Thursday, September 13. 2007Why Is William Of Ockham Ignored So Often?John Linton As someone who tends to spend the majority of every day of the week dealing with some of the more difficult aspects of running a small technology company it continually surprises me that I fail to find solutions faster - given that is something I've had long practice in. I suppose, at least in my case, it comes in part from being far more cautious than I used to be. However when I think about it, usually in the context of having spent a long time on reaching a decision only to find, once again, that the end decision is the one that came to mind very early in the 'thinking cycle' and always, and I can think of no exceptions, conforms to Occam's Razor principle. So having agonised over the problems of ADSL2 delivery for several weeks I made two phone calls and within less than 24 hours those issues that I was getting around to considering to be unsolvable were resolved in the subsequent emails I received this morning. It is so blindingly obvious that the simplest method of addressing any problem is always the best, quickest and often the easiest that I can't understand (having been introduced to clever William's principles at the age of 12) why I waste so much time reaching that conclusion so very often. It must be advancing age and all the debilities that brings with it. Having, again, been reminded that simple is best I had an early morning meeting with two of the people I have known longest in technology in Australia to discuss data over technologies other than copper wire or cable. As long term acquaintances who have worked together in the long distant past and have done business with each other several time since then, there was no polite mumblings about irrelevant things - just an immediate discussion on whether we could help each other in a financially meaningful way. The meeting lasted around 20 minutes (determined by the time it took to order and drink two coffees) and I came away with a much clearer idea of how to get to the point where a solution could become financially possible - and also a timeframe and rough milestone chart on how to get there. The interesting aspect of the meeting was that none of the three participants had any knowledge of the solution that was developed and one of them had no real financial interest (other than a possible money investment) in finding the eventual solution (if indeed 'eventual' is a word that can be used in the context of a 20 minute meeting). As with the razor principle, once you remove all of the considerations of why something can't be done and the 'mental baggage' of re-introducing all of the current road blocks you come to realise that either there is no solution or that there is - with no ifs and buts. As every person who has ever made a decision would already know (and as detective fiction from Conan Doyle to Jonathan Davies endlessly makes the point) all you have to do is "to eliminate the impossible and whatever remains, no matter how improbable, is the solution". The problem that was resolved so simply was: PROBLEM: Exetel can buy data over 3G at 25 cents per megabyte but must buy at a twentieth of that price to be able to provide an Australia wide data over 3G solution. The network providers with whom Exetel has had discussions will not move on that price now and suggest that while the price will drop it would be 2 - 3 years, if ever, before Exetel's requested price could begin to be approached. SOLUTION: Find an entity that buys at one thirtieth of Exetel's price and see if they will sell to Exetel. Problem solved and three possible contacts (names and phone numbers and emails) were immediately provided of entities that would be the most likely, if there were such entities, to buy and sell at the required prices. So I now know the only way to deliver data at good speeds to end users at competitive prices anywhere in Australia courtesy of a short discussion with two people who had no initial personal interest in how I began the conversation. A timely reminder that having knowledgable and sharp minded acquaintances (who you catch up with occasionally) is an incredibly important aspect of running a small business. Wednesday, September 12. 2007I Wish I'd Never Heard Of ADSL2John Linton It's now been a little over 12 months since Exetel connected the first customers to its ADSL2 services using infrastructure/backhauls provided by Optus and Powertel instead of Telstra whose only part in the ADSL2 services is to supply the 'last mile' copper between the end user's location and the end user's local telephone exchange. Over the succeeding 12 months Exetel has connected a little over 10,000 residential and business users to an ADSL2 service using the infrastructures provided by Optus or by Powertel. When we were initially assessing the various factors involved in ADSL2 services to be able to set pricing for end user plans we had only our experience with provisioning ADSL1 services to provide some sort of view of likely usage and likely times of usage. That experience seemed valid and reasonable as our experience in planning, provisioning and delivering ADSL1 services (and dial up services prior to the availability of ADSL1) as well as SHDSL and wireless broadband services extended over almost 15 years. There was a great deal of attraction in providing ADSL2 as it enabled a greater degree of independence from Telstra Wholesale and the pricing of the actual 'ports' was much lower than TW was then offering for a much faster end user service. Also with the Optus offering we were able to 'bundle' in the revenue/profit from the telephone voice calls made over the ADSL2 ULL based service (something not available from the Powertel SSS based service). We also looked at what the then independent ISPs who had made investments in their own ADSL2 dslams and infrastructures were pricing their various ADSL2 plans as a 'sanity check' for the pricing we were contemplating and saw nothing concerning in what those ISPs were doing. It all looked very good as we made the final decisions on pricing and provisioning. It didn't turn out that way. We had always been aware that the 'early adopters' of an Exetel ADSL2 service would be the heavier users in terms of downloads and had taken that in to consideration. Pretty obvious really for even people much less experienced than us. We had also taken into consideration that both Optus and Powertel were also completely inexperienced in provisioning ADSL2 networks but , like us, had a lot of experience in data network and ADSL1 network provisioning on much bigger scales than we did. What we weren't aware of, or were too insouciant about, was the actuality that a much higher proportion of really heavy users would be attracted to our particular ADSL2 offerings than our most pessimistic (if that's the appropriate word to use) forecasts had allowed for. Fair enough - by no means the first time our planning assumptions proved to be very wrong - time and a sensibly sized user base will redress that imbalance. Well time has passed - over 12 months of it - and most people, certainly me, would consider 10,000 users a realistic sized user base to begin to deliver economies of scale in terms of a balanced customer mix. Not the case at all - if anything our ADSL2 experiences are showing that even low download users who transferred from Exetel ADSL1 plans seem to find the functionality of much higher speeds irresistible and now download three times more on ADSL2 than they did on their previous ADSL1 Exetel plans. If that's the case with Exetel ADSL1 users then there is no reason to assume it isn't the case with users who come to Exetel from other ISPs. So, after a little over a year we find that the AVERAGE download amount per month of an ADSL2 user is three times greater than we thought it would be with the resulting necessity to add ingress/egress and IP bandwidth much faster and in greater quantities than we had planned for. Not such a major problem in an ADSL1 scenario but much more difficult in an ADSL2 scenario, particularly with Optus, because the ingress/egress (as opposed to the IP bandwidth which is the same per mbps for all services) is more than double the cost of ADSL1 ingress/egress. So, "suddenly" the nice profitability projections we had based the service on are reduced to senseless optimism and to even get a breakeven from the ADSL2 services at the current customer mix appears to be highly unlikely. I've been turning the current figures over and over and discarding scenario after scenario that will allow Exetel to deliver a competitively priced service that will at least break even but, so far, I have failed to get even close to doing that. I'm not sure there is a real solution based on the current supplier pricing but it is now my major priority to make the decisions that any sensible business has to make when faced with such problems; get lower supplier pricing or raise end user pricing - pretty simple really. ....if only I'd never heard of ADSL2.......... Tuesday, September 11. 2007New Exetel Web SiteJohn Linton From its first day in business Exetel has only used web sites to 'market' its services and has only used web based ordering, provisioning and support processes. Over the time Exetel has been in business we have constantly (daily) made changes to every aspect of our own web site and added more and more, and more and more sophisticated, capabilities to it. Monday, September 10. 2007Now Where Is That Stable Door Key?John Linton
Helen Coonan claimed, after formally signing the contract on September 9th 2007 that Opel had already commenced work on the network, which is targeted for completion by June 2009, and "The government will independently test the network to ensure that coverage is achieved to a very high standard, and that the service in rural and regional areas is comparable the standard obtained in metropolitan Australia." Sunday, September 9. 2007Adding "Value" To BroadbandJohn Linton We recently added the ability for all Exetel DSL users to send SMS from their DSL connection as part of the FY2008 program to add much more function to the base DSL offerings we make to the residential sectors of the marketpace. This add on was planned and programmed to meet what we perceived to be the needs of business users with some residential users being interested to advise their sports teams or social groups of events or plan changes. We were very surprised at the interest that residential users actually showed in this service and also pleased that the interest from business users was also greater than we had anticipated. I've used 'broadcast' SMS in the past to advise customers of general issues and found it to be very useful - if expensive. With the surprising early demand for the SMS via broadband service exceeding our expectations we were able to reduce the cost per SMS from 7 cents to 5 cents within a few days of activating the service and then saw an immediate significant increase in the number of messages sent per hour almost from the hour we made the change. There are opportunities, if the volumes grow considerably, for the per SMS price to reduce further over the coming months. We have been running a forum thread on the Exetel forum discussing additional functions that our users want from this service and have added over a dozen new functions based on the requests and suggestions. We viewed the addition of the SMS function as a 'double whammy' in that it built our mobile content while offering a valuable add on function for our ADSL users - as I said earlier as part of a program to broaden the appeal of our DSL services as well as building volume for our possible investment in a mobile gateway. As we have excellent data base programmers our ability to add new functions very quickly is among the best/the best in the industry. Hopefully the early enthusiasm for this SMS via DSL service will continue to build in both the number of users of the service and the number of SMS sent via the service and result in a real boost to our mobile dollar buying power both in the short and medium term. If it does it will encourage us in the development of the other 'add on' service we currently have planned for the DSL offerings which we believe are essential to allow them to remain attractive and competive in the face of the Telstra/Optus 'juggernaut'. My personal belief is that, eventually, we will 'give away' the DSL (or whatever that becomes) component of the services we offer and rely on the 'content' to grow our residential business. Of course, for that to happen we will need an awful lot of imagination and skill and almost certainly a lot of money. Saturday, September 8. 2007BRW Top 500 Private CompaniesJohn Linton I read the latest edition of BRW's report on the Top 500 privately owned Australian companies yesterday. It isn't clear how BRW select the companies in this listing as, with the 500th company on the list having a revenue of $A71.1 million I would have thought that more than one Australian 'communications' company (the only one I could find was GoTalk) would hve been on the list. I don't know what to make of the fact that TPG and InterNode/Agile, and perhaps even WestNet didn't rate a mention as I would have thought that with their publicly claimed customer numbers they would have annual revenues in excess of $A71.1 million. However perhaps the BRW's criteria for making the list exclude those companies. Then again - maybe they didn't have a reported revenue in excess of $A71.1 million in FY2007. The only fact that struck me about the GoTalk listing (and I know absolutely nothing about that company) was the number of employees (320) compared to the annual revenue ($A136.5 million). Whenever I see statements in the press by ISP/Communications companies they seem to have far too many employees for their announced revenues - in this case GoTalk's is around $A426,000 per employee which,at the sorts of net margins available in the types of comms businesses they appear to operate in seems, to me, to be not enough to make a profit. Since I wrote this original set of comments someone has pointed out to me that InterNode appeared at number 446 with a revenue of $88 million (up 54% on the previous reporting year) and with 304 employees (up 51% on the previous year). If my rough math is correct that means that Internode's revenue:employee ratio is ony $A290,000 which seems unbelievably low for a communications company. Very strange figures. Maybe I'm not savvy enough to make higher net profits by buying better or generating enough customer interest to set and get higher prices for the services that Exetel provides - that could well be the case on both counts. From what I see from the various financial analyses and research that I do that could be the only explanations. I need to look at re-negotiating lower costs with all of pour curent providers of base line services or move to selling different services where the margins are better as I doubt that I'll have much luck with people like Telstra Wholesale as a prime example. The BRW article prompted me to review the files I keep on 'competitors' in terms of the public statements they make and the information I pick up from what I consider to be pretty reliable sources (mainly suppliers to and ex employees of those companies). From what that information seems to show there is nothing more that Exetel can do to compete more effectively as we seem to have more efficiencies in operation, by a very wide margin, than any of them. The only conclusion has to be that they buy much better than we do. Over this weekend I must put in place a plan to reduce the costs of all the major services we buy. Friday, September 7. 2007Wimax/3G Search ContinuesJohn Linton Yesterday I met with some people we have done business with over the past three years to determine what, if anything, we could do together to put in place a Wimax/3G solution to overcome the current price limitations of paying for a largely redundant telephone line (needed by ADSL) while also overcoming the incredibly high cost of data delivered over the current mobile network structures. I have been having similar discussions with two other 'groups' and maybe, just maybe, there is a glimmer of hope on the far horizon. We made the decision not to install ADSL2 dslams some two years ago because, at least I, couldn't see any point in making mojor investments in a 25 year old sunset technology (and yes I'm aware that copper in the ground has had a usable life of over 100 years and counting) that also ensured that you relied on Telstra to make it operable and the backhaul costs were such that there was every chance that you could never really deliver a service that would make an ROI inside 10 - 12 years - and that ROI was so dependent on so many factors it just wasn't a sensible risk. WiMax and 3G have the great attraction of being sunrise technologies and removing any dependence on Telstra and getting rid of the, largely obsolete, residential telephone line. They have the obvious problems of being dependent on Telstra replacements (mobile network owners or new wireless network owners) and relatively limited data capacities; at least at the moment. Right now the "wholesale" cost of 1 gb of data over a 3G network makes any consideration pointless. However, Unwired, for all its limitations and issues provides data at an affordable cost to the retail and wholesale buyer but has location and capacity issues - it also has an ongoing worrying characteristic of losing a lot of money every year. Maybe the prospective 'merger' with Engin, backed by Channel 7's money will change that scenario but it seems unlikely that any such entity will wholesale its services at any realistic price. So the glimmer of hope is based on a premise that data costs on an IN (or some equivalent basis) will become acceptable in the not too distant future if a persuasive enough argument can be made that a 3G network provider will find attractive enough. There are a lot of dependencies in that sentence. The reason I'm mildly encouraged is that as I continue to gain a better understnding of the way mobile and wireless carriers view the future marketplaces and opportunities (and as I learn far more about the technologies) it seems that there is a real place for a 'wholesale' distribution of data services premised on some aspects of business that are, at least currently, not immediately available to a 3G carrier. Anyway I'm encouraged enough to trial a couple of low end data over 3G plans and see what the reality can become in a shorter timeframe than I originaly had in mind - perhaps as early as May 2008. Thursday, September 6. 2007Maybe Satellite Is The Answer?John Linton
Wednesday, September 5. 2007Why Bother To Invest In An ISP/Comms Company?John Linton As this is the end of the 'reporting season' for publicly listed companies to provide their FY2007 results to the ASX there are a raft of small companies posting their, universally awful, financial results. I say "universally awful" because, no matter how they try and put positive spin on them, they all lost money in FY2007 just as they have done every year they have been in business. Why do they bother to do it - or for that matter - why does anyone think that there is money to be made in the communications industry by a small public company? (As I alluded to in one of my previous ramblings I think many people still suffer from 'OzEmail Syndrome' and I guess those people also believe there's a pot of gold at the end of the rainbow). I made some comments on what the results for Engin and MyNetPhone meant to me yesterday before reading later in the day that Engin had borrowed even more money to buy a 10% share of another massive money loser - Unwired! Yesterday I also read the published results for PeopleTelecom and Eftel - same story - spin attempting to cover up yet another loss and the fact there remain no reasons to think there'll ever be profits. Why never in my opinion: 1) PeopleTelecom have been around in one form or another for half a dozen years and have lost money every year - if they cant make money at a revenue of $A100 million why do they think they'll ever make money? 2) Eftel are a cobbled together agglomeration of previously failed ISPs (ie ISPs who had lost all their shareholder's funds and owed their creditors far more than the creditors were prepared to accept) that lost $A750,000 on a turnover of $A34 million. Sort of a breakeven you would say? Pity that a cursory reading of their briefly stated annual accounts show that their current liabilities exceed their current assets and they have personnel expenses of over $7 million in FY2007 which is around 15% of revenue which is more than double what any ISP could afford to pay and remain in business in the medium term. Now I well remember that both Optus and Vodafone each lost huge amounts of money for up to 11 years before the first black ink appeared on their annual P and L and I'm well aware that Hutchisons are over $A3 mill in the hole and continuing to lose money - but those companies had mega wealthy shareholders and actually planned their $A3 billion investments in infrastructure knowing their return was a decade away and they would have to endure massive losses and wrong turnings before they made money. Taking in to consideration the 100+ small start up ISP/Comms companies that went broke in 2007 and reading the reports of the publicly listed companies it's very difficult to escape the fact that there is no money to be made in the Australian communications market for any new investor/start up and all but half a dozen or so of the current companies will be gone in the short/medium term. Except they won't. I could have written that previous paragraph in any August for the past 15 years and all that would have changed is the date (and the names of the companies in the preceding paragraphs). I think all it shows is that the communications industry is like the mining industry - every new hopeful thinks they will find Lasseter's Reef (this being Australia and El Dorado belongs in some other nationality's dreams of wealth and fortune) but they all end up digging holes in the ground that have nothing in them except their shareholder's money.Yet with such a clear cut track record of publicly listed ISP/Comms company only ever losing money (as opposed to private ISPs/comms companies like TPG and Internode who stay in business so, presumably, make money) there are still shareholders, year after year, putting up money to start up yet another "but we will be different" public company hopeful. Oh well.....yesterday was a depressing day of financial analysis....I must look at something different today. Tuesday, September 4. 2007Planning For Higher VoIP UsageJohn Linton
Grow their combined revenues to $A21.1 million Monday, September 3. 2007Internet Via Mobile Creeps CloserJohn Linton After the disappointing end to the Hutchison discussions we've been attempting to advance discussions with two other mobile networks and are beginning to see some likelihood of offering an internet service via a wireless card attached to a PC or laptop that provides internet connectivity at almost affordable rates. There is no doubt that to provide such a service will require a major investment in a SS7 switch connected to a mobile network but as that is 12 months away I believe it's necessary to get everything else in place via an interim solution. It might be wise for a very small company to avoid the sort of probems being experienced by Virgin/Optus whose Virgin data via mobile service fell over for 5 hours a few days ago and that (at least as reported in the press) they have so little knowledge of how it works and have resourced it so skimpily that they didn't have any personnel available to either notice it had failed or be able to quickly restore it. Perhaps understandable for a tiny company just getting started but not for a division of Australia's second largest carrier. I was also noticed the Engin annual results in the weekend paper which showed a loss of $13.4 million on an annual turnover of $17.8 million (with the subsequent inevitable departure of several directors/senior managers - some shareholders really seem to expect you to deliver what you say you would when you took their money). The only relevance to data over mobile being the very significant risks of trying to establish a "new technology" when you're constrained by "incumbent provider's" network charges. Obviously providing a data/internet service over another company's mobile network would face the same difficulties that are dogging Engin in trying to make a business that's dependent on a carrier's backhaul and network charges. So at the moment we are trying to establish a per mb/gb network charge so we can at least begin to market a true data over mobile solution albeit unlikely to match the current offering from Virgin/Optus. It seems that this will be a possibility which will enable us to get some sort of practical appreciation of how much we have to invest and what we have to do to get a profitable service offering in place. The numbers I'm currently looking at don't seem to work but then I've no real basis for developing a sensible model. There is no doubt that a 'standalone' data service would never be able to be justified over a 3G network owned by someone else and the bewildering array of mobile call charge scenarios are beyond my desire to even begin to look at. What does seem clear is that there is no real option in terms of what 90% of 'retail' customers will use in the not too distant future. If we can find a partner, or maybe two, to jointly invest in this project it would make a dramatic difference to the numbers and I'll start looking in to that this week. I think that there would be more companies than just Exetel that would think along the same lines and hopefully I can find some other company who is enough like Exetel with slightly different market directions that would make a joint venture workable - though my experience is that such ventures are almost impossible to make work in any longer term it could be a practical scenario to do it on a two year/one sells out to the other basis or something along those lines with both partners being able to justify their own standalone investments at that future time. Life remains very interesting. Sunday, September 2. 2007Telstra - Out Of Backhaul Capacity?John Linton When Exetel signed the variation agreement to add the 8192/384 service to the schedule in October 2006 Telstra also added in stronger disclaimer clauses regarding 'fair use' and related issues. This resulted in Telstra sending notices like this to Exetel: "To maintain network performance we have had to temporarily slow the following End User access services to below the maximum achievable speed. Whilst this action is regretted, it is permitted under clause 4.2 of the Telstra Wholesale DSL Internet Grade Service End User Interface Specification."
Saturday, September 1. 2007"Traditional" Telephone Call Charges Continue To FallJohn Linton I've been wondering how Optus has been able to, effectively, offer unlimited wire line telphone calls within Australia with its "fusion" plans considering the fact that Telstra carry the overwhelming majority of calls within Australia and aren't known for reducing their charges very often or by very much. It seemed obvious that Telstra must have reduced the 'inter-carrier' charges substantially for this to have happened which prompted us to ask our current providers for reduced wireline call charges. The response from Optus (who had obviously benefitted from new lower charges from Telstra) was their usual surly "you have a contract at the current charges so why should we give you better rates?". I guess they know what they're doing in ensuring we do no further business with them once "our contract" expires. The response from the two other carriers we use was immediate and quite impressive with an overall reduction in Australian call charges of around 20% - the largest single reduction we've ever seen. Perhaps our volumes are larger now or perhaps we haven't asked for a reduction for a while or, perhaps, VoIP acceptance has begun to finally affect the "traditional" telephone call user that Telstra have been forced to reduce their call charges to their own users which has, in turn, forced them to reduce the charges they make to other carriers. It's been obvious for a while now that Telstra, and therefore the other over-ride/preselect wire line call providers, have been reducing call charges to even quite small business users for some time now - often to the point that they are lower than VoIP call charges for local calls and calls to mobiles especially. Telstra has been simultaneously recovering this 'lost revenue/profit' by simply increasing the telephone line charges as they have since 'de-regulation' first became a reality in the Australian telephone marketplace and this has also been done by the other call service companies. I will now look at what these reductions mean in terms of what we can pass on to Exetel's VoIP customers to make the VoIP offerings even more competitive than they are now without having to sacrifice the profit margins which aren't capable of being reduced below their current levels. A nice problem to have on a weekend for a change. |
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