John Linton
I just skimmed the financial press this morning as it seemed to be full of gloom and doom and I can do without that on a Friday morning. From what I could see the bad news was evenly split between the views that the latest Merrill Lynch sub-prime write down was a further indication that the US economy is actually in recession and that the 9th consecutive day of falls on the ASX is a clear sign that the Australian economy will quickly follow as Australian companies and exporters lose orders from the US and China and, almost certainly, Japan. There's a possibility that won't happen but it seems more likely than not and therefore any planning has to take in to consideration what a 'significant slow down' in the Australian economy may bring to such a minor part of the economy such as data communications.
My memories of how last two 'significant slowdowns' affected companies involved in supplying data communications services are that residential customers stopped being able to pay their monthly bills and business customers began to go out of business owing months of back service payments. Applications for new services slowed substantially and suppliers started calling multiple times a week seeking assurances that their invoices would be paid BEFORE the due dates.
It was all very, very unpleasant.
There is clearly nothing the current Australian 'government' could do about ameliorating any of the affects of a 'business slow down' - they will spend the next 12 months blaming the previous government for any problems that arise and then say that "global trends are beyond our control". No assistance from those people under any scenario.
So a prudent management of a small company that operates at a little over break even will need to look after itself and therefore its own customers entirely via its own planning and initiatives. The CFOs of the majority of company's will hold sway in these times and the most common actions they will almost certainly take would normally include:
1) Freezing hiring (pursuing 'down sizing')
2) Not replacing employees who resign
3) Freezing all new capital expenditure
4) Attempt to lock in all interest rates on current borrowings
5) Increasing pricing
6) Decreasing credit terms
7) Cutting off supply to 'at risk' customers - accepting no new 'marginal' customers
...all of these actions, collectively, guarantee that any likely 'financial slow down' will be more severe and last longer than if they allowed their businesses to continue as 'normal'.
I tend to agree with those people expressing the opinion that Australia's situation is going to be more difficult in some ways than it is in the US. According to the same financial press over the last few days Australia now has record employment with the result that 'skilled' personnel are very hard to find and becoming more and more expensive resulting in upward pressure on inflation that, using conventional 'wisdom', would normally mean that the RBA would put up interest rates early in February which in turn would inevitably make recession in Australia even more likely.
I also read the current Federal Treasurer's statements that the 'resources' boom that was entirely responsible for the last government's 11 boom years has ended due to the effect the US slowdown has had on China's economy and things will get even tougher (due to the actions/inactions of the previous government).
So....what to do.....and is the sky really falling?
One sensible thing to do, beloved of tough CFOs, is to put up prices enough to suggest to those customers most sensitive to price in their selection of a data service (and therefore most vulnerable to a change in economic circumstances) that it's time to look elsewhere and move to another provider before any 'business slow down' can affect their ability to make their committed payments.
I'm not sure that Exetel has a CFO that tough but I wouldn't mind betting that some other data communications companies do (those that actually have a CFO tougher than their CEO that is).