John Linton
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?