John Linton
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?