John Linton's Personal Musings

I remember back in mid 2005 when the first ISPs began to talk about their plans for ADSL2 DSLAM rollouts that I shook my head and made the prediction that "it would all end in tears". That wasn't, at least I don't think it was, my envy of larger and wealthier ISPs who could muster the capital/loan facilities to make it a reality but at the misguided views of the longevity of ADSL (generally) as the prime medium of delivering data and the insuperable difficulties that Telstra would put in the way of all but the very wealthy and legally adept ISPs  - Optus was the only one that I thought would be able to sustain the twin pressures of greater investments than planned and much longer and more difficulties with activation than even the most pessimistic of conservative estimates.

I used a phrase at the time, which quickly drew amazingly vituperative comments about Exetel generally (basicaly from people whose ability to read a sentence of more than three words was highly suspect) that the "minnows" (those ISPs who were contemplating putting in place a small DSLAM network at that time) would be very foolish and would most likely bankrupt their companies because of both the lack of longevity of ADSL to make a sensible return on the investment and because Telstra would make very sure that the difficulties they would encounter would be so onerous the program would be financially unsustainable.

So. I took some grim satisfaction in reading the catalogue of woes set out over nine pages in the Herbert Geer Rundle letter I referenced yesterday. It set out, 30 months later, everythig that I said would happen - but you actually didn't have to be that bright or even that knowledgeable to know that.

Anyway - who gives a toss - it was always a high risk "strategy" and the people who went in to it had to have known that and some, probably very few, will make some sort of success of it though none will make any 'real' money - it will send most broke.

(David Teoh being the exception who has made a huge success of his investment but only because he found someone to pay for his DSLAM costs before the brown stuff hits the revolving thing).

So, back to the "be careful what you wish for" comments of yesterday - the nine bunnies lose big time whichever way the 'demand' for Telstra to 'wholesale' its ADSL2 DSLAM access goes.

1) The ACCC finds that there is no case to 'declare' ADSL2 - the bunnies have to pay a legal bill which only they know what the estimate is but whatever it is will likely be at least 2 - 3 times the estimate.

So major financial loss and embarrassment and all future planning on hold for up to two years. A total no win result.

2) The ACCC, and subsequent appeals, decide to declare ADSL2 and force Telstra to give access to all wholesale customers.

This is a total disaster result even worse than 1).

Why?  - Apart from the he amount of money that they have drained away from themselves by entering this litigation.

a) It has ensured that, living in hope, the nine bunnies have put on hold any further geographic  growth of their own DSLAM networks for up to two years and probably also ceased to upgrade the capacities of the exchanges they already have DSLAMs in.

b) For up to two years they have allowed Big Pond free rein to make their unbelievably attractive offers to their ADSL1 customers on those exchanges and if the time ever comes that Telstra’s ADSL2 services become available to them it will be too late as the majority will have been signed up on long contracts with  BigPond.

c) When Telstra’s ADSL2 has been ‘declared’ it will mean that all other ISPs that haven’t built out DSLAMs will be added to the number of competitors in all their current exchanges.

d) Telstra’s 3G and the other  three mobile carrier’s data over 3/4G offerings will have grown immensely in both speeds and data allowances and will make it impossible to make a business case for wire based data services in late 2009 when this process is, optimistically likely to finish.

e) Telstra, having signed up a very large proportion of the available customers at pricing of their choosing for two years, will allow themselves to be ‘forced’ to provide ‘true’ wholesale pricing of ADSL2 which will also allow BigPond  to continue to ‘meet and beat’ all other DLSAM deployer’s prices and content offerings rendering their access to the Telstra ADSL2 network valueless.

The only lesson that at least some of the ISPs who are part of the ‘group of nine’ clearly stated as being learned some 3 years or so ago was that they HAD to roll out their own DSLAM network because it simply wasn’t financially viable to have to use Telstra’s – yet here they are, after all their grand plans have gone terribly wrong, insisting that they must be allowed to continue to be ripped off by Telstra.

So, by sometime towards the end of 2009 the nine bunnies, if they ‘succeed’ in their action wil have insisted that they go back to a situation that five years previously they were insisting was financially non-viable.

Just a touch of the monkey’s paw I would have thought.

Sometimes I wonder if the provision of decision making positions at ISPs is actually part of some sort of Wesley Mission outreach program to give employment to the mentally handicapped. It appears that there is no situation so simple as to be beyond these people's capacity for massive error.

What prompted me to make such unkind remarks (except for my deep envy of more successful ISPs and my own increasing feelings of personal inadequacy) you might ask? The answer is that I was sent a copy of the letter constructed by Melbourne law firm Herbert Geer Rundle on behalf of InterNode, iiNet, Primus, EFTel, Westnet, TSN, Wideband Networks, Network Technology, Adam Internet and Netspace sent to Graeme Samuel at the ACCC. I read it late last night and couldn't believe what I was reading so I re-read it again a few hours ago over the first caffeine hit of the day . It's always nice get the new day started with a long and sustained bout of amusement which, the contents being what they were, would have resulted in bursts of loud laughter if my long dead gran hadn't taught me that it's undignified and unkind to laugh at the mentally ill.

I'm sure that this 9 page letter (which doesn't contain any strictures that I can see) forbidding its use/publication by anyone) must be readily available on the web as it was to the peson who sent it to me so I haven't reproduced it here. It's almost impossible for me what got this bunch of commercial competitors together in the first place (but, you know, I suspect some lawerly advice being the reason) but, Heavens to Betsy, Grampaw, what a farrago of frustrated and fearful little bunnies they must be. These poor people are spending major money on lawyers to demand that Telstra wholesale their ADSL2 services. ....Yes Virginia, there really is a Santa Claus (if you're Telstra).

Did they give this one microgram of thought in their group hug before deciding there was no more perfect way of not only wasting large sums of their dwindling capital but the only result, whichever way it went, would totally 'screw' them?

I have a friend who's convinced that Telstra have a bunch of incredibly intelligent, Nobel Laureate type, intellects hidden away constructing and implemeting the Telstra master plan aimed at restoring the Telstra monopoly. I know that can't be true because....well....I've already passed my 'unkindness to the less abled' quota this morning so I will move on. However, if there were such a group within Telstra it could explain this letter better than anything else I can think of. What can happen other than three certain things:

1) This timorous huddle of bunnies will spend a lot more money than their worst estimates over the next 9 - 24months.

2a) The ACCC will agree that Telstra must sell ADSL2 at a realistic price to Wholesale Customers which, after appeals lasting who knows how long Telstra will do.

2b) The ACCC will disagree that Telstra must sell ADSL2 at a realistic price which, after some more money on appeals by the 9 bunnies new SCs will either stand or reverse to 2a).

And this means what?

Apart from the given of losing a lot of money and management time on law suits either result will be the ruin of the frightened 9. Let's say that the ACCC and the High Court decide that Telstra doesn't have to wholesale it's ADSL2. Huge money losses and time losses over 12 - 24 months. Nothing changes except the nine bunnies are less a lot of cash – chalk up one for Telstra.

Let’s say, now, that the worst case scenario for the timorous nine comes about and that after expensive appeals the ACCC/High Court state that Telstra must wholesale ADSL2 (something Telstra knew all along). Are the wee bunnies now better off? Like Hell they are. Chalk up an even bigger ‘1’ for Telstra.

But surely, I hear you mutter, that can’t be right???

I’ll give my reasoning tomorrow (if you can be bothered reading it) showing that whatever way this goes there’s going to be rabbit for dinner

Sometime, a little after 10 pm last night Exetel recorded its best ever new ADSL order day which also became our best new ADSL order month some 60 minutes later. As well as a record month for new ADSL orders, SHDSL and Ethernet business orders are very, very strong (and may pass the record set last month) and VoIP orders have already set a new record, partly due to the high take up of an Exetel VoIP service by 'naked' ADSL customers - but not entirely.

February has never been a good month for orders or revenue being 2 - 3 days shorter plus being at the startof the year explains that) and is in most years the 'worst' month of the year in those terms. So these results are extremely surprising as they (both January and February) have gone completely differently than I had predicted - and by a very large amount.

From everything on the public record over the past two months and with two 'chats' I've had recently with other ISPs similar in size to Exetel, business is either sluggish at best (as inthe case of iiNet's latest six monthly report of a 3% revenue increase in the six month period up to December 31 2007 - not even meeting the inflation rate) or Optus recent report of an actual decline in ADSL sign ups - though in their case it was materially affected by their decision not to continue to sell ADSL1 from Telstra.

Then there is the crescendo of public whining by various ISPs about Telstra which reached new hih levels over the past few weeks. People don't whine so loudly and so publicly (and so pointlessly) if things are going well - they only do it as an 'excuse' to their disappointed shareholders when they are going to have to fess up to not meeting their targets.

My panning figures for the last three months have been completely wrong (on the up side) and I have no idea why and haven't got a clue as to whether this the start of a trend or some one off/short term aberration.

I'd like to think that the measures we have put in place from November 2007 onwards to mitigate what I saw as being a significant downturn in our business (based on the 'marketing activities of BigPond telephoning other ISP's ADSL customers with 'incredibly cheap' offers to churn away) and the negative results on the market enerally of the election result were responsible but I hav no way of substantiating that view.

We did try and improve our attractiveness with a 'ten point' program starting in November that included:

1) Increasing the free download allowance from 42 gb to 48 gb
2) Including free SMS with every broadband plan
3) Including 3 cent faxes with every broadband plan
4) Providing P2P caching speeding up popular P2P downloads
5) Providing Akamai caching speeding up software downloads
6) Adding new 'naked' ADSL services
7)Changing the Exetel web site 'image'
8. Adding new mobile fleet and capped plans
9) Re-introducing a generous customer referral scheme
10) Providing an 'equipmentless' VoIP service as standard

Wile there should be no doubt that these improvements would have had an effect I certainly didn't expect the effect to bemore than holding our levels of business at the September/October level.

Apart from the order increases the other hard fact is that there has been a 30% increase in unique visitors to our web site in both January and February over the previous November/December - in each of the previous years there has been a decrease in web visitors in January and February.

While an inexplicable increase in business is far preferable, commercially, than an inexplicable decrease the fact remains that, as a planner, you are equally wrong in your decision making processes.

I can live with yet another indication of my failure as a planner but what worries me is the thought that we are missing an opportunity as we have failed to understand some significant change in the marketplace.

Currently all our planning is based around reducing the risks of operating the business and panning for zero growth with all efforts being directed towards reducing ouroerating costs and making no new initiative investments.

Conflicting information is really very hard to deal with.

I glanced through the papers early this morning and noticed the SMH item reporting iiNet had made a handsome 35% increase in half year profit and was looking to buy one (or more?) of the ISPs in the "potential deals which were, on a regular basis coming across our desks" (reportedly stated by the departing CFO).

I wonder what they are planning to use for cash?

I only say this because when I looked at the details on the half year results on the ASX web site it seemed to me that their current assets were less than their current liabilities and that the cash they reported was, it seemed to me from the figures on page 8, more than entirely generated from pre-payments from customers. In fact their current assets had fallen $A18 million (from $A57 million from the same period 12 months ago while their current liabilities had only fallen by $A1.5 million (from $A53 million.

In fact a year ago iiNet's current assets slightly exceeded current liabilities but now current assets are only $75% of current liabilities (and this is after a 35% increase in profit?).

It's obviously all done differently in the West as the recent EFTel figures had almost identical (in percentage terms) imbalances between current assets and current liabilities.

One other figure in iiNet's half year figures stuck out like the proverbial sore thumb and I have to point it out for those people who regard my attitude to advertising (it's a total waste of money in the communications industry for those unfamiliar with this particular failing of mine) as misguided. Again on page 7 of the iiNet ASX report it shows 'marketing' expenditure in the six month period as being $A3.7 million but on the same page it shows that revenue in the period only increased $A3.14 million - now there's a real waste of money for you once again proving that young ladies with blonde hair and 'full figures' should be restrained from advising middle aged males who should know better on what they should spend money on. (guys - it's much cheaper to buy jewelery to obtain the same result.)

In a competitive publication there was some commentary on the recent Telstra half year results quoting Optus and Internode et alia claiming that Telstra's latest figures "proved" that Telstra was systematically destroying its wholesale customers. The basis for this, apparently, was that Telstra's wholesale revenue was "down 4.9%" in the latest six months and the following 'independent' source was used to justify this claim:

"During the 2007 calendar year, there was a reduction of 390,000 wholesale service lines on Telstra's network, according to JP Morgan analyst Laurent Horrut.

The telco is picking up customers from its rivals, further entrenching its near-monopoly position in fixed-line communications services in Australia."

It could be true (and Telstra is certainly using a whole range of, to me, dubious practices to 'entice' Exetel customers away) but, on the public record, is Optus own statement that they are no longer using Telstra Wholesale ADSL1 services and clearly the figures in iiNet's half year report show a reduction of over $A9 million in their purchase of services (presumably from Telstra - page 7: cost of sales and services rendered) and you have to believe that TPG, AAPT, iPrimus etc have all stopped buying ADSL1 services in the exchanges in which they have activated DSLAMs and have also converted as many of their ADSL1 customers on those exchanges as possible.

It would be amazing under those circumstances if Telstra's wholesale revenues did anything but decrease.

I particularly liked the comments from the InterNode CEO and some spokesperson from MacQuarie Telecom:


This substantial lessening of competition will clearly have an adverse impact on consumers, both in terms of price and the range of services available to them in the long term." Telstra, through price rises and legal avenues, has been aggressively seeking to wind back competitors' use of its network. In the months after Mr Trujillo joined Telstra in July 2005, he set about changing the modus operandi of the company's wholesale unit.

and

Telstra has taken a very conscious and deliberate strategy of crushing its internal wholesale division in order to stop its competitors being able to sustainably re-sell Telstra's products," Macquarie Telecom strategy chief Maha Krishnapillai said.

"It's all part of the master plan of their war against competition.

No sh**. Perhaps these two fully informed people forgot Trujillo's opening comments about wholesale customers on his arrival in Australia?

I made a reference to Sharp Airlines yesterday as an example of a start up 'air line' that was doing more for SW Victorian residents and businesses than had been done since Sir Reginald Ansett moved from Hamilton to Melbourne.

I don't fly around Australia as much as used to do, in fact hardly at all over the past few years, but I'm constantly reminded, by my children and other lowest possible price minded people, that you can travel almost anywhere in Australia now for a tiny fraction of what I used to pay. I also constantly see ads in the newspapers I still read in their 'printed form' for flights from Sydney to, say Cairns, for $A19.95 one way or to Perth for $A29.95 one way compared to the well over $A500 even the cheapest flight on Qantas 'standard' is.

So de-regulation of the old "two airlines" policy did really bring cheap/affordable by anyone air travel to Australia.

Which means that it's possible for real competition to produce real benefits to end users by some sort of government decision making......except in the case of telecommunications.....at least the parts of telecommunications that Telstra retains total control of.

It must be obvious to Blind Freddy that the 'deregulation' of telecommunications hasn't begun to achieve what the deregulation of the airlines has achieved wherever Telstra was allowed to keep control of the delivery structures.

The starkest example is mobile telecommunications of course which, of itself, clearly demonstrates why the rest of the deregulation of the telecommunications didn't work.

If you wanted a license to build a mobile network in Australia you could get one. Then you needed something like the ability to invest around $A5 billion in a network and the ability to operate at a loss for ten years while you built your network (in competition with Telstra who had 100% of the market when Optus began that process). The end results, after 17 years are that there are very low costs of acquiring and using a mobile phone because three competitors to Telstra have made the large investments necessary to build service networks that offer comparable services and price is the only/major differentiator.

So, in mobile telecommunications, it's as cheap to make a mobile call as almost anywhere else in the world - cheaper than in many other 'developed' countries even given Australia's "unfriendly" geography and size.

Halleluja!!!!!!...deregulation really works....providing the competitor to Telstra doesn't have to use anything provided by Telstra. (and, yes, I'm aware of the inter-billing problems and the back haul issues around much of Australia).

This 'deregulation success' is repeated in the capital cities where various companies laid their own cable networks so that large commercial users could connect their telephones and data networks using cable pricing not determined by Telstra. Even tiny companies like Exetel can provide such services by buying wholesae from these companies at rates that are around a quarter of what Telstra charges for the same service (Building A connected to Building B/Exetel POP using fibre on someone other than Telstra's cable.

So large scale fibre connections and mobile services all benefit from deregulation and provide low cost alternatives to Telstra's very high/excessive pricing.

But all other services that have to use the 'bequeathed' telephone and data networks remain hugely expensive.

There's a simple lesson for Conroy and Rudd - and happily for them it's one they have, or their political party has, been declaiming for over 11 years....

Don't allow Telstra "Retail" to own or control the cost of any part of "Telstra Engineering/Networking".

It works everywhere else in the world and only Australia suffers from having the previously government owned monopoly continue to control the access to and pricing of basic services.

The results are obvious: where Telstra is forced to truly compete (mobile/fibre connectivity) prices are as low as anywhere else in the world; where Telstra has no competition (home phone lines/ADSL) Australian prices are the highest in the world.

Anyone see a connection....Kev?....Steve?......Bueller?......anyone at all in Canberra?.....

Guess not.

As a migrant to this country who got here, by myself, with less than $A100.00 "to help you get settled" and three months before my 18th birthday I've always had a migrant's different view of their adopted country. Despite my many failures and set backs I've always wanted to give something back to a country that gave me so much opportunity and so much welcoming help to a bewildered and lonely, very young for his age, boy.

I've always particularly liked regional Australia having spent so much time in my early working days as a sales rep with some customers in the Central West of NSW and later with IBM with a territory that was basically Ballarat (with frequent trips to the SA border and up to the NSW border towns. Later in life, first at Osborne and then at TPG I spent a lot of time building an "Australia wide" network of presences in regional towns and cities that pioneered delivering internet and WAN services that were the equivalent of the services available in Sydney or Canberra at a time when NO other company was doing anything about servicing regional Australia.

So it was great pleasure that I, by accident, turned on the TV this morning at the start of a segment on "Business Sunday" that show cased the successes enjoyed by two regional Victorian companies started up by people in the 'middle ages' of their lives that have not only done well as businesses, helped the economies of regional Victoria but have done it very differently. The companies were:

http://sharpairlines.com/

and

http://www.borderexpress.com.au/

There may have been other companies in this segment but I tuned in after it started and had to leave after a few minutes of the Border Express story. Apart from the concept of a couple of 50 year olds starting up new businesses in regional areas and delivering services deemed 'uneconomic' by the major 'payers' in their respective industries the ways they did it was so refreshing.

Not only did they do something very dificult but they did it innovatively, not being deterred by solving problems that other, larger, businesses deemed 'too difficult'. Two main examples were that Sharp coudn't find enough pilots for their expansion so they trained their own and Border couldn't find the software they needed so they designed and wrote their own. If you can get hold of a copy/see it on the web I can recommend you invest a few minutes of your time seeing if that short program lifts your spirits as much as it did mine.

It also made me think about why small companies always seem to be able comparable services to their marketplaces at lower prices and with greater efficiencies than the entrenched suppliers that existed before they started up?

It really makes you wonder why Australia needs Telstra at all - if Telstra were any good at anything at all why do they charge more for every single service they provide? How unbelievably inefficient and totally incompetent in terms of network planning and personnel management do you have to be to have to charge MORE than EVERY other service provider for EVERY service you provide? Surely 'economy of scale' MUST" allow Testra to provide services at LOWER COSTS than every other service provider for at least ONE service and still make a sensible profit?

Apparently not - best solution for Telstra has always been to try and drive any service provider who offers lower costs out of business so it doesn't become obvious that they are the most uselessly run operation Australia has ever seen. What other explanation can there be?

Like Sharp and Border Express, Exetel has gone the path of developing and writing its own software and training its own people and, hopefully, like those two companies will continue to benefit from the efficiencies those key business decisions provide. Another lovely morning in Sydney - unfortunately we have a lunch time board meeting but in a location where one of Austraia's millions of magnificent outlooks/views will be more than partial compensation for working on such a great day.

...or merely rueful understanding that life, and business go on a long time irespective of what the artificial horizons of financial planner's year end targets might try to suggest?

I've been talking to more people than usual over the past week, partly because I was away for a week in Sri Lanka and Singapore and didn't accept any phone calls in that time and partly because several large suppliers (and therefore the people who buy from them) are affected by trying to reach various annual revenue and profit targets which end in March and April. Telstra's half year gloat-fest was also a contributor I suspect though the numbers reported by the TMT didn't seem particularly interesting as, halfway through a major internal change program there would be no reason for them to be.

The overall impression I gained in the conversations I initiated and the conversations initiated by other people was one of 'tiredness' or, if I was given to more flamboyant and emotional descriptons, something bordering on 'defeat'. So many of the people I talked with, about quite important things as far as I was concerned, expressed views that were, at best, ambivalent about the coming 1 - 2 years and ranged from uncertainty through several more negative 'shades' to deep pessimism about what they/their company's could/would be doing about various initiatives and market sectors. Maybe it was my imagination; I was certainly very, very tired and mildly jet lagged from a very demanding and stressful previous seven days (long past the days when I could fly across the world, landing at Heathrow at 5.00 am, renting a car driving to Bristol, quick shower and coffee and in the office by 8 am and then 5 days of hard work and harder play before returning to Australia, a nights sleep then back in the Sydney office by 7.15 am with no visible or actual degradation) so I might not have been able to separate my personal weariness from what I perceived to be other peoples 'lassitude'. (alternative meaning of lassitude: Way of regarding young women?).

Perhaps it was my satisfaction with the outcome of the Sri Lankan trip and the fact that for the first time in a great many years I had spent a week where I had to be both very positive and very persuasive in meeting after meeting using everything I've ever learned, or been genticaly gifted with, to get the results Exetel needed from a wide variety of government and commercial entities. I certainly haven't done any of that for a very long time and perhaps that made me overly sensitive to anything remotely negative in the people I talked with when I got back to Australia.

My overall impression of several major companies (and several companies that appear to consider themselves as being major) was that they weren't meeting whatever targets they had set and didn't think that some of the decisions they had made were going to turn out well. Each person I spoke with seemed to be worrying about something slightly different but, in the whole of the week, I didn't hear one positive view. Maybe a combination of the fact that the USA is actually already in recession, the affect that has had on local share prices and the eve more frantic "free" offers pervading every aspect of the communications industry is producing a period of more than usual gloom?

Then again perhaps the sky really is falling.

However I think that isn't either true or even likely - we are having our best ever month in terms of new orders and retentions and I don't think we are an aberration. Maybe my extremely positive current outlook (conditioned by a week of having to be uber-positive in getting what we needed from our business dealings in Sri Lanka and Singapore) is colouring my view of more rational people.

Anyway - a lovely Saturday morning in Sydney so let's not waste any more time inside gazing at computer screens.

I am getting the impression that either I have completely lost the plot in looking at the short, medium and long terms 'trends' in the Australian communications industry (or perhaps I never had any sort of 'grasp' of it in the first place) or an increasing number of other people have lost touch with reality. Why do I say this?

http://www.news.com.au/technology/story/0,25642,23247524-5014239,00.html

I know it's just another article based of a few whingers blown up by some 18 year old cub journalist but, even taking that view, the iiNet spokesperson has, apparently, made some amazingly strange statements the pick of which, to me, was:

We're breaking new ground here... It has been a fantastic learning process in terms of getting our processes right, and we refine them on a daily basis

...which seems to say "we didn't have a clue how to do this and aren't we wonderful because we keep having to fix our procedures/processes every day and still haven't got them right after 4 months".

Of course pick your own statements and your own view of what the article says about iiNet's abilities to manage a simple process that is about as difficult as crossing the road on a green light and, contrary to Mr White's claim, is NOT pioneering and is a common practice in the industry.

Exetel, as one example, has been delivering 'naked' ADSL2 since December 2007 and there is no way that a user can 'lose' their telephone and internet service in the process for more than a few hours, at worst, and more often never lose either service at all in the cut over process. Average time from order to activation is around 14 elapsed days (during which the customer's current telephone and internet services remain unaffected). The 14 days has been slightly lengthened over the past month in the more heavily rain affected areas but these are a minority and cause no loss of service or other inconvenience to the end user.

Then there was this:

http://www.australianit.news.com.au/story/0,24897,23234050-24169,00.html

Now I may be wrong on many 'facts' relating to the Australian communications industry but I'm fairly certain that Internode is a part of the G9 consortium and therefore found this statement very hard to understand:

More than half of all internet users are content with 512Kbps internet service and unwilling to pay more than about $40 to $50 for internet access: less than both the G9 and Telstra are expected to charge under current FTTN proposals.

Does this mean that Simon Hackett is effectively saying "Internode is part of a bidding group trying to get hold of $A5+ billion of the federal government's money (plus then invest our own money) to build a network we know no-one wants and won't buy because it's too expensive". ??????

I could point out that this comment is almost commercially suicidal in being made at all but if taken with the other comments ascribed to him in this article seems to paint a picture of a bewildered person making a series of self contradictory statements in an attempt to "hope it all goes away soon" as we've painted ourselves into a corner due to our own/personal hubris.

Earlier yesterday I'd had a 'coffee meeting' with someone we have known for a while and have done business with over the past three years who has recently moved to a 'competitor'. He seemed to be adding to the noticeable trend of smaller Australian companies in communications investigating 'joint venture' opportunities and, who knows, there may actually be some real benefit in looking at how mutual assistance can produce equally beneficial gains to both parties: I'll be interested to see what he comes up with.

Later in the day I had lunch with my eldest daughter who has just left Telstra Country Wide after three traumatic and depressing years. Her views, anecdotes and assessments of the inside workings of Telstra during the TMT inter-regnum were evenly split between making me laugh followed by producing far more sombre thinking.

When I got back to reading my email later in the afternoon I found yet another "offer too good to refuse" from one of Exetel's more persistent suitors who had now "raised their offer by 50%" and changed the consideration to "cash on the barrel head". (I haven't heard/seen written that archaic phrase for a very long time and never in 'business' correspondence - perhaps they have more old fashioned English language teaching in 'Little Odessa'?). While I'm sure there is some rationale behind buying 'user bases' for more money than they will ever produce in profit, I've never been able to see one.

So in the span of less than one business day I was 'deluged' with a series of "straight from the horse's mouth' statements that as a totality expressed a tidal wave of conflicting/contradictory views of where various parts of the communications markets and technologies were going and why they were going there.

There is a lot to be said for simply putting your head down and doing what you believe is the best you can based on your own views of what that might be.

I spent some time yesterday trying to finalise my recommendations on the two major issues currently facing Exetel:

1) Which 'supplier' we should use to provide a broadband over 3/4G to our customers

2) What pricing we can put in place that will not send us broke but will compete with the current mobile carrier offerings

I glanced through this article that briefly touches on Telstra's possible future pricing moves but it seems that Telstra will continue to hold its prices above the other carriers for the time being (or should that be the other carriers will continue to offer lower prices than Telstra whatever the reality of cost/profit?).

http://www.misaustralia.com/viewer.aspx?EDP://20080221000020330025

Whatever drives the pricing decisions by the four Australian mobile carriers the end result is that Exetel won't be able to make any money by offering broadband over 3/4G in 2008 (at the current pricing we have in firm offers) and will have to take some less than attractive risks throughout 2008 to make a profit from such services in 2009.

The very best price we have been able to negotiate is approximately 1.45 cents per megabyte with traffic both to and from the end points being charged. This is better, by more than an order of magnitude, to where we started which was around 15 cents a megabyte but it still precludes us offering a general non-wireline broadband service and, at least for the foreseeable future, we will have to confine our 'marketing' to dial up 'upgraders', mobile users and people over 35.

Subject to any last minute 'negotiation' the best we are likely to be able to offer when we release the service in Australia will be:

MobA - $20.00 per month with 1 gb included (up and down)

MobB - $35.00 per month with 2 gb included (up and down)

The 'dongle' or modem required to connect to the service will cost $200.00

The contract term will be 12 months

There will be no free 12 midnight to 12 noon period

All other services provided with the current Exetel wire line plans will apply to the mobile data plans.

I don't think we will be able to do any better than this pricing/traffic allowances until the third quarter of calendar 2008 (if then)and we would only 'go to market' on this basis because we see the need to build the volumes and experience sooner rather than later to move our main broadband business from wired to wireless over the coming 21 months.

Making even this level of offering available will require us to 'partner' with two other companies which we have no experience in doing and have many reservations about - I have never 'played well with others' and it's far too late to expect a change in my personal and business characteristics at this late stage of my life.

On the brighter side it may be that we are finally reaching the end of the road in being able to start offering broadband services over something that doesn't involve paying Telstra all the profit that can be made from such activities and maybe, at some far future date, there will be true choice of attractive services with usable download capacities at attractive prices available in Australia and the word "Telstra" will have largely been forgotten by the majority of Australian communications users.

....What were those pink, corpulent, winged creatures that flashed past my window just then?

I'm not sure I can remember a time in the last 8 years when there wasn't going to be "another shake out in the ISP 'industry'. So I read this article in the Australian with something less than rapt attention:

http://www.australianit.news.com.au/story/0,24897,23235902-15306,00.html

As any sensible person who is in some way responsible for planning different aspects of their company's operations I try to keep my knowledge up to date but I continually wonder where the people who write such articles get their 'facts' from. For instance, and I may well have missed the various public announcements by all of these companies:

"Westnet has emerged as one of the most attractive targets, with 200,000 subscribers, alongside Adelaide-based Internode (130,000) and NetSpace (100,000)."

...as far as I have read each of these companies are very 'secretive' about their number of ASL customers (no-one counts dial up customers as having any relevance or value) so where did the writer of this article get these numbers? (no ascription was provided).

Similarly:

"South Australia's Chariot, West Australia's Eftel, and PeopleTelecom are also potential brides, with between 100,000 to 150,000 subscribers."

...There is NO chance that EFTEL and PeopleTelecom have got even 50,000 ADSL customers let alone over 100,000 and, as the writer is reporting on the TPG/SPT merger he/she should have known that Chariot is 70% owned by TPG and the merger announcement stated that Chariot would be fuly acquired as part of that process.

So much for factual reporting. The ABS ISP analysis for the period ending 31/12/07 should be available shortly which will report on some general trends but as that report is based on unverified data provided by the ISPs included in the survey it, like the Australian article, can't be regarded as providing anything but an indication of what's happened over the past 12 months. However the "ISP shake out" so often commented on is 'happening' but it's always been an ongoing process very similar to the same trends in every other area of commercial endeavour. Underfunded start up business continue to fail in ISP land in identical ways that under funded businesses fail in every other sector of commercial life.

Companies, such as OzEmail that start up when there is no competition eventually run out of ideas and desire and get taken over by companies with, current to the time, more enthusiasm - few such purchases deliver any real financial advantage commensurate with the purchase price. (in contrast to say TPG which started up shortly after OzEmail but had much better ongoing management (remember the founders of OzEmail found their Alan Bond at the peak of the dot.com madness). Telstra/BigPond under the TMT has certainly made being a Telstra Wholesale customer far more difficult and now passing through down right unpleasant to new lows, the depth of which remain to be seen.

So this, along with the other problems of inexperience and under funding, has drastically reduced the previously large numbers of tiny, mainly regional, ISPs who were enthusiasts rather than serious business managers. But has the number of customers serviced by 'independent ISPs reduced or even seen the percentage growth slowed? I would doubt that based on the few 'real' numbers that reach the pubic record. I suppose if you count the ISPss who have disapeared/been swalowed up by larger ISPs who had a few thousand, often less, customers then there has been a continuing reduction in the "number of ISPs operating in Australia. I doubt that's a very sensible way of looking at the ISP market place as those companies were always irrelevant as start ups (including Exetel) always are.

The real issue is whether there is any ongoing commercial benefit in having more than three or four ISPs in Australia. Personally I think that the mobile phone scenario in this and other countries demonstrates that you will get very low end user prices from four large and cut throat aggressive competitors who will be forced to speedily and continually bring innovation to their products and services while keeping their prices as low as can possibly be made to happen. Australia definitely doesn't need a dozen or so mobile phone companies and it similarly definitely doesn't need more than 3 or 4 ISP networks.

So the ongoing "shake out" will occur in the start up DSLAM network builders that will be unlikely to survive beyond December 2009 and the companies that have invested in those structures (as the real lesson from the TPG/SPT merger should have indicated) will sell out to either Optus or a third company that will be the sole survivor in the very difficult business of staying in the ISP business which, of course, by December 2009 will not be an ISP business at all in terms of how each of the current ISPs operate today.

You know it makes sense - and I'm still very definitely not Sam Kekovich.

One of the 'urgent' decisions that Exetel has to make before the end of February is which carrier/aggregator we will use to deliver a broadband over 3G service to Australian customers. Our discussions with both the Singapore based company and the US based company (both aggregators) are very attractive in terms of the initial pricing and the mutual benefits that are involved in initiating and developing a relationship that goes beyond buying minutes. However they both require very significant volume commitments that continue to concern us.

On the other hand we could 'partner' with other Australian companies to gain access 'directly' to one of the three non-Telstra mobile networks as some form of 're-seller' of the current data over 3G services offered by those companies. Having agonised over these decisions for what seems like forever to me it's getting very close to the time when a decision has to be made and I'm still completely uncertain as to what is the best alternative as I see too many downsides in each of the scenarios. Given the uncertainties we shouldn't be making any decision at all until we get much closer to what an ideal solution would be.

I can't help but remember our decision to become one of the first (the first?) ISP to sign up to resell the Unwired wireless based service in Sydney back in May 2004. That was a "sensible" decision at the time although I was uncomfortable with many aspects of the contract. I should have 'listened' to my doubts at that time as they all materialised as the 'worst case' scenario suggested they might do. Not that it was a disaster or anything approaching that description. However it was certainly a disappointment to have expended so much effort building a customer base that exceeded 2,500 (when the total Unwired 'claimed' user base was less than 25,000 with a great deal of doubt about that number) only to be 'commanded' by some new employee they hired to "sign this new contract which completely disadvantages you or we'll make life very difficult for you and your customers". Clearly, and clearly wrongly as it turned out, Unwired had been grateful for our assistance in helping promote the service but after we had done that work they wanted to get rid of their few wholesale customers (none of which had signed and maintained anything like the numbers Exetel had done and, apart from Exetel, they succeeded in doing so). We still have 18 months to run on the 5 year contract they insisted we sign and we still have well over 1,000 Unwired users though the number has continued to decline from the high point reached almost two years ago.

As I'm sure I've stated in previous musings, our ideal solution is an SS7 switch direct connection to a current Australian mobile carrier's network giving Exetel the ability to add true value to a broadband over 3G service. However that remains an unlikely outcome after almost two years of discussions with three of the four available carriers in Australia - two of those discussions being quite seriously advanced but still with no likelihood of imminent success.

So we are left with 're-selling' one of the current mobile carrier's services to which we can add very little value and hope that, over time, we can build sufficient volumes to gain direct network access or use a minute aggregator with no foreseeable direct access to an Australian mobile network. Under these conditions I normally wouldn't make any decision to proceed.

However my fears, irrational or otherwise, that ADSL is going to be a very hard row to hoe in the coming two years and, if I'm even partially correct about Telstra's current and likely future actions, perhaps becoming something that will be impossible to continue with, Exetel needs a 'general' data service to replace ADSL. We have arranged a series of 'final' meetings over the next 14 days and hope to make a decision, even if it's a decision not to make any decision by early March.

There has to be a more enjoyable way to spend this time of my life than making decisions between unattractive options.

I came across this while catching up on the Australian comms news I missed over the last ten days:

http://www.commsday.com/comment/reply/222

I couldn't find 'Kate McKenzie's' comments but, reading these 'open letters' it seems pretty easy to assess what she said.

I think these two comments sum up either the naievety of iPrimus and Internode or could be put into the "No Sh** Sherlock" category of stating the bleeding obvious:

"Firstly, competitors like iPrimus and Internode are being blocked from installing broadband equipment in public telephone exchanges."

and:

"Secondly, where access to exchanges is permitted Telstra is imposing unnecessary and inefficient design and build processes."

Why would it come as a surprise to anyone, especially communications companies competing with Telstra for more than five minutes, that Telstra would do everything in its power to ensure that 'competitors' had as hard a time as possible in deploying hardware aimed at reducing Telstra's monopoly of providing services to Australian users?

The iPrimus spokesperson goes on to say:

"These processes can delay builds for up to 2 to 3 years".

He might have needed to have proof read this particular statement as, from memory, the whole DSLAM in Telstra exchanges process is only barely ticking over its second year and he claims to have over 100 exchanges already equipped - but he is probably correct in looking at the scenario in the future.

Telstra's recent 'cave in' to Crazy Kevin in saying "aw shucks - 'cos it's you Kev we'll just turn on those extra 900 exchanges that we've rushed to fill up with with our own ADSL2 equipment so we can claim there's no more room for competitors - oops - sorry - because we feel its our duty to assist you in your endeavours to deliver high speed broadband to every Australian" is blatant hypocrisy.

All Telstra has done is to, as quietly as possible, complete their ADSL2 build out of all the 'profitable' exchanges (large ADSL usage exchanges where competitors have the most ADSL1 customers) so they can now claim to competitors seeking to install their own equipment there - "sorry, there is no room for your equipment and there are no current plans to increase the capacity due to (insert your choice of unovercomable reason here). They will then get a large room full of telemarketers to call all the competitor's ADSL1 customers offering them incredibly cheap/free incentives to move from the competitor's ADSL1 service to BigPond's ADSL2 service with the competitor being unable to offer an alternative.

This would be simply one part of an overall Telstra strategy to ensure that all investments by its competitors in ADSL2 DSLAMs are unprofitable in the shorter term and disastrous financial 'albatrosses' in the longer term as they cosy up to Kev and Stevie to get the fed's $A8 billion to make competitive investments in DSLAMS a financial no-no by running fibre to all residential areas where competitors have DSLAMs effectively rendering them redundant.

Too cynical?

Possibly, but not probably.

And this is surprising to iPrimus and interNode et alia how?

All deployments of 'competitive' infrastructures that rely on some aspect of Telstra 'co-operation' are not likely to be successful until/unless Telstra is 're-organised' in to an effective structure that delivers at least the possibility of a competitive, and therefore lower cost to the end user, telecommunications entity.

There's no problem in doing that and the Labor party after eleven years of constant criticism (rightly in this case) of the previous government's bad decision on privatising Telstra 'as a whole' instead of splitting it in to a network component and a retail service component can, now it's in office, do what they have always said should have been done by the coalition in the first place.

Any bets on them doing that to their new best mate?

It's been six days since our first meetings in Colombo and we have now had proposals from each of the companies, professional practices and government departments we met with - in four cases multiple responses following emailed queries on their initial response. Sri Lanka Telecom have actually provided us with responses, on three complex issues while we were still in Sri Lanka and subsequently qualified them following our further questions.

That doesn't happen in Australia for us in 2008.

I doubt that our initial, or even projected, business is anything more than a 'drop in the bucket' for any of these Sri Lankan organisations particularly accounting practices like Price Waterhouse and Ernst and Young (who I doubt would bother to talk to a company of our size in Australia) and the thought of getting a 24 hour response from Telstra is beyond my ability to imagine - and I have a pretty vivid imagination.

So we now have all the commercial/financial information needed to make a sensible decision as to how we can proceed to establish an 'Exetel' in Colombo to provide an increased level of support services for the Australian 'Exetel'. There is still a lot of checking and validation to be done but there are some starkly obvious contrasts in terms of the costs we pay in Australia and the costs of an 'identical' operation in Sri Lanka. Examples are:

1) Office space (brand new building/central location/public transport) - 1/10th our current rental

2) CoLo - 1/3rd current rental

3) Ist Class office fit out - 1/8th cost we currently estimate for new offices

4) Full electrical and ethernet wiring for new office - 1/15th last cost we paid in North Sydney

5) Top 3 Programming graduate (high distinction average paid treble local top job salary) 1/5th Australian salary

6) Accounting and Legal services from 'Big 4' International practice - 1/5th costs of 'Tier 3' Australian practice

7) Access to regulatory authorities at Dep Sec level - within 3 working days of seeking appointment

8. Cost of fibre activation to business areas - 1/10th of Australian pricing

9) Monthly cost of fibre rental in business areas - 1/5th of Australian pricing

10) Recruiting/Head hunting professional services by 'Top 5' Colombo consultancy - 1/10th Australian costs

I did a first cut extrapolation of what it would mean if we went ahead with our plans and the impact in FY09 is a 30% reduction to our total operating expenses - not something to be taken lightly.

Of course, the actual set up difficulties are quite minor compared to the challenges involved in managing and maintaining such an operation over time and we will very carefully think through those very considerable difficulties before making any final decision. The major issue will, as always, be finding the right General Manager for such an operation on both an initial set up and then an ongoing basis.

The other issue that is a major consideration is the likelihood of Sri Lanka Telecom offering ADSL and other data services as a wholesale product and what the current 3G carriers will offer as a wholesale product over the coming 18 months. Should either of these things transpire, and at commercially viable pricing, then it isn't very hard to see how, even at very minor sales levels, the costs of a Colombo operation could be covered by a relatively low volume of business sales each month. However we will not base any decision on that happening.

Then of course - there is the little matter of the 25 year old civil war................

Having got home late last night I read the Australian papers over a late breakfast this morning and noticed the same old Telstra aggression - this time in trying to over turn the last federal government's decision to attempt to have someone other than Telstra install comunications infrastructure in some of the less serviced regional areas of Australia.

You'd think that Telstra would have better things to do with the massive amounts of money it makes (the only way you can actually pay the legal bills that Telstra runs up every year I suppose) than pay lawyers to attempt to put competitors out of business - like deploy a faster broadband service in the same areas that the previous government had to help fund someone else to do because Telstra claimed it was uneconomical for them as they had to "protect their shareholder's interests".

When I can be bothered I'll look up Telstra's last annual report and see if there is a separately published line item for legal costs.

The recent Telstra action struck a chord with me based on some recent, to me disturbing, results of Exetel's ongoing development of supplier bill checking systems.

Exetel is currently running more advanced checks on the bills we have received from Telstra over the past twelve months using the latest version of our Telstra bill checking software that is far more sophisticated than the previous version. The first full testing we did on the latest Telstra Wholesale bill seemed to indicate that we had been overcharged by more than $A50,000 for that month - though that has yet to be validated. However much of that overcharging is likely to prove correct as it included almost 1,000 ADSL1 services that don't 'belong to Exetel' as well as errors, all in Telstra Wholesale's favour, in 5 other categories.

I'd really hate to think that this initial analysis proves to be correct and, worse, that a similar quantum of errors in Telstra's favour have occurred on the bills we have been paying in full for the past 33 months.

The reason I was surprised at this result (disturbed is a more accurate adjective) is that I first became involved in the comunications industry some 15 years ago as part of a group of individuals making a living from checking Telecom (as it was then) bills on the basis that the employing company paid a percentage of the errors found (and subsequently credited) as the consulting fee - the actual work was done on a no charge basis. It paid handsomely for over a year until I lost interest in such a mundane way of making a living.

One of the things I noticed in those days was that the Telecom bills were almost always incorrect but the errors on the bills were almost always equally divided between errors in the customer's favour and errors in Telecom's favour resulting in a pretty much break even net difference over the months. There were exceptions to this and one that I remember was when TPG was billed for a large number of lines, and their charges, that belonged to Rank Xerox.

However, in checking carrier bills, other than Telstra's (which we have only just begun to do seriously as I was of the opinion that any errors would split evenly between for and against as they did in those long ago years) over the past 4 years there appears to be only errors made against Exetel with virtualy no errors in our favour. Statistically that can't be the result of random errors (which are understandable in large software implementations) and it wouldn't need a much more suspicious person than I am to believe that some large suppliers have interesting policies regarding how they construct their billing systems.

It's disappointing to have to spend so much time, resource and therefore money on checking the bils submitted by suppliers but if we had not done this over the past year we would probably not be in business today as our credits (received not just claimed) have amounted to over 4% of the total amounts billed to us - a staggering error rate.

I was interested to learn in the discussions I had in both Sri Lanka and Singapore last week that none of the four comms companies we talked with did anything like the bill checking we do and none of them have bothered to write separate checking systems for each of their supliers. None of them had the level of automation of this process that we have struggled to build over the past four years. Each one of them expressed interest in sending someone to Australia to see how we do it. "Strangely trusting people" was the thought that crossed my mind each time this was raised. Then again maybe the carriers in their countries have more accurate billing systems where any errors net out over time.

It also occurred to us on the flight home yesterday that the comms companies we talked with expressed a great deal of interest in talking further to us about many of the automated systems we have developed and were quite 'pressing' in asking for more details on some of the things we do, particularly:

Fully automating the collection of payment defaults

Logging faults automatically by telephone with call back updates to the customer

The combination of P2P Fitering and Caching

Automatated load balancing between multiple bandwidth providers

The Exetel User Facilities tools and services

The Exetel Forum concepts and processes

The Exetel web site sales and information methods and processes

and many other systems we have developed over the past four years.

On consideration maybe I'll overcome my distaste for the mundane nature of selling bill checking services and make our various software automations a product/service set to be provided to large users of communications services?

Annette and I will be getting an early morning flight back to Australia later today after we finished the business meetings in Singapore late yesterday evening.

Our first meeting today was with another company interested in buying Exetel and, for once, with the cash on hand and balance sheet strength to allow us to believe they could be serious. We had a pleasant preliminary discussion with their CFO who we were told was the key investigator of acquisitions and who proved to be a knowledgeable and competent person to have a sensible commercial discussion with - quite a change from the people who have approached us in Australia.

He was intrigued with the unique aspects of Exetel's business 'model' and like many other people found it hard to believe how Exetel was set up and operated and what it has achieved since it began to offer communications services in Australia. He initially found it very hard to reconcile the number of personnel to the number of customer services and the monthly revenue but what really gave him the most trouble was the concept of a start up company not having any marketing or sales personnel and doing no marketing or advertising activities but relying on a web site to deliver all business.

As with the previous prospective 'buyer' we advised him that the price was going to be far more than could be supported based on earnings multiple type valuation and there would be no point in wasting any time if that was to be there basis of making an offer for the company. I pointed out that until the savings from the foreshadowed reduction in IP pricing was reflected in the monthly P and L and the reductions that could be achieved by ramping up the operations in Sri Lanka the monthly profits are over $A150,000 per month less than they will be by the end of this calendar year. I also made the point that until the impact of data over 3/4G was known:

Negatively - in how quickly current low end ADSL download users will move away from wire based broadband solutions

Positively - in how finally getting away from Telstra's over priced infrastructure and allowing greater broadband margins

any forecasts of how the current ADSL1 and ADSL2 customer bases would change are pointless - it could be that Exetel will have no broadband customers within three years if we can't find a suitable 3/4G carrier willing to sell infrastructure access to us.

So we had a brief exchange of views on how we were going about that (and our lack of success to date) and he explained what they were doing. We came to the conclusion that we could find some common ground in combining our investigations and I explained that I was going to a meeting later in the day to bring one possible opportunity to a conclusion.

We parted on friendly terms with us saying we'd keep him advised of developments in data over wireless (should there be any) and him saying his CEO would be in touch about visiting Australia should they wish to take their interest any further. Later we went to the meeting to finalise what we could commit to regarding data over wireless minutes and that, too, was a pleasant and positive meeting.

We didn't reach a point where we have a final decision but we have now reached a point (at least with this supplier) where we could consider making a final decision in a relatively short time frame. We just need to be more certain of what is going to happen in Australia between the four mobile network operators in terms of how 'stupidly cut throat' they are going to be in trying to rapidly build an inroad in to the ADSL wire line marketplaces and how they will view wholesale 'partners' in whatever their go to market strategies are.

The Singapore based data over 3/4G provider has the very realistic view that mid sized ISPs represent an infinitely better and quicker 'vehicle' for data over wireless than their traditional retail store resellers and have the attraction of established customer bases who would be interested in switching to a wireless based service. I have no reading on the views of the Australian mobile carriers whose marketing departments are almost certainly wrapped around using heavy advertising and retail stores as their major/only strategies.

So......it's been a very stimulating trip with the main objectives already met and with some interesting things to think about on the way home.