel has just started a more extensive promotion of converged telephone and Data via Ethernet and SHDSL I thought I'd see what was on offer. Apart from the fact that it was just a paid advertisement I suppose the other thing that struck me was that VoIP/Data convergence had 'penetrated' even the relatively challenged intellects of a TV station whose ethos is providing programs for people with an average IQ of 95 and whose ideas of suitable content are soaps and trivialised sensational "news".

Exetel's own use of VoIP and data is very, very extensive and highly cost/effective - but then it should be as we are a communications company with a long association with those technologies. We have over 2,000 business customers but, to date, we have sold very few VoIP products or services to those companies. Those that do use VoIP services from Exetel have achieved very solid cost savings and, more importantly, have started along the path of true telephone/data integration linking their data bases and other internal computer processes in to their network and telephone systems. As a way of focussing more intensely on growing our business customer base we have now started offering no cost VoIP PABX hardware and installation to qualified business users and I'll be interested to see how that works out.

It's a key strategy for Exetel moving forward to make the transition from providing wholesaled services (ADSL and Telephone) to largely residential users to providing complex integrated communications services, and the initial and ongoing consulting that goes with them, to business users over the next 18 months. This is a very, very difficult thing to do but, at least as I see it, if we don't pursue this path then there isn't a very bright future for a company that remains dependent on Telstra Wholesale or indeed any other large communications company. I think that my view is at least partially shared by most other companies with significant ADSL revenues whose futures are looking rogressively less certain as the various future deirections of Telstra and other major communication providers become clearer.

The program has now ended and it was nothing more than an ad for Cisco with some highly mis-leading statements by a variety of people (none from Cisco). Anyway - just another indication of how VoIP is more widely being used.

We finally called it a day after six months of discussing with Three/Hutchison as to how we could buy wholesae 3G services from them. Over the six months we dealt with constantly changing people who made very positive 'noises' and then decided that it "wasn't really their area of responsibility". It must be difficult for that succession of people to work in an organisation where they don't understand what it is they are meant to do with their working day. I would have thought it would have been easy enough for one of the 11 people we met with, in the first meeting, to have said something along the lines of "we have never done what you are requesting and never will" - preferably without wasting time coming to our office - an email would have been just fine.

I fully understand the realities of large companies and their wholesale policy/product constraints. It seems simple enough to me that such companies determine what they wish to sell and then put some process in place to make the products/services and their pricing and other terms and conditions available to prospective buyers. Telstra Wholesale do that very well - or at least very clearly.

No other company with whom I've dealt in the wholesale communications product market in Australia does it very well, or very clearly, at all. Every time, and I mean EVERY time Exetel asks for details on some possible service we meet some slightly lesser version of the Three scenario. Every thing starts with great enthusiasm and promises of time frames to provide details and the sputters along for weeks and months with ever changing offers from the first, to us, clear cut understanding of what was defined and agreed at the first meeting. We don't even ask for anything special or 'customized' we just ask for all the applicable details of the service in which we are interested.

Having wasted so much time with Three, we are now months behind schedule in providing a broadband over 3G offering and we have to find a suitable service and make it available by the end of this calendar year to meet the requirements of our FY2009 plan of delivering this service via our own swiches by August 2008. I initiated discussions with another compny earlier this week when it became obvious that we had gone down a blind alley with Three but all the early indications are that this will take more time than I can afford to spend on it.

It would be nice to be able to invest the considerable, to us, sums of money involved with a provider who had some semblance of knowing whether or not the wanted to do what their employees appear to say they want to do.

Maybe it's just one more indication that the communications industry in Australia has a serious deficiency of competent people. I realise I'm getting to the end of my career in this industry but I'm almost always disappointed in the callowness of the 'representatives' (from "account manager" to Director) used by the companies with whom we do business with or investigate doing business with. Not only do they know very little and have no authority but more often than not do not tell the truth - it wastes a lot of time.

In a 'previous life' (some 6 years ago) I introduced the process of advising ADSL customers of network problems via an SMS service which we sourced from a third party at the cost of 18 cents an SMS sent out. Since that time the number of network outages per year has fallen sharply (to practically zero) and the ability to send SMS has reached the desktop at less than half the cost (and with no volume commitment) that I had to deal with six years ago.

The customer desktop interface is simple and easier to use than that of a mobile phone because you get a full size keyboard and a full size screen. SMS services from various sources around the world range from "free" to a few cents per message with a whole range of additional address book, bulk SMS, SMS to Email etc functions that makes such a service a very real benefit to small and large businesses and to a range of residential users (sports team managers/party invitations/camping trips/etc).

I don't know how reliable the figure of SMS generating $1 billion of mobile revenue a year in Australia is but presumably there was some basis for that figure. If that figure is remotely accurate then presumably the market for a much lesser cost and an as easy/easier to use and more functional SMS over DSL service will quickly 'eat in to' that market.

The use of VoIP messaging in Exetel's business operations to advise customer's of the progress of their application and updating them on what is happening with any fault they have lodged has been a major efficiency that we introduced over 15 months ago and we now use VoIP messaging in over ten areas of our daily business. At our purchase cost of both VoIP and SMS it's line ball for Exetel to use one or the other. However we are considering giving our DSL users the option of nominating whether they want advices from Exetel sent by voice to a wire line telephone or by SMS to a mobile contact number.

At the most commonly charged VoIP local/national call rate of 10 cents per call in Australia a 5 - 7 cent SMS from DSL would be a big saving to any business and a real saving to a residential user whose SMS charges on their mobile were significant. We have begun to make this service avaialble to our DSL customers and have been surprised at the rapid take up for this service and the feedback from the customers on what additional facilities they want has been very useful in guiding the developers who have added over a dozen functions based on those suggestions.

It will be interesting to see how SMS from the desktop develops over the next few months.

In the early stages of my career in the information technology industry I spent almost a decade with IBM in the 1970s - a great work, personal, developmental and totally enjoyable experience. One of the stranger aspects of working at IBM was the annual "re-organisation" and "re-focussing" (though I'm not sure that cliche was in use then) of the whole company in every country in which it operated - which was around 50 in those days if my memory serves me correctly. These "re-organisations", no matter how early in the previous year the planning for them started, never seemed to be complete before the end of March in the new sales year which meant that vital things (for sales people/managers as I was then) like quotas and territories and product sets to be sold were not firmly in place in most years until long after the new sales year had started.

No matter how dramatic the changes appeared at first sight, and they did appear to be quite comprehensive on occasions, all they seemed to achieve in Australia at the major branch level (Sydney and Melbourne) was a loss of 25% of the time available for achieving the sales targets. I was reminded of this scenario as we completed the "re-organisation" of Exetel over the past few days - not reallly a re-organisation in the real sense of the word but the moving of some people to new responsibilities, the hiring of additional personnel and the introduction of career planning and job goals for each person employed by Exetel.

Completing the review of each person's aspirations, both in their salary expectations and their job positions over the next three years, is an interesting experience - probably equally interesting for both each individual and the company that currently employs them. It is also a slightly worrying experience for the employing company in that it has to sincerely commit to the development of so many people in so many different ways and, equally concerning, work out how to grow the profitability of the business to meet the interesting amounts of additional remuneration that would be required if all of the current employee's remuneration expectations were to be met each six months moving forward.

I remembered the IBM experience because it must have been an almost impossible task in those desktopless/networkless/Excelless days to actually do the detailed planning and the many iterations that even a very small company must do to put together a sound financial and business development plan - however IBM's financial and growth track record in the 1970s is a miracle of consistency and magnitude unapproached in the world of business at that time.

In re-working the Exetel business plan for the balance of FY2008 and FY2009 one of the things that struck me (and yes, I know how mesmerisingly deceptive Excel can be) was how, in our very minor way, we had been able to meet the requirements of all our personnel in terms of regular salary increases that slightly decreased as a percentage of monthly net revenue - actually a decrease of several percentage points over the past 44 months. Of course, this was only possible because the monthly revenue increased each month over the previous month and the first three years of the Exetel business saw the constant introduction of new automated systems and processes.

Looking forward over the coming 22 months, and assuming the planning numbers are reasonably correct, this trend slows over the coming six months and then begins to increase to the point where it becomes almost the identical percentage of net revenue in July 2009 as it was in July 2004.

While planning numbers are just that, numbers in a plan, it's obvious that Exetel will begin, perhaps has already begun, to become slightly less efficient each month than it has been at any time in the past.

This is a serious concern and now needs to be looked at in different ways to the ones we have used in the past which having been so successful to date have lulled me in to a smugness that I must immediately get rid of.

It was a really bad decision to come back from holidays.

I first became aware that it was possible to develop a business only using a web presence in 1995 and have only used web based selling, ordering, provisioning and problem solving as a basis for any business I've been associated with since that time. Of course, in 1995 the web could only be used by someone as inexperienced and lacking in knowledge as me in very, very basic and quite crudely implemented ways - the cost alone of both hosting a web site of any magnitude and the development and maintenance costs in 1995 prohibited anything else for a person with the spending budgets and lack of knowledge I had to contend with.

Every few months since I put up the first web site to try and kick start a new business venture I have learned a little more and the dramatic development of web site creation tools and the increasing number of people who use the internet has meant that more and more companies have become reliant on using web sites as major ways of attracting, signing up and then providing service to their customers. 12 years after I first put up a web site offering internet dial up services I couldn't imagine there would be any other way of operating a technology company - and it appears neither can anyone else.

Exetel was started with a web site and a crude on line ordering system with one person answering a telephone and responding to emails (me). Without the web site there could never have been an Exetel and without the continuing efficiencies of a web site Exetel would have been unable to afford to grow beyond a tiny ISP with limited services and very few customers - it certainly could never have made any form of profit. Since January 2004 there have been two major revisions of the starting web site and constant and, virtually weekly, changes to the way the Exetel web site provides information (this doesn't include the 2 - 3 changes and section/page amendments made each day of every week of every month for the past 44 months).

It's now time to make the third major change to both the presentation of the Exetel web site and to re-design the ways the information on the pages is provided/displayed/cross referenced. The reasons for the changes being required are several - the main ones being Exetel's need to project itself in a slightly different way to a different prospective customer demographic as we begin to change the focus of our business moving forward and the need to simplify the finding of the data that is contained in the current web site.

As the Exetel web site is quite complex in terms of the functionality provided in the different pages and sections (surprisingly so if you ever take a good look at all the different functions now provided and the different back end processes involved in providing those functions) making the planned changes will be an interesting exercise and one I'm, personally, not looking forward to. However it's necessary and must be done within a, relatively, short timeframe.

In each past design/layout of the previous Exetel web sites (and in the web sites I've been involved with prior to Exetel) I have exercised virtual total control over how the site should look and work only allowing the person(s) developing the web site to use their creative ideas in very limited ways. For taking this approach I've incurred a lot of casual criticism about the look and operation of the Exetel (and previous) web sites which I've always completely dismissed on the basis that the sites (irrespective of the "arm chair" opinions of anyone else who cared to comment) delivered exactly what was planned for them in terms of new customer sign ups and the efficiencies of operating the business. It was always said when I made that comment - "oh, but think how many more customers you would have got with a decent web site" - which is one of those pointless statements that can have no meaning in a business context as it ignores the issues of a business only being able to deal with a certain number of customers at any point in time (just as there's no point in having 400 people wanting to fly on an aircraft with 200 seats).

So, it's with some trepidation that I'm considering what sort of 'freedoms' should be allowed to the person selected to develop the new version of the web site. As a starting point I used our Forum to ask people who had designed commercial web sites to give an initial proposal for the redesign and have been overwhelmed with responses (as well as being overwhelmed with comments from people who wish to make points about how terrible the current web site is!). I will pick a short list of three from those responses and ask for a detailed proposal and then make a decision on whether any of the proposals meet the needs or whether we should do the development in house or go to a US web design house.

As we are planning significant growth for Exetel, and growth in new directions, this is one of the current priorities for decision this month and is also one of the hardest decisions to be made.

Exetel put in place Deep Packet Inspection processes almost a year ago to control the too rapid growth of the use of P2P usage in peak demand times. This, after an initial 'teething period', has worked very well in increasing the overall use of the bandwidth deployed by Exetel while making little/no impact on the overwhelming majority of Exetel's DSL customers. In discussions with the supplier of the equipment we selected, and with suppliers of other DPI equipment and software we considered, it seems that Exetel's pioneering work has been copied by almost every other ISP in Australia all of whom have now introduced similar processes (and the several who introduced such equipment and processes before Exetel have continued to upgrade and use the equipment they purchased). The few customers who left Exetel because we were spreading their P2P downloads over a longer period ended up with ISPs who did exactly the same thing only, in all probability, not as well as Exetel did it.

During the period we were deciding on the P2P control solution we eventually selected we considered several other alternatives to the control type of solution including three caching of specifically P2P traffic solutions then just appearing on the market. The attraction of a caching rather than a control solution was, of course, that it delivered all P2P data at the time of request but reduced the use of ingress/egress bandwidth similarly to a P2P control solution - it's major drawback over the control solution being that it didn't reduce the bandwidth use between the customer and Exetel which, with the introduction of ADSL2 from Optus and Powertel, was more expensive than from Telstra. Apart from that financial disadvantage, the technology (not cache technology per se but the P2P specific caching technology) was very new and the developers of those services had very little in the way of reference users and what they did have weren't really helpful in Exetel's assessments.

Following Steve's visit to InterOp earlier this year we re-initiated our investigations of caching P2P based on two developments - the fact that the technology was a year older and had developed quite considerably over that period and the fact that there were now at least two reasonable reference ISPs that were closer to Exetel's 'profile'. I, personally, still saw the inability to reduce the customer to Exetel bandwidth as a major drawback, particularly as the "sales pitch" had changed over the 12 months from emphasising savings in bandwidth to increasing P2P user satisfaction by actually making MORE bandwidth available to P2P users! It became clearer in subsequent discussions that, while it appeared to be a major negative, at least to people like me, there was some sensible logic in what was now being proposed.

The logic centred on the increase in legitimate streaming data based on P2P protocols to provide a multiplicity of legal downloads of movies, TV shows and more sophisticated delivery of major software 'titles'.

While I'm far from convinced that the time for an ISP to promote the use of P2P as the download protocol of choice is now - I can see the logic of doing that if Disney, Sony, Universal, Microsoft etc actually do end up deciding to use it. As I pointed out to the enthusiastic P2P caching person who visited us yesterday, Akamai semed to have built their business on persuading the major copyright holders to use Akamai around the world to protect their copyright and it would take some persuasion, not to mention contract re-negotiation, to change what is currently in place.

However, I'm intrigued with the concept of moving from 'controlling' the use of P2P to 'promoting' the use of P2P and of doing so as a financial benefit to Exetel and Exetel's users. We will look at the developments of this concept over the next three to four months with a great deal of interest as our current view is that the use of caching would not only not produce a financial advantage it would pose a financial burden. Having said that we have agreed to continue the investigations of how to use the proposed streaming functionality with the objective of implementing them early in 2008 if the claims currently being made can be substantiated.

As I continue to review the future business directions and initiatives it's becoming obvious that there will be almost certainly be a need to make significant capital investments if we decide to do some of the things currently under consideration. At the moment the initial amounts being considered could be raised from a combination of additional private equity from the current investors and some form of leasing from either the vendors of the equipment we are contemplating or from our current banks. However the amounts are considerable enough to cause us to think very, very carefully about whether we really want to invest so much of our personal assets in the Exetel business.

Another option raised with me recently was to take Exetel public via the M and A operations of our long term law firm who had, possibly, got enough investors to make any share placement relatively simple (as these things go) and at the $8 - $10 million we would probably need they saw little problem in placing the shares. I'd never considered taking that path at so early a stage in the development of Exetel and still think it's far too early to get any realistic commercial return on both the money and the time we have invested to date - bearing in mind that, for me at least, this is the last commercial venture I intend to be seriously involved with and my aim was to make Exetel a 'perfect' company.

In realistic terms Exetel is a good private investment that makes a sensible commercial return for its investors and could make, in the near future, a better return than any other possible avenue of investment currently or likely to be availble to us. Apart from the financial considerations it's very difficult to consider putting Exetel's future in the hands of other people or even having to take in to consideration other people's views on policies and directions. However that's a very personal view and I wouldn't let my own personal views stand in the way of a sensible way forward for Exetel's customers.

The other very significant factor is that I'm not sure that a small communications company is a sensible 'public' investment vehicle at this stage of the industry with so many unknowns on the horizon and so many companies doing so many aggressive things in terms of 'free activation and content offers' and 'free' everything they can think of giving away. If the current trends being experienced by Exetel in terms of revenue and profit growth continue, as planned, for the remaining 11 months of this financial year then whatever price we could achieve for the company today would be much greater then (probably double) - and the future will, almost certainly, of the investments Exetel will need to make will be much firmer.

However I will now take some advice on what would need to be done over the coming months to prepare the company to 'go public' in the event that proved both possible and desirable and, depending on how onerous that is, put in place those requirements.

One of the reasons I was more interested than usual in looking at advertising over this weekend was the fact that the management of the building out of which Exetel operates is thinking about offering signage to one of its tenants. The building we are in is quite prominently sited and because it's on the 'wrong' side of the freeway at North Sydney it dominates its part of the sky line and is highly visible by both northbound and southbound traffic crossing the harbour bridge. Bayer has the rights to the roof signage and has big neon signs on three sides but now the building owners are offering signage on the front facia of the building which is still very prominent.

When People Telecom put a pink neon sign on one of the buildings in the 'right' side of North Sydney I thought it was a total waste of money because the visibilty of the sign was highly restricted and the whole concept seemed to follow the, then, silly series of 'marketing initiatives' being carried out by that company at that time. I don't know how much value a sign would deliver to a small company like Exetel other than as some sort of ego thing. However it might provide something in 'image' terms as Exetel continues to move towards deriving more of its revenue from services to business customers who are predominantly in the Sydney CBD and North Sydney areas where a sign on the building would be highly visible.

Exetel has never spent any money on 'marketing' and I didn't like creating a new expense line in the business plan with that heading and liked putting in the possible set up and monthly costs over a three year period even less (I can't get out of the habit of thinking how much additional bandwidth can be bought for that sort of money).

An interesting situation is that no financial quantification can be used in making this decision (at least as far as I can see at this time). The costs can be clearly established and the contract fixes the costs for at least three years as an ongoing and maintenance expense but no sort of return can be estimated - it seems to be pure ego.

A decision will have to be made next week, at least in principle, as I doubt that the building owners will want to procrastinate and I forgot to raise it at last night's board meeting but will discuss it with Steve and Annette over the next couple of days when some more precise numbers are known. My current feelings are that it isn't something that Exetel should do at this very early stage of its corporate 'life'.

I've been involved in building, from ground zero, several ISPs and have never previously ever considered advertising or any other sort of promotion as being even vaguely useful as I could never find a way of making the numbers work so there was an actual return on the money spent in terms of profits in either the short or medium term and I was never prepared to try and justify such expenditures on a long term basis.

I was not stupid enough to believe that advertising didn't work financially, so many ISPs going back ten years have spent, and those that remain in business, continue to spend seemingly huge amounts of money in press, television, radio and other forms of advertising so returns must be possible. I can just never seem to find a way of seeing how the money can ever be recovered.

Annette pointed out an iiNet ad in today's SMH main section (I only read the sports section and Spectrum) featuring the face of the gormless Irish actor whose persona seems to be an omnipresent annoyance in Sydney cimemas over the past few months. I have no real idea of what an ad of that size costs in the SMH presumably around $8,000 (and I assume the same ad will run in other similar publications) but I was struck by the two additional costs it contained - a promise of a mailed letter to all residents of the 77 suburbs named and a free ADSL2 activation.

I don't know how many households would be mailed but a guess would be around 200,000 which would cost something like $2.00 per mail piece/envelope/stamp so presumably the cost is inexcess of $300,000 BEFORE the cost of the free activation is also included in the total costs.

If I was doing the numbers on this expenditure even a very persuasive 'marketing guru' would have no chance of convincing me that more than 5,000 (at the very most) new users would actually sign up from a promotion as ultra basic as this and almost certainly far less - but for a starting point - let's take 5,000 and a campaign cost of $300,000 as I think both those numbers are very optmistic.

I don't know what iiNet's cost of ULL connection is but let's say it's $50.00 per connection - far lower that I know Powertel's is (assuming you ignore the loss of profit you would normally get for a new connection).

The cost of acquiring these possible 5,000 new ADSL2 users is therefore:

Ad Campaign - $300,000
Free Connection - $250,000

Total $550,000 for 5,000 new users = $110.00 per user - and this is an absolute best case scenario; the real cost is likely to be double that.

So how does it happen? How do responsible people actually cold bloodedly analyse the real costs of advertising and then make decisions to spend so much money that it's almost impossible to see being returned in less than 18 months - if ever?

Either I must be totally wrong on the simple assumptions and costs or I'm way too cynical in gauging the likely numbers of people who will end up signing up.

The iiNet example above is almost conservative when comparing it to the advertising being done by Optus and Telstra for Broadband/Telephone services at the moment. Unlike the iiNet example (where I just winged some cost and result estimates) Optus published some figures that go much further to substantiate my wonderment at who authorises advertising expenditure.

From Optus' published annual results/Paul Sullivans press coments:

Optus Averages 18,000 new DSL subscriber sign ups each month.

Optus DSL Advertising averages $1,200,000 per month

Optus, almost universally, include free modems/activations and mostly some free months in their advertised offers.

If you assume that 50% of all new DSL sign ups come from advertising (almost certainly not the case) then the direct cost per new customer of advertising cost alone is over $120.00 per sign up to which has to be added the cost of the modem and the cost of the free activation - a likely cost of in excess of $250.00 per new user and probably it really costs far more.

There have to be many things I don't begin to understand about the costs and returns of advertising.