Wednesday, February 13. 2008A More Pedestrian DayJohn Linton We spent the bulk of today travelling from our hotel in Colombo back to Singapore and then having a quick shower and change back in to 'business attire' to meet with one of two potential purchasers/JV partners for Exetel. It's a little bewildering to move from two days of attempting to put in place ways to further develop Exetel to 'getting your head right' in discussing with people interested in buying your company just what Exetel is currently all about in completely different terms. I really dislike these sorts of discussions as, try as I might, I have trouble taking any real interest in the EBITDA/ROI/Market Position 'cr**' that is, quite understandably, the basis for all discussions by potential buyers of companies and the only things they are interested in talking about. Let me also state that neither I, nor anyone else at Exetel, initiated these nor encouraged them in any way after the initial approach. I agreed to the meeting as I would be in Singapore on other business discussions It probably isn't the best time to have serious and friendly 'negotiations' after a tiring day travelling and when your mind is totaly engaged in formulating plans based on what you've just been doing for the past three days, However we spent an interesting and, given the circumstances, amicable 2 hours providing some detailed financial information (using my lap top files of the past four year's financial history and the next 18 months projections) and not permitting any detail to be copied. I suppose I shouldn't have accepted the meeting invitation because I doubted that there could ever be any 'meeting of minds' in terms of finding any real common ground for selling Exetel to someone else. So I resorted to my tried and true method of negotiation which is to state in advance that the price we want can't possibly be justified using any reasonable financal 'bean counting' criteria of EBITDA etc, etc and that the ony price we will sell at is laughably in excess of such criteria but that's the way it is. If they wanted to buy the company then the price is as stated and they coud spend the rest of their lives pointing out how unreasonable such a price is but it won't change the amount of money it will cost them to buy Exetel. As all reasonable people in such situations quickly understand - it's a seller's market. They have said they want to buy - as soon as you do that you have no bargaining postion - you either pay the asking price (in cash) or you are wasting your time. I've had enough experience over the past 20 years of all sorts of people taking me for a d***head who can be conned by the persuasive powers of people young enough to be my children who think they are so much cleverer than I am they can somehow persuade me to believe that 2 + 2 is any number they come up with to take even polite and conservative people seriously when they fail to understand the basic business dynamic of there is a value rather than a price involved in any commercial transaction. The value of Exetel, apart from its future profit making potential, is based, for us, on many things. Among the things that any buyer can't put any price on is our need to use Exetel as a model example of how to run a company using the most sophisticated automation systems in place in any similar enterprise based on a unique, and easily transportable, management system. This alone adds a huge value to Exetel, for us, but a value that we aren't about to quantify to a possible purchaser of Exetel at this time. I briefly made reference to it but said that they systems I was referrng to wouldn't be part of any sale and therefore there was no point in talking about them. So after two hours of 'friendly' and smiling 'full and frank' interchanges of views we closed the meeting promising to seriously consider their basis of offer which both they and we knew meant that we wouldn't give it any further thought. However, it wasn't all time wasted - at least on our part. We gained valuable insights in to what they regarded as being opportunities in the Australian marketplces that we hadn't previously considered and we can probably use that knowledge to Exetel's benefit in the immediate future. We might also be able to buy some services from them at prices we can't currently achieve in the Australian supplier network we have access to. So a tiring end to the day but a day that was valuable in looking at current opportunities differently. Wednesday, February 13. 2008Exetel Sri Lanka (Pvt) Ltd?John Linton Annette and I are at the end of our extremely crammed schedule in Sri Lanka having interviewed five prospective employees and visited, been visited by, 13 different government and commercial organisations in the last two days. We also managed to find time (and the contacts to arrange it) to meet with Sir Arthur C Clarke and get a book signed (with a ceremonial photo) for Steve. Our trip has been amazingly successful and we have accomplished each of the ten objectives we set out to do. We have, subject to a board meeting formal approval later this month, decided to set up a company in Sri Lanka to both support the Australian company and to sell communications services to business and residential customers in Colombo. Both Annette and I liked the place and most of all the people very much and we believe that Exetel's raison d'etre is a very good fit for what we want to do here in terms of making our product offerings better and lower cost in Australia and what we can also do for this country and some of its people - in minor but quite important ways for those affected. Despite the brevity of our stay we met with all of the people (in government and in commerce) that have enabled us to reach such a positive conclusion in such a short space of time. These included: 1) Reaching an understanding with the Sri Lankan Bureau of Investment on how to obtain tax and foreign exchange concession relief. 2) Finding out from Sri Lanka Telecom when they would move from "No Wholesale access to last mile under any circumstances" which was very clearly stated by every contact we made to "Wholesale ADSL2 may be available on (nominated) date. 3) Meeting with the Telecommunications Regulatory Authority to understand how we could do what we would like to do in Sri Lanka and reaching that understanding. 4) Offering jobs to and having them accepted by two additional engineers. 5) Appointing a good accounting firm to represent us in completing the paperwork for setting up the company and obtaining the various licenses needed to operate here. 6) Finding exactly the right premises in exactly the right location (at exactly the right price) for our foreseeable future needs and having our offer verbally accepted. 7) Meeting with two private communications companies to build initial, friendly, relations with and who provided us with the base information that would have been very difficult to find out by any research methods I'm currently aware of. 8. Finding the right contacts and 'conduits' for recruiting two 'super' programmers to assist with the faster development of GURUS. 9) Being introduced to, and spending time with, the principal contact in the AHC who processes visa applications and getting the latest information on the 'don'ts' applyng to visa applicants - some things we'd never have thought of. 10) Meeting with a highly recommended company to handle the design, fit out and equipment of the office at prices we were more than happy to pay. It's been a very long time since I've had two more productive days. It's also very invigorating to find a 'Telstra Dead Hand' suffocation free country where there may well be opportunities to do what we, and every other 'independent' communications company, would like to do in Australia but can't. One last thing I just have to add - and this from a person known to have said the occasional less than kind thing about governments and government departments in the past. The Australian High Commission liaison person who made all the appointments for us and drove us to and from most of the meetings did an unbelievably thoroughly complete and brilliantly orchestrated job of ensuring we met everyone, and I stress EVERYONE, we asked to meet and then added people who proved immensely helpful who we would never have known to ask to meet. Apart from that exceptional competence he was a totally delightful human being and someone you would be happy to call a friend. I'm totally exhausted so...it's goodnight from me............. PS: The High Commissioner dropped in to have a quick chat over lunch so we got a lift back in his armoured BMW 7 Series (it's doors felt a bit heavy to open and close and the driver told us they weighed 400 kg each) - it wasn't a really fast trip back. Tuesday, February 12. 2008How Do You Know When A Poitician Is Lying?....John Linton ...His lips move..... What else more needs to be stated in support of that tired old chestnut from the late 19th century than Sonny Boy Conroy's quotes from this piece: http://www.itwire.com/content/view/16560/127/1/1/ I could save you the bother of reading the whole sorry article with these exerpts: "Communications minister, Stephen Conroy, has stated very publicly that he has given no indication to Telstra that the Government will intervene, and if necessary prevent the ACCC imposing regulated access on Telstra' ADSL2+ network. It is, he says, a matter entirely for the ACCC." "Asked by host, Alan Kohler, "Have you made a commitment?" Conroy replied: "Under law, I have no role, any decision that I would purportedly make would actually hold no standing in law, this is a matter for the ACCC" "I've made it very clear that this is properly the matter for the ACCC but on the basis of the public statements and the conversations that I had with the ACCC, I was happy to write to Telstra and if that gave them the comfort to be able to switch on 900 exchanges" Let me take a wild guess, based on absolutely no knowledge of how OberFuhrer Conroy's "conversation" with the ACCC went: CONROY: "Now listen up Samuel - Kevin's gotta find some way to be appear to be delivering on his election promise of making high speed ADSL available to more Australians and I'm telling you to lay off Telstra as they've promised Kev to flick a switch and allow Kev to claim he's already made it available to 2.4 million Australians within 3 months of getting elected which is twice as many as the libs did in the last three years. So, if you want to keep your job and have any hope of getting that little bonus we've talked about....I think you know what Im saying here......etc, etc." Thus allowing this: "What I did was, after speaking with the ACCC, confirm the view that the ACCC have put forward and agree with the position of the ACCC." Sir Humphrey's spirit, and may God (or should that now be the rainbow serpent?) grant eternal rest to his body, lives on in the persona of Stephen Conroy. All that needed to be said to complete that farrago of double speak is a loud and unanimous - "Yes, Minister". ...and from 10,000 kms away it still made me laugh out loud. Sunday, February 10. 2008Unfortunately The Armoured Car Was Not Available....John Linton ......as we only have one at the moment (a second one will be delivered late next week) and the one we have must be kept available for the Ambassador or his deputy...... Perhaps not quite what Annette and I wanted to hear from the Austrade official who came to our hotel to advise us of some last minute changes to the visit schedule he had arranged for us based on our requests prior to the trip. His armoured car reference was a post script to his apologies for his inability to accompany us on our first two visits to Sri Lanka government departments on Monday morning as all Embassy personnel had, for safety reasons, been ordered not to go to the 'zone' (that contained all the Sri Lankan government departments) following the suspicious 'road accident' death of an ex-government minister earlier that afternoon who had quit the ruling party and joined the opposition as the most outspoken critic of the current government and particularly the prime minister. However we spent a pleasant hour over a cup of coffee while he briefed us on the people we were going to meet and the more general background of the current economic and political issues as well as general information about doing business in Sri Lanka. Nice to see our taxes being used effectively even if we did have to pay directly for Austrade's services in organising our particular requirements. The main offices of the departments we are going to visit first thing tomorrow are housed in the worryingly named "World Trade Centre" which happens to be designed as two twin towers adjacent to each other which are easily the tallest buildings in Colombo's CBD - haven't I heard that building name before somewhere? Oh well...the things we do for Exetel's customer's well being. We have a very full schedule with 12 separate meetings crammed in to two days which has now been made a little easier with the majority of the first day's meetings (apart from the government ones) being held at the Austrade's offices which will at least cut down the travel time. It could be a very interesting two days aimed at getting a first hand understanding of what, if anything, a small company like Exetel can do in this country in terms of offering services here. We have no doubts, based on the prior research we've done that it will be extremely difficult for us but we have the opportunity of 'pitching' our case to Sri Lanka Telecom with, depending on the outcomes of our previous meetings with the two government departments we will have met with by that time, hopefully some at least tacit support for our proposals. Why does a tiny company like Exetel think it can do such things? Because we have a very different raison d'etre for operating in Australia which we can demonstrate and our proposal regarding Sri Lanka doesn't involve financial gain for us nor does it involve 'exporting' profits from Sri Lanka but only investing money in to the country. I don't know what sort of reception we will get but we will make a novel, financially and technologically sound proposal that is, at least on a balanced viewpoint, a really sensible thing to do. If we don't get anywhere then at least we will have tried to solve one of the future 'barriers' that we will have to overcome in the not too distant future and will have closed off one, probably based on our current understanding - the best, solution to overcoming that future barrier. We'll also have visited a city that neither of us have ever been to and will have picked up some useful first hand knowledge about the people we currently employ and the people we may employ in the future. We will also have taken the first, albeit most likely faltering, step in the long and difficult path of making Exetel less vulnerable to operating in a single country where the monopolist telco only has the objective of ensuring our sort of company goes out of business. I just wish there were less soldiers with automatic weapons and full combat kit in so many, to me - a casual visitor, innocuous looking places. Come to think of it tomorrow is the 11th. Sunday, February 10. 2008Consolidation Of ISPs - Or Simply "Genocide"?John Linton Nothing like getting up at 4.30 am to give you plenty of time to do a day's work. I took the opportunity of the short (3+ hours) flight from Singapore to Sri Lanka to catch up on the Australian press's take on the SPT/TPG merger courtesy of Friday's Australian papers provided by Singapore Airlines. All pretty predictable writing except for the back page analysis piece in the SMH which was a little more informed and erudite than the usual anti-Telstra rant - though there was a bit of that in it. The consensus seems to be that prior to the appointment of the Tex/Mex Trio the previous Telstra management had been working, relatively effectively and relatively harmoniously, to build a realistic wholesale 'division' that would comply with many of the hopes and a few of the necessities of the Australian Telecommunications Act. This all came to a screaming halt when the TMT ascended the throne with their description of Telstra Wholesale Customers as "parasites" and the immediate dismantling of the relatively competent (at that time) Telstra Wholesale top management and cuts to the TW establishment (and of course the start of the US style 'jihad' aimed at obliterating any form of competition in the Australian communications industry in the name of protecting shareholder's interests (and who can argue with a management team doing that?). Well spotted - but not exactly news and not really germane to the SPT/TPG merger even throwing in the quotes from Michael Malone that he "sees very little in the small ISP marketplace left to buy" and that therefore "we might have to up our aim to target the larger 'players' left - like Internode and Westnet". I think that the SMH columnist got it right when he said that Telstra was systematically wiping out the tiny - small ISPs via their wholesale pricing and their 'under the counter' direct marketing to other ISP's customers of 'special pricing' that is way below their web site plan prices and 'bundles'. Pretty sensible really when looked at from Telstra's point of view: 1) The 'bunnies' out there that don't have ADSL go to your web site and sign up for two years on the published high priced plans. 2) The 'smarties' out there who have the opposition's ADSL plans are directly called with a 'special aimed at you only for a short time only' (thus getting under the ACCC's radar) offer at prices way below what the competitor ISP is able to provide. The article effectively discounted the SPT/TPG merger as any sort of consolidation under pressure (and with TPG claiming 33% EBITDA they certainly are able to deal with any suspected Telstra campaigns) but did re-raise the ongoing demise of so many of the "over 900 independent ISP" statements. It will be interesting to see the ABS ISP survey results later this month to see if there remains any support for this line of thinking. Anway - none of it made any sense to me and I had other things on my mind but the appositeness of the re-raising of the consequences of communications monopolies re-surfaced a little later in the day. We landed in Sri Lanka, courtesy of the 2.5 hour time difference, at 8 am in the morning and after a hair raising and very long drive from the airport to our hotel and a brief 'acclimatisation' began interviewing the short listed applicants for the positions we had advertised. Some of the discussions with the applicants included their experiences with ADSL in Colombo and the prices, service choices and service quality. As we already knew (and to be the subject of later discussions with Sri Lanka Telecom and the various associated Sri Lankan government departments) only the government owned telco provides ADSL (no wholesaling) with the predicatable results that the cost (in 'normalised' dollars) is six times what Exetel charge in Australia for a slower service with much lower included downloads that is constantly congested on everything including simple web site browsing. Doubtless Telstra (Australia) would consider the situation of only having one service provider the ideal way for Australia to operate and perhaps the SMH columnist is right in drawing attention to how Telstra under the TMT have pursued this objective. I guess time will determine the accuracy of that assessment - Anyone want to bet there's really going to be Crazy Kevin's FTTN any time this decade? Friday, February 8. 2008"Winter in America is cold, and I just keep growing older."John Linton But, of course it's far from cold here in Singapore in early February. However it seems that North Queensland and this, couldn't be more different, city state share a predilection for music from the late 60s/early 70s because that Ashdown song (from whenever) has been played on two different taxi's radios, a bar in the hotel and a shopping centre lift within the last 18 hours. It's really nice to be back in Singapore even for the brief stopover we are making en route to Sri Lanka. The humidity is the same together with the 30 degree heat and the hotel, office and restaurant air conditioning is as freezing as I remember it as are the people as courteous, friendly and helpful as I remember from previous visits. There are more developments and many more major buildings than I remember but the roads remain as wide and travel around this 700 sqm city/State remains easy, comfortable and speedy - especially during Chinese New year as no-one is working. The business people, at least the ones I have met with, are as razor sharp as ever and, while being as polite and solicitous as is Asian business custom, remain breathtakingly efficient and deeply analytical and so well prepared that having a complex discussion is far more pleasurable, and much shorter, than any I've had in Australia for a long, long time. "yes - that seems possible" ...."well we'd also like to help you with that - but unfortunately we won't be able to do so at this time".....We look forward to seeing you next week after you've had time to consider the points we've put to you".....goodbye and it's been a great pleasure meeting with you. Total time 27 minutes to get to a point of either going ahead with a minute aggregation data contract at really interesting pricing, and some difficult to handle volume commitments, or not. It would be wonderful to be able to do business in Australia in such a sensible, and time efficient way. Singapore is a great place to do business in and just as great to relax in and shares amazing hotels, restaurants, bars, airport efficiencies with other major Asian and Gulf cities that are totally absent in Australia and that make Sydney, a city I'm unbelievably fond of, seem third rate. We leave for Sri Lanka in a few hours (have to get up at 4.30 in the morning to make the flight) but will be back to finalise a data over 3/4G deal if that turns out to be possible mid next week before returning to Australia next Saturday. I have made very few business trips outside Sydney since we started up Exetel and I had forgotten how stimulating it is to discuss mutually interesting business concepts with people from completely different backgrounds and completely different operating circumstances than you find in your own very limited daily routines. Perhaps I should have taken a wider view of the possible opportunities of resolving the 'unsolvable' issues I've tried to deal with over the past two years sooner than I did. It seems that even being away from Australia for less than 48 hours I've been able to see several things completely differently thanks to listening to very different views on the same issues. I'm, definitely, not saying I've managed to resolve anything but I now see two, perhaps three, things that have concerned me for over a year in a very different way. Then again - maybe it's just the second martini and the 3 hour time displacement. Friday, February 8. 2008David Teoh Gets A Quarter Billion For TPGJohn Linton The first email I read when I got to Singapore last night was the ASX announcement that David Teoh had sold his company to SPT for, effectively a quarter billion Australian dollars ($A150 millon in cash plus almost 40% shares in the merged TPG/SPT entity). A truly great reward for 22 years of deeply insightful, well executed and tough minded operation of building a company started by him and his wife in to the largest, and by far the most profitable, 'independent' communications company in Australia. The figures quoted in the announcement by SPT to the ASX were outstanding: 200,000 ADSL customers 220 DSLAMs Annual sales of $A150 million but most impressive of all: Annual EBITDA of $A50 million - making a 33% profit before tax is an amazing achievement in the Australian telecommunications business based on the published results of the other large comms companies published figures. It certainly reveals TPG as THE most successful communications company ever seen in Australia (including Telstra which doesn't count being a monopoly). One of the truly impressive achievements in Australian business. After I had digested the impressive nature of the achievement my tired mind began to wonder what the event meant, if anything, other than a long time entrepreneur finlly cashing out a major part of his accumulated business assets. The timing could indicate nothing more than the serendipity of finding a buyer (there would be a very limited number) in SPT which had a lot of cash (from its sale of NBN) at a time when the future of a business based on an ADSL infrastructure had become less certain than when the initial investment decisions were made. Retaining the Executive Chairman role in the merged entity would have been a given in that he would need to 'protect' the $100 million 'left in the business' plus there would be little doubt that his track record of building and managing a communications business is significantly superior to that of anyone else in Australia. So maybe as straightforward as a cash exit with a period of retained control during the progressive liquidation of his shares for cash over a reasonable time frame based on the inability of any takeover buyer of TPG being able to come up with the full purchase price in cash. Then again - David Teoh has always been one of the most/the most astute reader of the Australian communications industry and maybe this is just one more signal that the tough times coming are really going to be very tough and David Teoh's luck' held as he came across his 'Alan Bond' just as that other 'lucky' Australian businessman, Kerry Packer, did some 30 years ago Will SPT add anything to TPG's abilities? Very hard to see - in fact the associated merger processes of rationalising the operations of two companies may well slow the current operations of TPG. Will the new merged SPT/TPG be a strong 'new' player inthe communications marketplaces around Australia? I have no idea having no knowledge of what SPT has ever achieved other than buying up the defunct Comindico hardware and infrastructure. Doubtless the usual 'industry experts' will say that "its another clear indication of the consolidation of the industry" and, no s*** Sherlock, that's just part of the bleeding obvious - it's the motivations of David Teoh and the timing that are relevant - not making a stupid statement that actually isn't even correct when you give iit more than 5 seconds thought. One of the things that almost certainly will happen is that the boards and shareholders of any under performing (in profit terms) communications companies around Australia have just been iven some hard facts and figures about what a knowlegeable, cleverly strategic and competent management team can deliver in the Australian communications marketplace. It certainly raises questions about (puts in perspective) the Optus report the day before which stated that Optus had a net loss in terms of its ADSL user base in the December 2007 quarter while Telstra, as had previously announced, a strong growth in net ADSL users and alo in overall market share. Being a long way away from my main files I have to rely on my memory which seems to be that TPG announced (ironically now, via a Telstra press release and 'award') that TPG activated its 50,000th ADSL customer in July 2003. A quadruple growth in a tough marketplace in the following 4.5 years is a very impressive achievement which, based on what's available from the public record, no other communications company has achieved. In any event, being 7,000 kms away and heading further away tomorrow is not conducive to understanding one of the more surprising moves in 2008 in this industry which is certainly going to change a lot this year. Thursday, February 7. 2008
As Predicted - Labor Starts To Repay ... Posted by John Linton
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Comments (10) Trackbacks (0) As Predicted - Labor Starts To Repay Telstra For Election SupportJohn Linton ....and with indecent and totally cynical haste... So, how surprising: http://www.itwire.com/content/view/16490/1103/ "Suddenly - Telstra finds itself able to deliver ADSL2 in another 900 exchanges" after Mr Trujillo goes to Canberra to pick up his 'get out of gaol free' card from the 'Prime Minister' in person. I guess that partially explains the loss of so many Exetel ADSL1 customers to Telstra BigPond over the past 2 - 3 months - they were getting a 'trial offer' of free and immediate/no down time 'churn' from Exetel's (and presumably other ISP's) ADSL1 services to BigPond's ADSL2 services at 'promotional rates'. As I stated (several times prior to the election much to the ire of those Labor voters who read my comments) a Labor 'government' would make it very easy for Telstra to get whatever it wanted and it's taken a blink of an eye for Rudd to start paying off Telstra for their vehement and tens of millions of dollars of election support in Telstra's anti Helen Coonan/Coalition campaigning. True to their USA backgrounds - the 'new' Telstra senior management know its easier to buy politicians than to operate with annoying regulation. Happy now all you communications users who voted Labor? Well done - perfectly thought through decision on your part. Makes you look back with almost affection to the time that Helen Coonan put up some token resistance to letting Telstra's US senior (temporary) managers progressively tear up the Australian Telecommunications Act. You can kiss goodbye to the other Labor smoke and mirrors illusion that the $A8.0 billion for Rudd's crazy FTTN money is going anywhere but straight to Telstra to ensure that it remains as hard as ever, will probably get more difficult, to reduce the Telstra monopolistic control of pricing for basic communication services in Australia. Well that bit of reading has got the day off to a really good start as I try to get a day's work done in the few hours available to me before getting on a plane for 9 hours with no communications to the local situation in Australia - a small mercy. Ignoring what some people may see as my prejudice and paranoia (and yes, Telstra and Labour really are out to 'get' competitors to Telstra) it becomes even more obvious that any thoughts of investing in DSLAMs/MSANs or 'add ons' to the currrent or any other wire line network in Australia for a small company like Exetel is so fraught with risk it can't be considered. Again, I've been expressing these views ever since those twinks got elected but I've retained some hope that my views of just how stupid Rudd and co are wouldn't turn out as negatively as I had thought possible. Any remaining illusion in that direction has been snuffed out. Those twinks really are a dumb as their pre-election promises made them appear and they are just as easily purchased as has just been proven. Oh well - thank goodness they are devoting so much time to apologising to God knows who for God knows what on behalf of someone or other and reaping whatever that financial whirlwind then engulfs them. Maybe I will just tick the immigration statement at the airport this morning "Australian resident leaving permanently" rather than watching as those morons destroy a perfectly good country in a few inept months. Earlier this morning I have formally written to the three companies that we were dealing with to buy several million dollars worth of infrastructure apologising for wasting so much of their time but saying we coud no longer consider risking so much money given the clear indications of the accommodations the new 'government' as now and would continue to give to Telstra. For Exetel, and perhaps for other communications companies in Australia, 2008 is now, very definitely, looking like being even harder than my most pessimistic estimates. I think the Commander lay offs and the Mitsubishi plant closure are indicative of the general outlook for 2008 and it will take some very bloody minded strength of purpose and incredibly hard work to make any progress until there is a change of government - not something to look forward to. For those kind people who regularly read my meandering daily rants - I apologise in advance that I may not have the facilities to write regularly over the coming ten days but I'll do my best. Wednesday, February 6. 2008Mirroring/Caching/Filtering/Prioritising......John Linton ....Oh for the good old days when all you needed was "more bandwidth". I knew I was always going to regret making Exetel's simple life more complicated by activating more than one PoP and using more than two "IP" providers but I am continually surprised at how much more complicated running a data service has become over the past two years. I'm not sure whether I'm just suffering from 'change overload' which will gradually go away as we become more used to the effects of the constant changes we have made over the past 18 months or whether this headache caused by trying to get my mind around the much more complex business and technical decisions that are now involved in operating a small communications company will remain or, God forbid, become worse. We are entering the third phase of re-developing the core network services that provide Exetel customers with access to the multiplicity of uses they require from their comms provider. We still have several 'loose ends' to tie up in terms of fully integrating the new PeerApp services with the NetEnforcer services and the about to be activated Akamai caching services and that is behind the original schedule of full completion by 31/1/08. Hopefully it will be fully implemented by the end of February. Yesterday we began to place the orders for new GigE connectivity in the second Sydney PoP having recently completed adding a second GigE for NSW ADSL1 traffic into that PoP. This is part of the painful process of building out the second Sydney PoP to allow eventual full redundancy of all NSW services - NSW being three times bigger in terms of users and traffic than all other parts of Australia combined. The increasing volumes of SMS, VoIP and Fax traffic is also requiring hardware and bandwidth and PRI upgrades at a faster rate than we initially expected. We will also complete the rationalisation of our 'raw' IP delivery services by moving from two providers to a singe supplier (with diverse international paths and separate feeds) by the end of 2008 which will, in some ways, be the only 'simplification' we are able to achieve in the ever growing complexity of our core network facilities. Our main new technical challenges over the balance of this financial year are centred around significantly expanding the mirrored and cached services that we have in place by a factor of ten. We have been, very slowly, developing an Exetel mirror as the third component of the P2P filtering and now P2P caching program. We put the mirror development on hold while we determine the actual results of providing the Akamai service from the Sydney PoPs but will resume, and accelerate that program as soon as the Akamai cluster is fully operational. The purposes of the Akamai, mirrored and new HTTP caching services are to provide faster streaming video to Exetel users as well as eliminating the trans-Pacific latencies involved in non-cached video streams - specifically Myface and UTube but also the new services that are just beginning to become available. We will finalise all of the new contracts for the additional/new infrastructures we have been discussing with various providers by COB today and will then 'fine tune' the implementation schedules based on what those final decisions are. All of this becomes more complicated with the possibility that we will buy our own CBD floor space and move one of our current Sydney PoPs to our own data centre late in 2008. It seems inevitable that we will, for some time have to run three PoPs in Sydney as to move the current services is going to be very difficult and will need to be done very slowly. All this may become even more complicated if we do in fact find a data over 3/4G solution in the not too distant future. I had expected to get some better indication of whether that will be a reality by yesterday evening but it didn't transpire. ...and I've run out of Neurofin again........ Tuesday, February 5. 2008Cheaper ADSL In Australia?...."Tell 'Im Ee's Dreamin'"John Linton Exetel constantly reviews it's service plans and prices as part of it's core business raison d'etre of providing the lowest cost (to the end user) communications services available from any supplier. I spent much of yesterday analysing our current costs of delivering ADSL1 and ADSL2 in terms of the changes in usage that have occurred since I did the last major review in early December 2007. I do this each year at these times as this particular time frame presents the largest set of differentials of any period of the calendar year. Broadly speaking there is a noticeable drop in overall usage (both customers connected and amounts downloaded and uploaded) in late November/early December followed by a slight rise in mid December followed by a steep drop in the last two weeks of December followed by a steady increase throughout January that lasts until schools return in early February where the increase in usage 'platforms' before beginning a much slower increase that continues until the next late November. Over the 2007 year this was pretty much the case. However, as those of you reading this who are Exetel customers can see from the total IP usage bandwidth monthly report here: https://www.exetel.com.au/members/a_mrtg_trafic_total.php the pattern in January 2008 differed from the three previous years in not showing steady growth throughout the month but remaining steady for the first three weeks and actually declining in the fourth week of January. What you can also see is that the 'average' IP bandwidth usage increased from around 900 mbps in January 2007 to around 1,650 mbps in December 2007. This is a key figure as it indicates, very dramatically, that the average Exetel broadband user is using 50%+ more bandwidth that an average user of 12 months ago. I've commented earlier in these jottings that a surprising (to me) trend has been that TPG has become the most popular ISP to whom Exetel users go when they churn away (matching and sometimes exceeding BigPond as a destination more often than not most days). I took the trouble to analyse what sort of customers were leaving Exetel and found pretty much what I expected - 95% were on 1500/256 high end plans with an average monthly download in excess of 80 gb. So it's understandable that such heavy down loaders would react to Exetel's reining in of their 100 gb+ downloads in off peak time to go to an ISP who offers (apparently) 150 gb for $80.00 a month - though the TPG fine print ought to cause some hesitation. This situation would contribute to less bandwidth being used - over time and would partially account for the unusual January usage. If the calendar 2007 continues throughout calendar 2008 then it's pretty clear that the 'average' Exetel broadband customers will use more of whatever downloads are included in their plan than they did in the previous year and therefore the bandwidth required is unlikely to grow any differently than it has done over the previous 12 months - effectively growing by almost double (taking in to consideration that any benefits of the NetEnforcer's ability to smooth bandwidth usage in the future will be significantly less than it was in 2007). So we will need to progressively add bandwidth in 2008 from the current levels (from all sources - P2P cache, Akamai cache, P2P filtering, Pipe peering and direct IP) of just under 2 gbps to something approaching 3 gbps based on current estimates of likely broadband customer growth. The good news is that the cost of the direct IP bandwidth will fall by around 40% which will ameliorate the cost of buying an additional 50% over the coming twelve months but the net cost of IP bandwidth will not allow any reduction in end user pricing as the actual 'average' cost of IP bandwidth per customer will rise slightly. The really bad news is that much of the growth Exetel is experiencing is coming from ADSL2 services which have a far more expensive cost of connectivity bandwidth (the link between the end user and Exetel's PoP). This, more than the cost of IP bandwidth, will almost certainly not allow any reduction in ADSL2 pricing and may well result in the price of ADSL2 services increasing. So I looked at the various cost components of the various ADSL1 and ADSL2 services and, unless there is a significant monthly port rental reduction (which personally I see as not very likely) then the only likely movement in Exetel's broadband prices in 2008 would be upwards - not downwards. Exetel's 'over heads' (personnel, office accommodation, utilities etc) are already at the lowest levels that are possible (as far as we can see) and our forward expense line planning shows that there may be a slight increase on a per customer basis as we continue to modify how we operate the company towards the end of 2008. There is no realistic chance that even this minor component of the cost of delivering broadband services will fall in 2008. The mooted reduction in direct IP bandwidth costs will in fact be the only factor that gives some chance of Exetel's broadband pricing remaining the same - at least thats how it appeared to me yesterday after spending much of the day looking at figures in spreadsheets until my vision told me it was time to quit. So I've decided to do nothing in terms of pricing for the time being but will begin to address the issues of monthly port cost rental and customer connectivity bandwidth in the coming months. I don't view this as having a particularly good chance of success in itself but, perhaps, in combination with a move away from wire line broadband to GSM broadband there may be a new 'dawning' of reality in some of the current carrier's understanding of what future services and pricing will need to be to retain their current business levels let alone grow the current levels. Don't hold your breath though. Monday, February 4. 2008Web Site "Selling"John Linton It always surprises me how many people (customers) react so violently whenever we make a change to our web site - which we do constantly and have done ever since January 2004. I would make between 20 and 50 changes each week to the web site either adding or deleting pages or modifying the text in some ways to add clarity or to better describe some aspect of the services. Sometimes, obviously, there is a need to add a whole new section or to completely revise a current section - the latest case in point being the total re-work of the User Facilities that was executed over a five month period with a complete re-design and a lot of additional function. More recently we have completed the changes to the front page that we began over 9 months ago. While there are still some minor changes that will be made over the next 2 - 3 months the major work is now complete - apparently much to the ire of some of our more vociferous customers - mainly objecting to the use of 'flash' on a web site front page. I understand some of the more thoughtfully worded 'criticisms' which, of themselves, make perfect sense. However....... I have always taken the view that Exetel's web site is its most important 'selling tool' and as I have 100% responsibility for generating the revenue for Exetel I think I can rightly state that the usability and information layout on the Exetel web site is decided on and determined by the one person whose whole commercial personal existence is dependent on how well the web site operates. Exetel has no marketing manager, no advertising manager and no sales manager nor do we have outside creative consultants or advisers. What we do have is the tyranny of second by second reporting systems that measure every aspect of new order receipt, activation and cancellation across a range of ten services. Unlike the senior executives of, I imagine, all of our larger competitors we also have the ability, via a comprehensive web hit tracking system over 500 plus pages, to see the effect of any changes we make to the web site and whether they contribute positively, negatively or neutrally to our second by second business transactions and, also I imagine unlike the senior executives of our larger competitors, I have written every single word and 'designed' every single page layout on the Exetel web site. I doubt that it's possible to take the importance of a company web site more seriously than Exetel do; and have always done. When we make changes we track the impact of those change, irrespective of how small they are, to determine their effect and then 're-change' them if we don't get the result we expected. Our objective has always been to keep re-developing our web site until it looks and operates completely differently to the web sites of all of our larger competitors and to use whatever language and selling skills that I have developed in a life time sales career to do a much better job that the 'marketing' children (in relative terms) employed by our competitors. Whether we will succeed in that or not can't be assessed after four years and, in many respects, may never be able to be quantitively assessed in any time frame. What we can do is determine whether or not our web site brings in more business each month and whether or not the changes we make add or subtract from any upward trends. We do that every second of every day. So the 'squares design' of the front page is there for a reason as is the moving cloud design and the simplistic logo (and now the associated 'mission statement') and the finch and the Deloitte and Carbon Neutral logos. They are all part of an almost complete design intended to make it very apparent that Exetel is very, very different to the companies it competes with. Whether it does/will do that will continue to be intensely invigilated and constantly changed based on the information that is fed back - not in "omfg your web site looks like it was designed by a five year old" terms but by analysing the detail collected from the web trackers and the management reports generated every second of every day and constantly reviewed by the people responsible for making sure Exetel operates as effectively as possible. ...currently 48 months of revenue growth in succession and planning to make that 49. Sunday, February 3. 2008International Opportunities?John Linton There is little doubt, at least as far as I'm concerned, that the communications marketplaces in Australia are fiercely competitive and likely to only get more 'competitive'. Not really any problem as I don't think that has changed all that much since I've been involved from the early days of 'de-regulation' and even before that. We have built Exetel as an ultra low operating cost communications company with an enormous degree of automation handling almost every aspect of our operations with ambitious plans over the remainder of calendar 2008 to further automate those processes. Another thing we have built in to Exetel is the ability for almost all positions to be run 'remotely' from anywhere across the globe that has a reliable dsl connection. I've mentioned in these musings that we have had two help desk engineers working from their homes in Sri Lanka for almost two years now and that Annette and I will be going to Colombo later this week to do the final hiring interviews for two additional engineers. However the main purpose of the trip (facilitated by Austrade) is to meet with a dozen companies and government departments to determine exactly what is involved in Exetel actually providing ISP, VoIP and Data services locally in Colombo. The preliminary information I have gathered over the past 12 months indicates that it's a very difficult thing to do and that may well prove to be the case in Sri Lanka but I'm very interested to look at how it may be possible to sell services in an 'undeveloped' (and I mean no disrespect by trying to find the right adjective to use) country along the same lines that we set up Exetel to compete in Australia - offering the advantage of the lowest possible cost communication services to end users in competition to a dominant and predatory incumbent 'national' carrier. From my, far from exhaustive, research of the telco situations in Thailand, Vietnam, Cambodia, Laos and even Korea there are obviously some opportunities for a 'foreign' comms company that the local equivalents may not be able to offer in quite the same ways if it was possible to develop a sensible relationship with the National carrier (something quite impossible to do in Australia). Of course, Exetel has a really tough time in front of it to just survive let alone prosper in Australia and we would be stretched (in the extreme) to find the correct personnel resources to negotiate such arrangements and then carry them out. The only reason I ever considered doing such things was the very cold blooded view that Telstra will continue to make it impossible for a company such as Exetel to really grow beyond being a very small communications company in Australia and I have more ambition than that (and yes, I know, I should have grown out of such aspiratons at my advanced age - but, for whatever reason, I haven't). Sydney is blessed with a diverse migrant population and many of the children of those migrants graduate from Sydney's better electronics degree courses. Exetel has always had a preferred hiring policy of IT/Comms degree qualified people for all positions in the company and not unexpectedly we therefore have a wide range of people who come from many of the countries SE Asia and the Gulf regions. In the event we ever did decide to set up in another country we would be able to deal quite easily with any initial language issue. We are planning on adding a PoP in Perth later this year and when you look at the costs of doing that (which can be looked at as adding a network node over 3,000 kms from the Sydney location) it begins to put into focus that adding a node in Colombo or Bangkok or Ho Chi Minh city is very little more complex or difficult. As far as I can see only Telstra stands in the way of Australians having better, more productive and lower cost communications services in Australia. I imagine, from what I have read, that similar scenarios may exist in other countries in our 'region' but they may not exert quite the same all encompassing negative influences. Quite possibly that's my ignorance and naivety but later this week Exetel will take the first, very tentative, steps to seeing if a better world can be created or whether the dead hand of monopolist self interest by third rate people exists everywhere. Saturday, February 2. 2008Telecommunications InvestmentsJohn Linton I have, briefly and not very seriously, looked in to what would be rquired to turn Exxetel in to a publicly listed company and therefore have spoken to what I consider to be sensibly knowledgable people from time to time. As well as my own generated enquiries I get random emails and telephone calls from people I don't know wanting to discuss some form of 'merger' that would provide some sort of size and 'symbiosis' that would allow the joined private companies to become a listed entity. I had one such call yesterday and, as always, I listen attentively and am unfailingly polite always expressing how flattered I am that Exetel is considered to be important and valuable enough to attract such attentions. It never seems to occur to the sorts of people that call that the person they are calling has an IQ above that of a rotting carrot though somehow was intelligent (lucky?) enough to actually create a company that had enough benefits attached to it to promote their interest. The other issue that seems to escape such people is that they must seriously have delusions if they believe that someone who has chosen to create a commercial business in exactly the way they want it to operate and has then poured their life and soul into running it in exactly the way they want to run a company is going to cheerfully hand it over to be someone else while staying around as a 'valued consultant'. What sort of ego and blind stupidity must such people possess? These calls, when the caller is pushed to "net out what you are proposing" generally end quite quickly though there are usually, as with yesterday's call, plaintive entreaties to "get together and kick some ideas around". (generally these people have as much command of the English language as a failed 16 year rap singer aspirant). (God, how I detest being called "mate" by people I don't know Anyway.....as it's Saturday morning and I have more time than on most days I had a quick look at the closing price pages of this morning's financial press to see how telecommunications companies stand at the end of the longest and strongest bull market in Australia's history - not a very encouraging sight. From what I saw every telecommunication cmpany, from the very largest to the one celled organisms in the 'penny dreadful' section, have not benefitted from 11 years of ASX year on year rises and currently stand at: Company__ Year High___Now Telstra___$4.97__$4.91 Optus___$3.22__$2.94 AAPT___$4.55__$3.59 iiNet___$2.99__$2.36 Pipe___$5.02__$4.00 PeopleTel___$0.09__$0.04 Chariot___$0.16__$0.06 EFTEL___$0.15__$0.08 All it seems to show is that everyone who invested in telecommunications companies with a view to holding the stock (as opposed to day trading to make tiny 'movement profits') has lost money and, with the predictions moving forward, will continue to see the value of these investments continue to fall (with the exception of the Telstra installment receipts which were a goodbye present from the previous government). If you look at the three tiny companies at the bottom of the list (how did they get listed in the first place?) you can see that they are practically worthless with all reporting constant losses and none of them with any understandable future strategy. Whenever I've looked into 'floating' a small company the advice has always been the same - "you're too small at the moment and you need to be able to put forward a very convincing story on how you have something unique, that can't be easily copied and will provide massive revenue growth and well above average dividends". Fair enough - pretty much what I would look for if I were to invest my own money. Unfortunately I have never been able to see how Exetel could begin to meet any of those conditions: --Massive growth - we have a 4 year record of very solid growth but we have no plans or capabilities to move beyond that. --Unique Offerings - we are unbelievably efficient but nothing we do is unique -- Above Average Dividends - we have paid two tiny dividends (actually a tax effective bonus to directors who have had no pay increases for three years) in 4 years and no plans/ability to change that objective based on our 'go to market' "lowest cost service in every category". I can't see how Exetel could ever become a public company and, truth to tell, I also fail to understand why anyone ever shows an interest in 'buying Exetel'. What on Earth would they get for their money (assuming that they eventually realise we aren't going to give them the company for nothing). Friday, February 1. 200848th Consecutive Revenue Growth MonthJohn Linton I looked at the February 1st 2008 billing report earlier this morning and was, expectedly, pleased to see that it showed that Exetel had recorded its 48th successive month of growth. The 1st of the month report has always been a pleasure to read since 1st March 2004 when our far cruder and simpler in house written billing system showed a figure of slightly under $A10,000. Today's report (which excludes the mid month telephone billing and the daily activation and hardware billing) was over $A2.8 million for the first time representing a 28,000% (correction courtesy CB) monthly business growth over exactly four years. Money (revenue) isn't everything, especially in business - monthly profit is the only thing that will ensure commercial survival and is the only real measure of commercial 'success'. However, given the fiercely competitive nature of the Australian communications business and the major 'disasters' that Exetel has had to overcome in each year of its short 'life' to date it gives me a great deal of satisfaction in playing a part in continually growing Exetel against so many difficulties. I suppose it is also true that the markets in which Exetel has operated for the past four years have all continued to grow so it should be unsurprising that any company operating in those markets would grow each month as a natural result of overall market growth - and that is undoubtedly true. It's also true that many company's operating in these same markets that were in the business before Exetel started and commenced in business after Exetel started no longer exist or have exited those markets over the past four years. It was timely to be reminded of the disasters we have been faced with over the last four years, any one of which could have caused Exetel to cease to exist given the magnitude of the difficulties, as we are going to spend some time this morning looking at possible new business premises as our current office lease will be up late this calendar year. Annette has been looking at something to buy rather than continuing to spend money renting and her conclusion is that we could possibly buy the strata title to a whole floor in the Sydney CBD. We looked at a couple of really nice buildings late in 2007 but the settlement dates were too soon and the price of our preferred building was far too high (and the floor space too large) for our needs. Annette has now found a couple of 425 sqm or so options that could be possibilities and would make economic sense if we relocated one of our two Sydney PoPs to a data centre we would need to build on part of the floor space. The preferred location is next to Wynyard station and a block away from our current CBD PoP. It woud suit our employees and would allow us to do many other sensible things based in the centre of the Australia's largest business district - a key future target marketplace for Exetel and a perfect location should we end up using our own wireless data network. A preliminary quote from our bank for borrowing 100% of the sale price would be around $A23,000 and the commercial lease of the floor below the one we are being offered is slightly more than that so it is a relatively simple rent versus buy equation. Our current lease for less than 300 sqm in North Sydney is a little over $A13,000 (which will increase to around $A15,000 before the end of this year and by more than that if we increase our floor space (which we will almost certainly do) with a further $8,000 being spent renting rack space in the CBD which will also increase each six months or so. Many, many upsides other than the problems of relocating which is always far more messy than the best planning can make it. One major downside of course - we have to come up with the better part of $A3 million to buy it which can only be done by Annette and I increasing our financial investment in Exetel to an uncomfortable level in this very difficult outlook. (I purposely haven't opened the paper yet this morning after yesterday's distressing string of negative articles) So it will come down to Clint Eastwood's memorable phrase in his famous 1971 movie which can be partially rendered as "Well, do you feel lucky?" |
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