John Linton
The last ABS report on the ISP industry (which I have misplaced so I'm relying on my memory) indicated that the number of ISPs in Australia had fallen from a high of slightly over 900 in 2004 to around 450 in the year ending 2007.
450 still seems like a huge number for a country with a population of 21,000,000 but the ABS gives no indication of the size (in terms of number of connected customers) they deem to be an ISP so it seems possible that they count a significant number of companies that have less than 1,000 active customers in that number - I really don't know.
Since that report was compiled TPG/SPT have 'merged' and I notice that iiNet advised the ASX to suspend its shares from trading pending the announcement of an acquisition. It didn't qualify the type of acquisition but there would be a good chance that it's an Australian rather than overseas company and its more likely than not to be an ISP of some size to require, as the announcement stated, a 'capital raising'.
Looking at iiNet's last balance sheet there was no free cash available to buy anything so a capital raising would be required for even a small purchase. However, at roughly the same time iiNet requested a trading halt so did iiNet's largest shareholder - Amcom - though the Amcom announcement specified it was because of a projected capital raising and made no mention of an acquisition. Amcom, together with the then Powertel (now AAPT) bailed iiNet out a year or so ago by buying in to the company and has continued to increase its shareholding since then by buying more shares each quarter as it is permitted to do but keeping under the limit where it would have to make a formal offer to buy all the issued shares.
I'm not sure how many customers SPT had so I don't know where they 'ranked' in terms of relative size to the largest ISP service providers in Australia but I assume they were in the top 10 - 15. Based on their revenues that would certainly be true though I don't remember whether I ever saw a split up of their revenues between wire line telephone, mobile telephone and internet services. I obviously don't know if the projected iiNet acquisition will be of some 'Top 15' ISP but you would have to assume they wouldn't suspend their share trading if it was just another penny ante acquisition.
I suppose that the takeover of Powertel by AAPT also ranks as a "consolidation" though Powertel was a pure wholesaler so I'm not sure that's valid.
So what does this mean?
On the available facts 450 tiny to very small (and a few medium and fewer large) ISPs have disappeared over the four years ending 31/12/07; largely by their customer bases being 'taken over' by other ISPs. That's the only 'hard' data.
This calendar year's SPT/TPG merger and the yet to be announced iiNet acquisition are the largest examples of take overs/consolidations since the iiNet/Ozemail merger/take over.
iiNet's likeliest 'acquisition' would be either Westnet or, though it wouldn't require a capital raising, the ADSL base of PeopleTelecom (I would think $A10 million would buy that customer base).
Buying Westnet would make more sense as Westnet's operational costs would be the highest of any Australian ISP's and a 'ruthless' purchaser would slash over 300 call centre staff without having to add very much, if any, additional personnel to its own, already bloated, call centre operations.
I doubt whether such easy immediate cost reductions would apply to any other company - though, of course, I don't know.
There is little doubt that PeopleTelecom will get out of the ADSL business, one way or another, before the end of this calendar year - with a market capitalisation of less than $A10 million it must be only a matter of time before the PT telephone business is rolled into Crazy Johns and the ADSL business sold off to anyone who pony's up a reasonable buy price.
I don't know what Netspace plans to do but it seems to have no real direction (from a distant outsider's viewpoint) and that would suggest it is not going to continue in the independent ISP space in the long term.
Chariot (already effectively owned by TPG) will have the remainder of its shares bought out by the merged SPT/TPG entity before the end of this financial year.
EfTel's shares continue to decline in the penny dreadful part of the listed companies marketplace and have no reason to exist and will almost certainly disappear within 12 months.
So, assuming those things happen, there isn't much left of the 'independent ADSL provider' sector with the exception of InterNode and DODO (assuming anyone can take the notion of DODO seriously).
It seems that four years ago 900 separate 'managements' considered that investing their own and their shareholder's money in developing an ISP business was the best investment they could think of.
Today it seems that only a very few people hold that view with the likelihood that 90% of the ADSL marketplace will be delivered by six companies before the end of 2008:
Telstra
Optus
TPG/SPT
iPrimus
iiNet
InterNode
A very changed scene from 2004.