John Linton's Personal Musings

It's the last day of the financial year which means, no sh** Sherlock, that the new financial year begins in less than 16 hours time. As someone who is largely responsible for planning Exetel's activities and therefore am entrusted by the shareholders to make enough correct decisions on how to spend their money to:

a) Not lose it

b) Make a commercial return on it

I can be happy enough that Exetel is still in business and has pretty much achieved each of the targets that were set this time last year. While the audited results won't be available for 10 - 12 weeks our management reports are complete up to 31st May and this month has been a record month in all areas of our business and, with the daily reports we have access to we pretty much know the year end result now within a few thousand dollars.

However, in this or any other business, there nothing quite as 'so yesterday' as whatever you managed to achieve (or not achieve) in the past. So I reviewed the Exetel business plans for tomorrow on onwards over the weekend and made no changes - a few more hours thinking about things were never going to produce anything startling - if they did then it would just be a clear indication that the person doing the planning was not the right person for the job.

However I did look at the base statistics on how the internet delivery marketplace had changed over the past year using some of the published information and some of the 'gleaned' information it's sensible to attempt to pick up through various business dealings in a commercial company. The base movement statistics can be obtained from the public companies annual reports or periodic announcements and can be, broadly, validated against the statistics published by the ABS here:


http://www.abs.gov.au/ausstats/abs@.nsf/e8ae5488b598839cca25682000131612/6445f12663006b83ca256a150079564d!OpenDocument


The trouble with the statistics from the ABS, apart from them always by definition reporting on events that are in the past, is that their collection methodology is to ask the ISPs themselves to provide the base data on number of connections/gigabytes switched etc.

So the statistics obtained from the very small companies are almost certainly worthless. This doesn't really matter (because the 90% of the total number of companies they represent only account for less than 10% - maybe less than 5% of the total anyway) and Telstra and Optus account for over 70% of the total internet marketplace and they would, in statistically meaningful terms, report correctly; and in any case a lot of the base data about their ISP operations are available from their annual reports and from their employees and suppliers.

Two parts of the general report are quite interesting though.

1) The growth in ADSL users by 33% over the 15 month period

2) The growth of ADSL2 to be almost 25% of the total ADSL customer base.

Possibly another interesting statistic is that the only sector of the marketplace (by size of customer base) that grew was the slight increase in those ISPs who grew from less than 10,000 customers to more than 10,000 during the reporting period.

1 - 100 users 124 to 108
101 - 1,000 users 199 to 179
1,001 - 10,000 users 112 to 96
10,001 - 100,000 users 22 to 28
100,001+ users 10 to 10

This is almost certainly explained by small ISPs continually buying up even smaller ISPs.

Generally, I can't see anything in the ABS figures that's of any assistance to Exetel. All they seem to show is that Telstra continues to increase its market share by offering low cost ADSL2 deals to competitors ADSL1 customers.

A growth of 33% in a market is more than sufficient for Exetel to achieve its modest ADSL1 and ADSL2 growth objectives in 2009 and the majority of Exetel's planned growth over the coming twelve months will be from other products/services - assuming the planning is roughly correct in what will continue to happen over the coming twelve months. The rapid uptake of ADSL2, which is not as dramatic in the ABS reports as it has been in the first six months of this year, is also helping Exetel is some ways and the last week of the 'old' financial year was a new record week for ADSL applications and was helped by strong growth in ADSL2 applications though the ongoing loss of ADSL1 customers to Telstra remains something we have not been able to find an answer to.

It will all begin to become much clearer in a few hours time.

.....following the original legendary king and Shirley Bassey's unforgettable "Goldfinger"?

I read with fascination David Teoh's short statement (at least a statement attributed to David Teoh) to the ASX on the progress that the merged SPT/TPG entity had made in the three months that had elapsed since the merger date. The statement was brief but cogent saying that the merged entity had made a profit of $A8 million in May following a profit of of $A7 million in April - with, presumably a similarly impressive result about to be delivered in June:

http://www.asx.com.au/asxpdf/20080626/pdf/319vchvhj453vr.pdf

These spectacularly successful results are unheard of in the Australian communications industry. In the proposed merger documentation submitted to shareholders recommending the merger the combined monthly revenues were difficult to exactly pin down but appeared to be around $A20 million a month. A profit (before tax) of $A8 million is 40% - something that has never been achieved by any company in the Australian communications industry. Even Telstra hasn't got close to such a figure and it's putative FTTN scenario is stating that an 18% ROI would be what it requires while it's opponents claim 18% is unrealistically high.

Perhaps I mis-remember the figures in the merger document and monthly revenue is much higher than $A20 million?

What makes the statement to the ASX even more intriguing is it comes against a free fall of the SPT share price from 45 cents at the time of the takeover to 19 cents at Friday's close. Perhaps the free fall in the share price accounted for the 'marketing' ring of the ASX announcement which contained an unnecessary statement that the company had "$A27 million of cash on hand" (pointless except, perhaps, in direct response to an ASX query) and the even stranger statement that "1300 hundred employees were enthusiastic with the merger". (no-one could know the level of happiness of 1,300 people, and I guess those who were retrenched could not be described as "enthusiastic").

Would the merged entity really have that many personnel - 1,300? It seems an extraordinarily high number - maybe it was a misprint?

At the current share price of 19 cents and with the Chairman of the company stating that the company is earning $A8 million a month (NBT) giving an annualised profit of $A100 million on current achievement levels and, presumably, much more than that moving forward why is the share price, not only plunging, but why wouldn't every investor (including me) who can read the presented figures and understand what 'PE' means not immediately wade in on Monday and buy as many SPT shares as they had spare investment money?

Investing in SPT/TPG at 19 - 20 cents represents, effectively, investing money in shares that are only valued at the current NBT profit of the company - no share has ever delivered such a return or been offered for sale on such a basis to my failing memory in Australia. Based on the presented figures the share price should be in excess of $1.50 and that would be at the most conservative assessment/P:E ratio. Based on the recent statments to the ASX I would be a fool not to buy some TPG shares on Monday - even if I've interpreted the various figures incorrectly the franked dividend to be declared by TPG/Soul has to be around 8 cents (a 40% return in 3 months on a share price of 20 cents) nd the shares will have to sky rocket if the stated performance turns out to be sustained reality. I could buy at 20 cents - get an immediate 40% return and then sell in a few monthsfor a North of 300% profit based on the inevitable interet this company will generate in its unique performance.

It would be interesting to know whether the 1,300 personnel is a correct figure and, presumably, the next annual report will clarify that situation. If it is correct then WestNet has been overtaken as the ISP with the highest ratio of personnel to revenue and personnel to customer ratios and yet TPG/SPT still produces an NBT percentage almost twice as good as the next best performer in Australian communications (Telstra - which while almost certainly still over staffed has a far better, by a country mile, employee to revenue ratio than TPG/Soul).

It will be interesting to see what Telstra actually has managed to achieve in FY2008 to give a year for year comparison for FY2008. I suppose it will also be sensible to see what the merged TPG/Soul's actual annual report discloses when it becomes available and, more importantly, what franked dividend it declares.

Perhaps Telstra, finally, has a real competitor in the Australian communications marketplace certainly Optus has never been able, in 15 years, to approach the margins being reported by TPG.

......Only the Shadow knows.........and he's not really sure....

I mentioned that late last year I attended a DeLoittes function and over the lunch they served one of the DeLoittes people made me aware of "Shadow" or "Phantom" share schemes which are a variation on the stock option schemes widely used in the USA and in other countries by start up companies to give their early employees a share in any furture success such companies may enjoy when they reach their goal of a successful public listing.

Exetel has no plans for any sort of public listing so I never really considered that such schemes had any value for Exetel's employees just as the vast majority of such schemes have no value for the thousands of companies that put them in place but either don't survive or never reached a level where a public listing becomes possible. Mostly they simply involve fees to 'advisors' who set up the paperwork and that's about it.

However those schemes made hundreds, probably thousands of multi millionaires out of the early employees of companies such as Microsoft, Google, Yahoo, Apple, Sun, Cisco etc and also made the employees of other unknown start ups very handsome amounts of 'bonus money'. 

As we contemplate either borrowing money or finding some sort of investment capital this issue has become something that could be considered by Exetel and so we asked DeLoittes to discuss it in more detail which proved to be quite interesting in several ways. As Exetel's current and future business and plans is a very unlikely 'vehicle' for a public listing most share option schemes for employees would simply involve cost for the company without any real benefit for the employees.

Some of the variations suggested by Deloittes are interesting and, as Exetel moves away, at an ever faster rate, from the 'director's hands on every aspect of the business' methodology towards the inevitable (due to personnel numbers) less skilled and certainly less personally driven management of employees by employees it becomes necessary to compensate for that dramatic loss of personal involvement - if that can be accomplished.

Exetel has never made very much money over the time it has existed - an inevitability of a start up company - and what little money we have made has had to be re-invested into the business to buy the routers, switches and servers needed to handle the growing customer numbers. Over the time we've been in business we have bought, at very carefully negotiated prices, over $A1 million of the equipment we've needed to run the business and have always paid cash for every purchase (apart from our office space we lease nothing).

This has meant that any 'profit sharing' scheme would have been as meaningless as any share scheme - both would have resulted in a minimal to zero return to the employees in each year of our existence (as it has done for Exetel's shareholders themselves every year of our 'life' to date).

Our business plan, like all business plans it must be said, 'shows' a quite real level of profitability in the coming year and, after allowing for our established and likely future, commitments to the support of various fauna, flora and environent protection projects would allow for some sort of 'real' profit that could be used for things other than the constant investment in equipment and facilities.

We will have a need to operate the business going forward with the same very tight restraints on spending money wisely and as little as possible as we have for the last four and a half years where I have scrutinised the spending of every last cent. The best personnel in the world, who have the best interests of the company at heart will never be as careful about expenditures as the person whose money is being spent - it just isn't likely to happen.

The main attraction of setting aside a percentage of the profit made by Exetel as a 'bonus' for some of the employees who are involved in spending the company's money seems a sensible way of adding some additional 'rigour' to spending decisions at all 'levels' of a small company like Exetel.

We've asked for a proposal from DeLoittes to set up a profit share and, perhaps, a share of any sale proceeds if one day we decide to accept an unbelievably good offer from someone to buy Exetel. I have my own ideas of what is required and how it could operate and will be interested to see what the paperwork looks like.

I am aware of the many downsides of such schemes, both from talking to DeLoittes, my previous business experiences and my, now, quite wide reading about these initiatives. I doubt that Exetel will be able to avoid all of those downsides. Personally I benefitted immensely from IBMs employee share purchase scheme, as does my youngest daughter today and on one other occasion I did extremely well out of anther start up's share allocation scheme and so my natural optimism makes me think that the many upsides will outweigh whatever negatives we might encounter should we proceed.

I have been wrong before. 

......at least in a financial sense.

I added a 'news event' to the 'about Exetel' part of the Exetel web site yesterday commenting on the successful year, at least in terms of financial results, that Exetel has had in FY08. Steve, Annette and I also had a quiet 'celebratory' dinner to mark the end of the financial year and to congratulate ourselves for keeping Exetel alive, and increasingly financially 'well' through a very tough four and a half years. Very few start up businesses get to a fourth 'anniversary' and even fewer get much beyond that point.

June 2008 is the 51st consecutive month in which Exetel's revenues have grown (we issued our first invoices in March 2004 and therefore our first 'record' month was April 2004). I can't remember the exact amount we invoiced in March 2004 but it was much less than $A50,000. Invoicing in June 2008 wil be a little under $A3,500,000 and each month since March 2004 the monthly billing amount has increased in an unbroken succession. Of course, with every successive month being a record that meant that every one of the last 18 'quarters' was also a record as were each of the last 9 half years and the last 5 financial years. It is a pretty sight to see the bar charts of Exetel's revenue growth on a single page of the 'annual report'.

Exetel now has around 75,000 customers of our different services and the year's revenue will have grown 25% from the previous year to over $A36 million and we still retain the ratio of employees to revenue of 1:$A1,000,000 which, as far as I know, is easily the most efficient ratio of any company in our marketplaces/service types. Our 'experiment' in providing support from Sri Lanka has worked out well over the past two and a half years and our percentage of customers who buy more than one and more than two services from us has trebled over the last two years and has begun to escalate steeply over the past six months.

So we treated ourselves to a nice bottle of Champagne and an equally nice bottle of a very rare Margaret River red while eating a very nice dinner and briefly 'bathed' in the rosy glow of achievement while ruefully commenting on the fact that we hadn't given ourselves a pay increase since we started the business almost 5 years ago.

And that will be that in terms of the self congratulation and 'rosy glow bathing' as I was forcibly reminded earlier this morning when I updated my 'to do' list for between now and mid July and realised that I had more to put in place before I took off for a brief break than I could actually do. It was also quite 'sobering' to realise that there are only a handful of days before we start the new financial year with the much tougher (larger) month by month targets for all services and the significant changes that we will have to successfully put in place over the first three months of the new financial year to make those targets realities rather than a quickly amended downward set of wish lists.

At the moment Exetel has around 40 'major' projects to complete in 2008 in addition to meeting around 120 KPIs spread over the different areas of the business. As anyone who has been involved in managing a small business would know, you have to constantly change and improve almost every aspect of what you do just to 'remain where you are'. To grow, in any sense of that word, you often have to make significant changes to things that you are currently doing very well. So along with all the other operational and process changes we need to put in place we have to, like many other businesses, change some parts of our business that are already going very well.

Every aspect of any business can always be improved providing there are capable people involved in looking objectively at what is being done and then finding ways of truly improving how its done (as opposed to just doing it differently which, in my experience, has often been the case in past working 'lifetimes'). Probably the most important issue in improving things within any company is selecting the right person to make the changes - pretty obvious of course but there is a very big difference between a person who is great at making things work and a person who is great at making things work better - sometimes that isn't as apparent as it should be.

Exetel wil be managed via approximately 120 'kpis' in FY2009 and on top of that we have plans for almost 40 major 'improvement projects' in the coming year. If these projects are successful they should result in five interesting and easily measurable results for Exetel which, in no particular order of relative importance are:

1) Reduce TIO complaints from 40 per quarter in FY2008 to zero per quarter in FY2009

2) Decrease the cost of providing ADSL services by 15% by 31/12/08 from the level achieved at 30/6/08 and a further 7.5% by 30/6/09

3) Double the June 2009 revenue over the June 2008 revenue

4) Reduce the 'unplanned' personnel loss in FY2009 to 3% from the 6% achieved in FY2008 and the 9% achieved in FY2007

5) Increase the operating efficiency of Exetel from 1 person per $A1 million of revenue in FY2008 to 1 person per $A1.1 million of revenue in FY2009

Not particularly easy to achieve key management objectives and, right now, I think we will struggle to achieve them but they are my personal goals for the coming year.

I hope I'm able to write a blog with today's head line this time next year - come to think of it I will settle for still being here next year to write any sort of blog entry.

.......I'd Do It In Another Country.

I did some preliminary work on the likely HSPA service offering we hope to be able to offer later in the year (my idea of preliminary work is to take a very high target number of 'sales' in 24 months time and work backwards to see how that could be achieved - it's a lot more interesting than to take a number of 'sales' to be achieved in the first month and work forward 24months).

As with all 'planning', it's simply playing with numbers and making assumptions based on the 'facts' known at the time of indulging in this sort of exercise - anyone who claims otherwise is kidding themselves or is a kind/type of planner I've never encountered. After a fair amount of thinking about this service over the past,almost, two years the number I came up with was 500,000 HSPA users in the 36th month after first offering the HSPA service. which translates into a revenue of around $A120 million a year.

When it's your own money that is going to be needed to fund and sustain a new venture you do take it quite seriously and you do, at least I would think the majority of people do, rationally test your different assumptions against your previous experiences and the, relatively, few facts you have at your disposal. As, in my case, I'm never very ambitious I don't have the constraints of someone who is aiming to dominate a market/product sector so I can get away with less 'research' and have a much wider margin of error than someone who is aiming for a significant market share in a particular market/product sector.

Throughout the four plus years that we have operated Exetel (bearing in mind it was a zero base start up in a product set/market place that was already 'mature') we have, obviously, suffered from being the smallest company with the least buying power (and therefore the highest buy prices) of any of the companies we competed with. Ignoring Telstra and Optus we still paid more than twice as much for infrastructure and IP bandwidth than larger and well established companies and we also paid more for 'tail circuits' and, of course, much more for wire line and mobile minutes and infinitely more for VoIP minutes. We also paid more for routers and servers and virtually every other 'component' we needed to operate the business.

I don't say any of these things by way of complaint, I'm just pointing out the obvious - that a start up company has a lot of difficulty in buying 'components' at pricing that allows it to compete with companies that are established in any market place. ("Well spotted - he can grasp the bleeding obvious" you might feel inclined to think). OK - completely obvious and equally as obvious is that since the Phoenicians sold blue beads to the Egyptians every start up company has faced the same scenario and while over 95% of all start ups fail within the first four years of operation 5% overcome the difficulties and manage to survive.

How the 5% survive would vary infinitely but they would all have to have one thing in common I would have thought - they overcome their buy price disadvantages with running their businesses at a much lower cost than their established competitors which, over time, neutralises and thens turns the initial price disadvantage in to an overall price advantage. I think Exetel has eventually achieved this status - but it's taken almost five years.

Perhaps Exetel has become one of the 5% that has managed to survive. However we now face the difficulty of 'starting all over again' in trying to compete with the established mobile distribution organisations around Australia who have 'huge' buying volumes with the mobile carriers and who are far more important to the mobile carriers as customers and who will get to buy HSPA services, data and devices at much lower prices than Exetel will be able to do. So we will have to go through the same 4 years of difficulties and back breaking and mind sapping workloads all over again. A very unappealing prospect indeed and not one that I, personally, can contemplate.

In establishing a viable (buying power) HSPA operation we will have to do a large number of things differently to the way we have built the other aspects of the Exetel business and, no matter which way I look at it, the major difference is that we shouldn't do it in Australia but we should do it in some either much bigger marketplace (EU or USA) or some entirely different marketplace Russia or Japan and use the much larger numbers that could be achieved in those places to develop a level of buying power (number of connections and gbs of data) that will allow the Australian company to buy at the lowest rates available to any Australian HSPA service provider (other than the mobile carriers themselves).

I think that Exetel has got a little over 1.3% of the Australian ADSL marketplace after four and a half years of incredibly hard work. I doubt that it would have been any harder to have started up Exetel in the UK (for example) and have built a similar market share of a 100 million user market rather than Australia's 5 million current users and instead of having an annual revenue of $A35 million in Australia having a revenue of $A700 million in the UK. Well, perhaps not that much but something a whole lot more than what we have today in Australia. The effort would have been no more than we have put in to building the Australian business.

Sure you'd have to have put up with living for four years in a dreadful climate where it's continually cold and wet but then when you start up a company you don't see much of where you live except for a computer screen anyway.

So while we will proceed with HSPA in Australia (and deal with the issues of buying price penalties just as we have for the past 4+ years) I think it's going to be essential to, almost in parallel, do the same thing in the EU if for no other reason that to buy HSPA devices at increasingly lower prices, offer 'global roaming' (at least in the EU) to Australian customers and Australian roaming to EU customers and to eventually (in three years time) use the EU company's much larger buying power to get lower service and per gb prices in Australia.

I will have a first hand, and much more detailed look at the current status of HSPA services in the EU later next month but from what I've seen on the various different suppliers web sites their plans and pricing aren't very attractive and my initial enquiries regarding wholesale pricing is that it's a lot better than it is in Australia. However what's provided as a 'guide' may well turn out very differently in a contract.

It may prove to be impossible but it has a lot of appeal in concept and the concept has stood up to the initial obtaining of the 'facts'.

As the new financial year is only a few days away I've been trying to tidy up the 'initiatives' that we will put in place in July and August to try and ensure we get the new year off to at least an 'on target' start and hopefully a bit better than that. One of the things that remains shrouded in doubt, at least from a planning perspective, is what is the best thing to do about providing ADSL1 services in the immediate and medium term future. A very significant percentage of Exetel's revenues still come from ADSL1 though that percentage falls each month from a high point of 99% in February 2004 to around 50% today and has dropped at an average of 2% of total revenue each month over the past 5 months.

Over the past few weeks the percentage of ADSL2 applications to ADSL1 applications has gradually increased and over the past few days has exceeded 40% of daily applications for the first time. I have no 'marketing' explanation for this increase as Exetel hasn't made any changes to its service offerings and, as far as we know, there have been no significant changes by any other ISPs that might explain this, quite significant, shift in emphasis. ADSL2 customers are still only just over 20% of total Exetel ADSL customers so ADSL1 customers are still the single most important component of Exetel's monthly revenue and in discrete numbers continue to increase each month.

The major problem in improving the attractiveness of our ADSL1 offerings (which as far as I can see are more attractive than any other ISP's ADSL1 offerings) is the 'brick wall' of the cost of providing the service. The monthly port rental of a 1500/256 ADSL1 port is more than twice as expensive (to Exetel) as the rental of an ADSL2 port. Ignoring the obvious huge speed advantage of the ADSL2 port over the ADSL1 port the double cost makes a nonsense out of trying to construct 'equitable' plans on a side by side comparison. (as a side note: it's interesting in all this kerfuffle about providing faster internet speeds via FTTN that Telstra et alia keep insisting how much more expensive it's going to be yet all experience in deploying ADSL2, including Telstra's "special" offers, shows that ADSL2 is much less cost to the end user than ADSL1).

So the current challenge is to find an answer to what can be done about improving ADSL1 services to end users who have no access to ADSL2 now and in the short to medium term future?

The only real answer is for Telstra Wholesale (and therefore Telstra Retail) to provide ADSL1 port rentals at a far lower cost than they are priced today and to make sense of the speed difference between ADSL1 and ADSL2 - it makes absolutely no sense that a faster service has a lower base price than a slower service except in the Telstra accounting sense that they don't want to reduce the revenue/excessive profit contributions they already have in place. So where ADSL2 is available from their ISPs there will be an accelerating loss of ADSL1 customers moving to ADSL2 (not just for the speed which most users won't ever notice) but because the cost per month is less. That's fine for the 70% of Australians who have access to ADSL2 and can benefit from lower internet costs (and also get higher speeds).

It still leaves the other 30%, mostly those living outside the major cities, paying unjustifiably higher costs for a slower service. It's all very well for Exetel to simply say "Telstra Wholesale determines the price at which we can offer ADSL1 services" but all that means is that our customers look for other solutions from other ISPs (and on the 500 exchanges that Telstra cover that we can't provide ADSL2 at those Exetel customers get a "special" Telstra offer of ADSL2 at, lo and behold, less cost than Exetel are providing them ADSL1 for.

So the current scenario is that we have to plan to keep losing ADSL1 customers at around 1,000 a month to Telstra ADSL2 services and there's absolutely nothing we can offer that will prevent that happening at this time. In the future we are hoping that a sensibly priced and 'scoped' HSDPA service will become available that will allow a significant percentage of our current ADSL1 users to move away from ADSL1 to a much higher speed HSDPA service at a much lower cost than their current ADSL1 service - for a user who downloads less than 1 gb per month (of which we have more than 20,000 customers) we will be able to offer a much higher speed service for less than half what they are paying today.....but that is some months away.

We really need to come up with something 'out of the box' to bridge the gap between now and when we could put in place a sensible HSDPA service but my personal abilities to 'pull yet another rabbit out of the hat' doesn't seem to be working at the moment and no one else in Exetel has come up with anything either.

My only glimmer of hope is to somehow make VoIP appeal to those current and future residential customers who still see it as somehow 'frightening' or 'unreliable'. Telstra still has some 'vulnerability on being reliant on wire line telephone calls at high call rates to cross subsidise their 'special' ADSL2 offers so if there was an easy to understand way of making the less knowledgeable customers understand how they could reduce their actual telephone line rental and use VoIP easily and reliably to reduce their call charges then maybe there's a way to address this 'impasse'. However after destroying half a tree sketching out different ways of making this 'proposal' I can't find the words or 'pictures' that make a compelling and simply worded case.

The other route to go down is, of course, 'bundling' either mobile or wire line services with the ADSL1 service but Exetel is extremely limited in being able to put together really attractive offers on either mobile or land line telephone calls. However we will explore how we could expand our offerings in this area.

None of these putative solutions is really the answer and none of the ones that I have considered offer any real 'blockbuster' breakthrough - the issue is just the high cost of ADSL1.

Right now I cant see why anyone connected to an ADSL2 enabled exchange wouldn't switch to ADSL2 and as that appears to be 70% of Australians I don't think ADSL1 has much of a future unless something changes either in the cost of the ADSL1 service or the way most people regard VoIP.

Basically ADSL1 will join Dial Up as a quaint memory for most people within 18 months.

Life remains full of surprises and I sometimes wonder if I'm really up to dealing with the way people think and operate in today's Australian technology marketplaces. I commented some time in the not too distant past that there was a more amiable trait in the sorts of marketplaces in which Exetel operates for 'competing' companies to consider more collaborative methods of approaching their business objectives. Exetel has received several approaches from companies whom we would regard as competitors since the start of this calendar year with various 'co-operative' buying proposals covering modems, IP bandwidth, advertizing and even Telstra tail circuits.

Earlier this morning I received a call (again on my mobile - is my mobile number posted on some public forum somewhere?) from a person I have never previously been in contact with who said he was speaking on behalf of a competitor about a subject he believed Exetel could be very interested in. It was quite early in the morning, long before the time that most 'business' calls are made, and the person was very well and politely spoken which made the call unusual in itself - so I listened.

In essence his proposal was that Exetel join with the company on whose behalf he was acting and two other companies, unnamed and about which he provided no details, to open a chain of shop front outlets to sell data over 3G services and ADSL services based on the Apple iPhone and two other devices for which his 'employer' had access to. The basic plan was to provide these services in regional areas of Australia, predominantly in Queensland and NSW in terms of locations but Australia wide with a disproportionate emphasis on Tasmania.

He said he knew that such a proposal would appeal to me because of my long held, and apparently well known, "passion" for country Australia and my previous experiences of setting up 'country' outlets in the past both for Osborne and TPG and in an almost similar way for OneTel. I was surprised at the amount of detailed knowledge he demonstrated about my past working 'life' not because of the generalities but because of the specificities - the towns and cities I had been involved with in the past and even the names and current whereabouts and jobs of more than a few people who I had worked with in these areas.

It's always flattering, even for the most laconic of people, to have someone make a series of admiring comments about you based on actual events and people in your 'past life' and he certainly knew how to do that with a depth of knowledge that was bewildering as I doubt that anyone other than myself knew some of the details that he seemed quite familiar with. I was impressed - but then that was clearly the intention.

The thing that I found almost 'uncanny' was the fact that I had been thinking about the best ways of promoting the HSDPA service and had thought about how it could be used to solve the current Tasmanian back haul issues (that even with access to BassLink are still going to present problems) and had been working on how this could be done with some of Exetel's current regional and country agents. It was almost as though someone had access to my inner thoughts (which I have never expressed even casually to Steve and Annette).

So I am intrigued, not just by the fact that someone else can parallel my own thinking so exactly and know so much about some things about me that are quite personally private, but how quickly and how effectively such a chain of retail outlets could be created; and more importantly how much it would cost. It's also made me aware that, in the event that we did actually seriously consider doing something like this, we may well have a very serious competitor which would make the whole concept much less attractive to both us and, I would assume, any other real competitor. (one of the key reasons I've actually considered this scenario is that it is 'different' and, I thought, a jump ahead of competitors).

So I thanked the 'nice man' for his courtesy in approaching Exetel but said that we would not be interested in such a joint venture though he had presented the merits of combining the strengths of different companies extremely effectively. I said that we were considering something similar and had made no decision as yet and if we ended up actually doing such a thing there might be some opportunities of some sort of collaboration in the future.

So.....interesting.....and a little disconcerting.

I'm actually not sure now whether I was considering such an approach as seriously as I made out in our conversation or whether I'm now more positively influenced to do something because I've been made aware that someone else is seriously (apparently) considering doing the same thing - or at least a very similar thing.

It does seem a sensible possibility to put more effort in to promoting HSDPA services in areas that are not ever likely to get ADSL2 and that, obviously, means regional areas of Australia (and it's also true that I have a deep affection for 'country' Australia). It's also true that Exetel does have over 300 agents in many areas of regional Australia and we have begun talking about Exetel franchises with such a scenario as HSDPA in mind.

Very, very annoying that someone else is thinking exactly the same thing and even more annoying that someone knows enough about Exetel and me personally to be able to exactly understand what we might do and why and even what people we might think of involving - that really p***es me off.

However what really concerns me is that Exetel won't be ready to do anything along these lines now for several months and, unless I completely misunderstood this morning's conversation, that may be getting too late and someone else may well have beaten us to it.

Life must get easier soon.

......assuming its worth anything at all.....

As the 'rumblings' of ISPs for sale and the enquiries about whether Exetel is for sale seem to be slightly increasing rather than decreasing it seems that there is more 'unease' in ISPland than there has been for some time. Maybe the 'realities' of a post FTTN 'tender' process has shaken up more people than usual and that is in turn causing more people than usual to examine just what they are doing and increasing the speculation on what other people are doing or maybe there has been some sort of 'seismic shift' that I'm unaware of - that could easily be the case.

I have, to date, only taken the very slightest of interests in these issues as they are always beyond my ability to understand and, it seems to me, the various take overs and bale outs of failing and failed ISPs always ends in tears before bed time; i.e. the throwing of good money after bad with shareholders losing even more of their share value than prior to the latest 'buy out' executed on their behalf. The small taking over the smaller is only ever going to end up one way - everyone concerned loses everything. The large taking over the less large seems to go exactly the same way. So size doesn't seem to be a factor. Only the basic principle of business remains a factor despite the short term success of the corporate raider process of the 1970s and then again even more briefly in the 1990s (the belief that an old fashioned company's balance sheet was undervalued and a smart kid from the HBS or LSE could make a lot of money in a very short time by buying the whole company and selling off its components for more than the whole).

Corporate raiding doesn't work in the Australian ISP industry because, for the most part as far as I can see, the balance sheets of ISPs are actually worth far less than their 'face value' let alone what you could get in splitting them up and selling them off. But that doesn't matter because the guiding principle of ISP take overs/bale outs seems only premised on the acquisition of customers and the leverage the buying company's superior management and lower infrastructure costs can bring to the acquired user base.

So, my quite possibly faulty memory tells me, that all small companies that bought out smaller companies in the ISP market sector over the past 5 years ended up going broke very shortly after they bought out some smaller company. Unsurprising as a company that was losing money is never going to add anything positive to anything and has undoubtedly annoyed its customers a great deal while it was going broke resulting in a losing scenario all round.

Although there have been, probably, hundreds of dismal failures in the buying and selling of failing ISPs in Australia there have been four spectacularly successful (for the seller) ISP transactions in the 'history' of Australian ISPs that I can remember (there may well be more but my memory is not what it once was).

The first of these was the sale of one of the pioneering ISPs in Australia - Connect.com - which was sold to a consortium in 1995 with AAPT buying out the other two consortium members (NAB and Sirius Technology) in 1998. The price details were not readily available at the time but the deal was said to be "very satisfactory" by the three owners. AAPT still has an ISP business which was based on the Connect.com buy and therefore you would have to say, without knowing any details, that it was a value for money purchase by AAPT. In this respect it appears to be, at least to me, unique in the 'history' of ISP sales.

The second, and most spectacularly successful ISP sale of all time (for the sellers) in this country (and quite possibly any country) was the sale of OzEmail to Worldcom/UUnet in early 1999 which netted the three founders (including Malcolm Turnbull) over $A400 million (and that was when a million dollars could actually buy you something). However that was a really bad transaction for the buyer who went out of business less than three years later resulting the eventual sale of OzEmail for less than one fifth of what Worldcom/UUnet paid for it - still almost certainly more than it was worth. The fact that iiNet subsequently ran out of money and had to sell off 40% of its company to Amcom and the then Powertel is a fair indication that OzEmail wasn't worth anything like the $A100 million that iiNet paid for it.

Which bring us to the two large transactions in 2008 - the sale of TPG to SPT and the sale of Westnet to iiNet. Both of these transactions involved real money and both gave excellent, in the case of TPG spectacularly 'satisfactory', financial returns to the founders/owners. The owners of TPG and Westnet have been able to bank $A150 million and $A80 million in cash respectively and David Teoh (the owner of TPG) also got 38% of the merged entity and got to run it. Excellent to spectacularly good results for the sellers. Not so good for the buyers.

Looking at the performance of the SPT/TPG share price from the time of the 'merger' (45 cents) to today (20 cents) as shown here:

http://www.asx.com.au/asx/research/ChartsSearchAndResults.jsp?postback=true&asxCode=sot&compare=index&indices=XJO&compareCode=&TimeFrame=D6&chart.x=0&chart.y=0&chart=Create+chart

SPT has (after the merger) 675,000,000 shares on issue which means the company is now valued at $A137 million compared to the $A150,000 it paid in cash for TPG PLUS the $A100,000,000 (36.8% of the issued shares it gave to David Teoh on top of the $A150 mill in cash - most of which it had to borrow). So the simple arithmetic says that at the time of the 'merger' SPT valued itself at 675,000,000 x 45 cents = $303,750,000 while today, less than three months later the share market values SPT/TPG at only $A137,000,000 - a loss of shareholder value of more than 50% in three months. And that's at today's prices - the shares will open lower today and the spiral downwards shows no sign of plateauing or reversing.

This in itself raises an interesting situation where David Teoh could use part of the cash he received from SPT to buy the remainder of the merged company he doesn't own and still have $50 million in cash. Of course he will have to pay much less if the shares continue to follow their current trend - an interesting conflict of interest where the executive chairman of a public company has a vested interest in the share price falling! It more correctly defines that TPG wasn't worth anything like the $A250 million that SPT paid for it with the share market valuing the TPG component three months later at 40% of $A137 million = $A56 million - a fall of 80% in value in less than three months with further falls to come. David Teoh indeed 'deserved one Alan Bond in his lifetime'.

A very expensive loss for SPT shareholders in shelling out so much money for TPG - at this time at least.

The iiNet situation shows a similar situation although the chart results here are exaggerated by the share holder dilution of issuing more shares to fund the Westnet purchase:

http://www.asx.com.au/asx/research/ChartsSearchAndResults.jsp?postback=true&asxCode=sot&compare=index&indices=XJO&compareCode=&TimeFrame=D6&chart.x=0&chart.y=0&chart=Create+chart

Again, it shows that over the past six months the share price has fallen by 40% and the company now has more, not less, debt. Not as spectacularly bad as the SPT/TPG share price fall but not something that you would expect having made a "major acquisition which will drive significant increases in profitability". Bear in mind that iiNet has accumulated $A35 million in losses from its previous take over activities if you look for an indication of the success from its record in previous take over activities.

Of course there can be all sorts of explanations as to why all of these, and countless other, ISP purchases were positive moves by the purchasers - I just can't think of any. It seems to me that all take overs/buy outs end negatively for the shareholders of the buyers and I can't remember any exceptions to that track record - no matter how the actual results are subsequently portrayed by the people who made the purchase decisions.

They didn't 'invent' the phrase - caveat emptor - some 2,500 years ago for no reason.

..........demonstrates just how little anyone understands about what the FTTN tender is really all about or what it will result in.

I just finished watching the ABC "Inside Business" segment on the FTTN tender and what it all means (compressed in to 15 minutes of 'sound bites'). The ABC segment director had assembled an impressive array of 'experts' including Kate Mackenzie (Head of Telstra Wholesale) the founder of PIPE and a number of impressively titled 'analysts' from Australia and a couple from the USA. I fully understand that TV content, even that allegedly aimed at 'business' people, is put together by people who have little knowledge of and less interest in the material they grind out and this particular piece conformed to that 'standard' of no facts, no comprehension of the topic and a line up of muppets spouting their particular 'party lines'.

It was a complete waste of time and money with absolutely nothing being said by anyone that either added any new knowledge or insight or even demonstrated any understanding of what's involved or what the results might be. I regret spending the 15 minutes of my life watching it. Fortunately I was having breakfast at the time and desperately attempting to finish the Saturday SMH cryptic crossword so it wasn't entirely wasted. However it did re-emphasise that almost no-one in Australia either understands or cares about what the FTTN 'tender' will do to their future lives.

I've come to the view that as no-one (other than Telstra) has any real idea of what it will really cost to build this concept, and they have a poor track record of making correct estimates of the costs of this major, end delivered service, in the event there is one, will end up costing too much for most people in most locations around Australia to use. Frankly the best result of this tender charade would be for each State to build its own network and then massively subsidise it to deliver whatever priced service they need to provide to keep themselves in government and then keep the cost down by the opposition promising lower costs at each subsequent election.

(I know that will never happen but it would solve an awful lot of problems and at least make State elections serve some sort of purpose)

So the 'tender' process will, one assumes, begin sometime later this year and will then blunder on to some non-conclusion either via the High Court or in a Labor cave in. Either way there will either be no national network or a national network that will cost so much that no-one will use it.

What does this mean? It means absolutely nothing to the 85% of Australians who live in the capital cities and an increasing number of regional cities who already have, or will shortly have, ADSL2 and, quite possibly, in the not too distant future will see higher speeds than are available currently.

For the 15% of Australians who may never get ADSL2 - well - they will shortly get one or more carrier's wireless data services at prices well below those mooted for an eventual FTTN service and they will get it 'today' not in 5 - 7 years time. It's just as likely that those 15% will get speeds in excess of 12 mbps in the not too distant future which,again, makes a nonsense of this current FTTN fiasco.

One of these days those idiots in Canberra, who know absolutely nothing about telecommunications, will have to back down from their 'promise watever it takes to win the election' sound bite "policy statement". The concept of a national network that is based on Telstra is a nonsense and can never work to any Australian's advantage; you actually don't need to be that bright to understand that simple concept - but then I guess that demonstrates how bright Crazy Kevin and Stupider Stephen are - 20 watts and dimming as more and more of their pre-election waffle is exposed as being bereft of the slightest practical applicability.

If you tried hard to comprehend the 'sub text' of this morning's ABC segment you couldn't help but come to the conclusion, from Telstra on dow, no-one who offered an opinion was sure that any of the possible bidders or any of the 'analysts' actually thought that the FTTN tender would actually result in a network being built at all or, if it was, it would take twice as long as 'planned' and be too expensive.

No real surprise in those 'sub text' views - pretty much like every other Labor election winning promise to date.

....it's always something else.....

We received a letter, hand delivered to our North Sydney office, from an organisation I'd never heard of yesterday - AFACT. I don't think I've read a more insultingly phrased piece of 'business correspondence' in my business life and its insultingly phrased statements were only matched by the level of ignorance and error. I looked up this organisation here:

http://www.afact.org.au/index.html

and wasn't much wiser other than to wonder why any serious business is located in Mona Vale.

Why such an organisation should be writing so insultingly to a small company like Exetel is beyond my ability to understand - perhaps North Sydney is the closest ISP to Mona Vale (a Northern Beach residential suburb only known for it pub, a dangerous right hand break when there's a Southerly and as the back way turn off to Royal Prince Alfred yacht club on Pittwater).

According to the letter, Exetel is a criminal organisation that master minds and colludes in the criminal activities of its associates in the rape and pillage of the 50,000 individuals and organisations that AFACT represents.

The letter was responded to within an hour or so in the appropriate manner but it really concerned me that anyone can think they have the 'right' to gratuitously insult someone and defame them so casually. What has the, business, world come to? Who on Earth thinks they can address a person they have never met, nor had any contact with in any way previously, is such an arrogant and defamatory way? If you walked up to a total stranger on the street and made the insulting equivalent of the statements in the letter you could expect to end up flat on your back with a broken nose less than a second after you finished speaking.

Unfortunately there is no business equivalent to that totally merited response.

Exetel is very experienced in dealing with the 'usual suspects' who send copyright infringement notices to us and, long ago, we put in place the processes to legally and ethically deal with them. The processes we have in place are well documented on our web site and while they have undoubtedly lost us some business over the years, they are both effective in ensuring that Exetel complies with all laws relating to copyright that we are aware of and meet the requirements of any genuine copyright holder. In fact I would go further and say they are probably more effective and more ethical than any ISP in Australia has in place including the very large ISPS,Telstra and Optus, who carry over 75% of the internet traffic in Australia (Exetel wouldn't carry more than 1.2%).

As far as a quick check could determine, Exetel has never received any copyright infringement notice from AFACT or, apart from their defamatory and insulting letter yesterday, any other correspondence or contact. Doubtless that will change in the future but if it does we will not be dealing with it - we will let our legal advisers look after our interests in regards to ensuring we obey whatever laws relate to our business operations. (yet another waste of money dealing with issues of no relevance to our business operations).

Personally, I regard stealing other people's property the same way I regard people who steal anything - they're thieves and should be dealt with as thieves by the proper authorities.

Last time I looked I don't wear a blue uniform or carry a gun and the protection of property is not something I'm competent to be involved in.

However - looking at this report:

http://technology.timesonline.co.uk/tol/news/tech_and_web/article4165519.ece

it seems that one major OECD country's government is now enacting laws to reduce copyright theft. Given the Labor party's ongoing rhetoric about "making the Internet safe" it is more than likely that this issue will be raised in Australia's parliaments and the days of the P2P copyright thieves may be coming to an end in a country near you in the not too distant future.

You may have seen various press reports earlier this week claiming that an independent study had shown that Telstra provided the best ADSL2 service in Australia - hardly Earth shattering news had it been true and most people would expect that to be the case without spending money on such a study. However, at least according to this article:

http://www.itwire.com/content/view/18837/127/

the news that Telstra's ADSL2 service was the best, as stated in their previous article, was incorrect because the organisation purported to have run the study hadn't actually commenced testing yet.

Very odd when you think about it.

Nevertheless, the point remains, why run such a study at all? (and I'm assuming that it would actually be possible to effectively test the various ADSL2 services offered by the different carriers/service providers - which I personally would doubt).

Telstra has the largest network and therefore offers services in more than twice as many locations as anyone else - by definition Telstra's ADSL2 service in those locations is the best because there is no other service.

In all other locations (including the CBDs of the major cities) where other providers would have viable numbers of customers to make viable provisioning of back hauls possible, Telstra would still be the 'best' because it would have an enormous advantage in already established back hauls and hardware infrastructures and certainly wouldn't run into whatever the issues experienced by Adam and Internode late last week/early this week - a factor always likely to occur in new network infrastructures.

Having said that - what is it possible to test? I'm sure IDC, with its decades long record of 'testing and evaluation' will have come up with sensible criteria but reading the New Zealand report it was pretty much ho hum and didn't seem to address the actualities of network performance across the multiplicity of aberrations that are the actuality of the Australian residence to local exchange network and which cause so much angst in individual customer's use of ADSL2 services.

Exetel as a user of two carrier's ADSL2 networks in Australia for almost two years with 15,000 customers currently connected (not a huge number but a 'sample' likely to be far in excess of any 'sample' IDC end up using) can categorically state that the performance (under optimum copper residence to exchange conditions) doesn't vary between the two carriers. Both services are excellent and deliver consistently high speeds over two years with no latency/drop out/speed degradation by time of day issues.

HOWEVER:

both carriers, on different sectors of their national network at different times, have delivered less than optimal speeds for varying lengths of time. This is very annoying to the end customer and, in the case of a 'piggy in the middle' such as Exetel probably something much more than annoying. Having been in the communications business for more than five minutes it's not surprising (not any excuse) and as with all growing networks the problems reduce in frequency over time. Anyone who used the Optus wire line network in the early days of deployment may remember some of the issues that regularly occurred then but have been non-existent for more than ten years now.

Personally, as an end user of an Optus ADSL2 service, I've never had a problem in almost two years (Mosman/Sydney Lower North Shore). As a supplier I am more than well aware of the fact that Optus has underprovisioned different sectors of its network at different times and has caused a lot of unhappiness to various groups of customers each time there is any sort of delay in upgrading the back hauls from the different LACs around the country. Optus is unfortunate' compared to the smaller ADSL2 network deployers as it much more quickly reaches 'saturation' points on its different network sectors than the smaller deployers (with their much smaller numbers of customers do). Again, that's no excuse for Optus but it is an explanation that can be understood.

I recently looked at a 'smaller' ADSL2 network that had zero contention on its 1 gbps loop and that would be the case for some time (because of its relatively low number of users). However I would be unsurprised if that network deployer was in any hurry to incur the very significanrt capital (even by leasing) costs associated with putting in the replacement 10 gbps exchange controllers once the 1 gbps limit was raeched on the first exchange - I could, of course, be quite wrong.

So you would have to say that Telstra, having learned from the early days of its deployment of 8192/384 ADSL1 services (which from Exetel's experience had a significant provisioning problem on various back hauls in the early days - none since) would have not provisioned its ADSL2 network below the 10 gbps level or much higher based on their known huge user base and likely take up. Who could match that? No-one in Australia.

So when IDC gets round to 'measuring' the performance of Australian ADSL2 services it would be a total surprise if Telstra's services weren't ranked Number One (or Numero Uno).

However my experience, and the experience of the vast majority of the other 15,000 'Exetel' ADSL2 users is that our ADSL2 experience is trouble free over a long period of time and is delivered at a vey low cost.

I don't see the point of such a 'study' (other than it makes IDC a lot of money).

....."someone dropped a bomb somewhere, polluting all the atmosphere and blackening the sky."

....and along with "In the year 2525...." Zager and Evans summed up the more depressing outlooks of the late 1960s in those two top ten pop songs.

Starting up a small business in a highly competitive and ever changing marketplace often gives me the underlying feelings expressed in those two songs of so long ago - everywhere you look there seem to be unexpected problems and difficulties no matter how late in to the night you work each day.

But then, every so often, in the stress and ever increasing workloads and the seemingly never ending stream of major and minor decision making and the even more steeply increasing minutiae of being a part of the management of a start up business you have a day where you feel that maybe, just maybe, you've actually finally reached a stage where its not going to take every second of your waking day just to keep the company 'alive' and likely to stay alive tomorrow.

I had one of those rare days yesterday.

I'm not sure what made me feel that way, I don't suppose many people ever do know why their 'spirits' suddenly lift, but it was certainly helped by completing next year's business operating plan, having a brief meeting with Exetel's tax accountants that gave us a 'clean bill of health', having a board meeting that was the shortest ever as there were absolutely no issues that took any time or mental effort to discuss and, finally, at around 10 pm last night reaching a record ADSL order day that showed we were on track to achieve our ambitious plans to double Exetel's revenues over the coming financial year.

Over the past six months the order volumes for each one of the ten different services Exetel offers has gradually increased month on month. Some of the services have increased dramatically - such as the SMS from email service that has grown to over 300,000 SMSs a month and VoIP which has more than doubled over the last five and a half months. There have been much more modest growth, but continual growth nonetheless, in every other product and service we offer with a significant steepening in new/churn ADSL1 orders over the past two months and a doubling of ADSL2 orders in the same time frame. We have also seen, after a very slow start up period, a rapid increase in the calling card service take up as we have sorted out the early issues and have signed up more agents.

If we get the HSDPA service to market on schedule (Septemberish 2008) and if our estimates of what the take up for that service are anything like accurate we would expect revenue from October onwards to increase by around 15% from that new service alone. Similarly we hope that our much more ambitious plans for high end business Ethernet services, Australia wide with the new PoPs, will add significantly to monthly revenues.

Of course a lot of 'water has to flow under the bridge' before any of those planned events become a reality but I am, momentarily at least, feeling very good about the success so far of the changes we have made to boost our monthly sales of all services - sometimes it seems the initiatives you take don't seem to make any difference but, as always, it takes longer to see the results than you might like.

Not that any of those nominated 'events' mean anything in themselves nor does the 'feeling' actually mean anything at all in terms of tomorrow's realities....it's just that I haven't had many of those feelings over the past four and a half years and it was so overwhelmingly nice to feel that relaxed and optimistic and even a little self satisfied.

In some ways I suppose it also clearly demonstrates just how much pressure and stress there is in developing a business from the ground up (even for people who presume that they have the mental 'make up' to deal with really difficult scenarios over lengthy periods of time).

Naturally the business sections of the newspapers this morning were occupied with the latest round of pessimistic views about the 'fact' that there is going to be a recession in Australia and one that will be worse than the early 1990s - but I read through the whole of the AFR and the business sections of the SMH and Australian without any dampening of the 'inner glow' of optimism.

None of the above in any way lessens my view that the communications business in FY09 will be anything other than even more difficult than it has been in the previous two years for Exetel. I just, and maybe only briefly, feel that we have 'turned some sort of corner' and that the light at the end of the tunnel that appeared some twelve months ago really is daylight and it's now noticeably brighter.

Maybe Exetel can afford to give the working directors their first pay increase in four year and a half years in the not too distant future?

....perhaps not.

.........the 'real' mobile data 'war' is about to hot up.

It has taken the best part of two years but Exetel has finally concluded a contract to allow us to provide HSDPA services throughout Australia (whether that is to 98% of the population or some lesser percentage would depend on the reality of the various interpretations of the mobile network's actual coverage which I have no ability to comment on). We could have signed up to become an 'agent' of an Australian mobile data provider in mid 2007 (or at any time since) but there was never going to be any real point in just becoming one more 'outlet' for the resale of a carrier's mobile data plans and receiving a commission.

If you have read any of my previous 'rants' on the frustrations of looking for the means to provide what we perceived to be a real mobile data service with an open ended future to take that service as far as it becomes possible to achieve, you may remember that I set some simple objectives. Perhaps it's my naivety, but I believe the base contract terms we have now agreed, while not being exactly what a small company like Exetel needs, is a solid basis for building the services that will become a major part of Australia's internet future.

So we would aim to offer the new services within the next three months as we have to develop our side of the B2B provisioning and fault resolution software and go through the cycle of branding sims and hardware as well as developing the processes of promoting, selling and supporting the mobile data services.

If you've followed the various offers by the carriers over the past twelve or so months you would have seen a common pattern of 'duplicating' the low end offers from ADSL providers and then tearing each other to pieces by successive increases in data allowances and lowering of monthly costs with 'free' USB sim connectors being offered on 24 month contracts. There is a depressing "me too/exactly what they do but cheaper" copy cat theme running through each of the current carrier's offerings and that has been the case since the second offer was made - one day telephone carriers will actually employ someone in their product planning operations that won't simply participate in some sort of "if it isn't the same as every other provider I must have got it wrong" approach to product design.

I read this yesterday:

http://www.zdnet.com.au/news/communications/soa/Vodafone-No-dollar-a-day-broadband-for-Aussies/0,130061791,339289905,00.htm?feed=rss

which, at first sight (head line) appeared to promise that, finally, a carrier was going to actually try and match the service parameters to the end user parameters. The content belied the head line though. However it did show the first glimmer of a carrier moving away from copying the other carriers and providing a mobile data service that begins to match both the end user's needs and also takes account of the actual 'user pays' costs of providing services over a network with discrete capacities at discrete pricing.

I have two long time acquaintances in very senior positions within two different US mobile providers with whom I have discussed data over mobile for a very long time. They were the 'advisors' who told me what the actual costs of carrying data over mobile networks actually was and what it could be, profitably, sold for - it was this 'knowledge' that sustained me in never giving up until I found pricing and flexibility that would allow Exetel to offer a sensible service without asking for pricing that would be pointless for an Australian carrier to provide.

The imminent release of the Apple iPhone will almost certainly 'kick off' a new round of me tooing price/download repositioning by the Australian data over mobile carriers and their associated distributors. If that does occur it will be interesting to see what 'innovations' they introduce in to their pricing models. From what I know, which could of course be quite wrong, the current models are losing a lot of money. This is unlikely to be a concern to any carrier at the moment as the losses in absolute dollar terms are minute in terms of their overall mobile revenues and would be regarded as start up expenses.

Exetel can't begin to take such an attitude to money (to start with it's very scarce and it's our own) and we will need to find a way(s) of offering data over mobile services that suit our target marketplaces and that we can provide without losing money (for "2 - 3 years or so). I will look at the EU data over mobile services first hand when we are in the UK next month not only to see what has changed 'on the ground' since I was there last year but to check out just how close the different offerings perform in terms of speed and reliability. While, based on last year's analysis and the information we have tracked since then, I have a good idea of what we would offer 'today' we need to see just what transpires between now and August in terms of what the Australian mobile carriers will do in terms of service offerings - there is zero point in Exetel just trying to duplicate whatever Optus, Vodafone and three offer.

My, complete guess, is that of the current 4 million ADSL users today over 50% of those users would switch to a data over mobile offering within the next two years and 80% of 'new' ADSL users would select a mobile rather than a fixed line solution from 2011 onwards. This is based on data over mobile being as fast and at a similar cost to any then offered ADSL2 service with the advantage of no telephone line and therefore portability between residences - more often required than you may think if you count weekends away and annual holidays as well as people who rent (or even buy) their accommodation.

If I had to guess at the cost of a naked ADSL2service in mid 2009 I would put it at around $A45.00 for 2 - 3 gigabytes of downloads at an average speed of less than 10 mbps. I would think that an HSDPA service would be offered at slightly less than that pricing, perhaps around $A40.00 and would achieve around half the speed - perhaps a little better However the HSDPA service would be available 'everywhere' in Australia (not 900 exchange areas) and would be be totally portable. It could also be offered on a payu basis (1.5 cents - 1.2 cents per megabyte) that would allow for low/no usage months and, of course, it requires no new activation/deactivation charges when moving residences - or the fact that at the new residence you can't get ADSL2.

It's very definitely going to be a major challenge to get whatever we do 'right'. The rewards for getting it right, or even pretty right, could be quite substantial.

(I think it is one of those days when I tell myself it was a sensible decision not to 'invest' in a DSLAM roll out).

.......what is now going to happen to the minnows?

I notice one more 'krill' ISP has gone the way of all the rest of them and over the past week I have noticed an increase in the '...wonder whether you would be interested...." emails from various third parties 'alerting' us to the fact that various ISP businesses are for sale. I don't know how big Blitz Telecom was in terms of customers - no more than a few thousand I would have thought from the little information that is publicly available - but I have no real idea - but the 'offers of interest' ISP type companies that are for 'sale' that Exetel has been made aware of over the last year are seldom larger than 3,000 customers based on the brief details provided.

The ABS six monthly report 'chronicles' the decline in the number of 'ISPs' operating in Australia and from what can be seen from those reports it's unlikely that too many, if any, krill will be in existence beyond the end of this calendar year. That's sad in a way but then, if you look back over the past 15 years, almost no ISP has lasted very long and the number of companies that have survived more than 5 years can be counted on the fingers of both hands and one foot the handful of ISPs that have survived to grow to any financially viable size have all had 'flying starts' or other mainstream business revenues to fund their development and absorb their losses and/or provide their development capital.

So what do these 'figures' tell anyone (assuming they are true) about an 'industry' when less than 15 'start ups' have survived more than five years out of at least 2,000 that have attempted to grow a financially viable ISP business?

I don't know other than it must be very difficult and the overwhelming majority of people who attempt to do it don't have enough knowledge, ability or money to have sensibly thought they could make the attempt.

These thoughts crossed my mind because of two documents I read over the last two days providing details of ISP businesses that are for 'sale' plus being made aware of the Blitz 'opportunity. I don't know how many of Telstra's and Optus' wholesale customers have disappeared over the past 12 months but I would have thought it would have been quite a few. This raises the interesting question of who would be potential customers for either of those companies ADSL2 services over the coming two years. While the krill never amounted to anything very much 'singly' as a group of, say, 500 wholesale buyers the could have had as many as 200,000 or so ADSL customers and they would have been 'aggregated' via various, largely defunct, wholesale buying groups of one type or another.

What is the real market for Telstra's wholesale ADSL2 services should they ever decide to actually do that? Much more limited than it was for their ADSL1 services back in 2002 I would have thought. With, probably, less than 30 ISPs left in Australia by the end of this calendar year and with the largest of those (Optus) unlikely to buy any broad band services at all from Telstra with AAPT, TPG and iiNet also likely to take that view (if not from truly commercial reasons, possibly from other reasons) the marketplace looks very 'sparse' - probably less than ten realistic buyers?

Perhaps that guess at the possible marketplace is totally incorrect and/or far too pessimistic.

But what effect would Telstra's possible wholesaling of ADSL2 services from its stated 900+ exchanges have on the minnows who have invested in their own ADSL2 networks? In principle it would be a relief to them that Telstra is at least considering that its own investment in ADSL2 means that it will ensure that any FTTN rollout would not invalidate the investment ROI for itself and therefore for them. Could be the case - could be wishful thinking. I think this set of statements by Simon Hacket (and do they have more than a whiff of hysterical panic behind each page or what?):

http://web.mac.com/simon_hackett/Site/Technology/Entries/2008/4/15_An_Inconvenient_Truth_about_FTTN.html

makes it clear that the 'rusting unused iron' scenario is more than present in the thinking of the financiers that optimistically funded ADSL2 roll outs by the minnows on 7 - 10 year leasing plans.

Maybe the FTTN will really happen - but personally I doubt it and I think Telstra doubts it too - or at least has decided that it is going to be a long, long way away.

So why soften its stance on wholesaling ADSL2?

There could be many reasons but given Telstra's attitude to wholesale customers to date only on real scenario is consistent with their previous actions and constantly reiterated views. That is to 'put a cap' on other companies exchange roll outs and to make it even more difficult than it already is for those companies who are committed to investing in DSLAM roll outs to get any sort of ongoing financial return on their investment. (I think I postulated this position last year when the FTTN was first mooted as a 'reality').

One of the more stupid statements made by Michael Egan in the article I commented on yesterday was:

"[The] idea of duplicated networks is economically crazy. It is as absurd as
having two competing Pacific Highways, one owned by the NSW Government
and one owned by the Queensland Government. It is enough trouble to
fund one to an acceptable standard, let alone two."

Poor, stupid and uninformed idiot that he is he was speaking for a group of ISPs that were all committed to duplicating the current ADSL national network!

Like Simon Hacket's little rant referenced above, he is simply attempting to make the dangers to his personal company (ies) appear to be things that are of real significance rather than just personal errors of financial judgement.

I don't see how you can make the argument both ways:

Duplicated ADSL = good

Duplicated FTTN = bad

but then I don't have to worry about a, possibly, catastrophic investment decision.

But once you start down the road of "duplication = bad" then you also have to take the view that 30 ISPs rather than one are/is bad. Or, as Terria would have it, "it's OK for me and my mates to have the monopoly but it's bad if Telstra has it."

So what is going to happen to the 30 (or whatever the real number is) ISPs that currently remain in Australia? Will they go the way of the 'krill' over the next 2 - 3 years - buried by their unprofitable ADSL investments just as the 'krill' were buried by their unsustainable plan prices and the increasing costs of infrastructure in their tiny ways?

One thing is for sure.

It will all look very different in 2011.

I usually have the TV on one or other of the business channels on Sunday mornings as I attempt to clear my day from the issues that have developed overnight and when I respond to email and other duties. I don't really listen to what's being said in the endless talking head interviews but an interview with Muhammed Yunus caught my attention yesterday when he made the statement that "of course a purely commercial organization can have a purely social objective rather than the commonly found purely commercial objective of making money for its shareholders. He was referring to Grameen Bank the details of which I quickly looked up here:

http://en.wikipedia.org/wiki/Grameen_Bank

When a Nobel Peace Prize winner (both he and the bank he founded) and an impeccably financially credentialled one makes startling comments it's sure to be an interesting 'chat'. So I stopped what I was doing and listened to the rest of the interview. In essence he, and his Grameen Bank are simply a hugely successful embodiment of the old "give a man a fish and he will not go hungry for a day; teach him to catch fish and he will not go hungry for the rest of his life." (attributed to Lao Tzu). However he spoke so refreshingly and so cogently that you have to wonder why more people and more organisations don't do exactly the same things as both the way he articulated the very simple ideas and the illustrations and data he provided made compelling listening.

When he finished that old Roberta Flack song (allegedly about Don Maclean) came in to my mind:

And so I came to see him to listen for a while.

And there he was this young boy [old man], a stranger to my eyes."

But then I tend to get overly 'sentimental' when listening to words that appeal to wherever my better instincts are buried.

Never having been 'wealthy', and sometimes having been quite the reverse, I have never been in the position of being philanthropical in any real sense of that word and certainly not being brilliant like Mr Yunus I've never had the intellectual 'fabric' to come up with a world changing idea let alone the intellectual and personal drive to bring such an idea to practical and enduring fruition - but I have always been overwhelmed by people I hear about who can and do such things. So my Sunday was uplifted by hearing about one more instance of a great idea and and a great person actually making a real difference to the world by their own thoughts and actions.

Unfortunately the next 'noise' that caught my attention was the article in the Saturday SMH in which Michael Egan was pontificating on how Terria could build the FTTN loosely defined in the current 'tender'.

Now, Stupid Stephen/Crazy Kevin have no credentials whatsoever (other than their crass stupidity) for grandstanding about "....giving 98% of all Australians 12 mbps broadband...." but Michael Egan not only has even less knowledge (if that is in fact possible) but he is the same Labor hack as Dumb and Dumber when it comes to knowing the first thing about telecommunications. Nevertheless, there he was, polluting my weekend newspaper reading making a series of the most ridiculous statements ever made in this piece of arrant nonsense:

http://business.smh.com.au/utter-codswallop-will-not-win-allies-in-the-broadband-war-20080613-2q88.html

Now this ex NSW Labor Party treasurer has been part of the Terria consortium for the proverbial 'five minutes' and he is now an expert on the most complex proposed infrastructure design yet mooted in this country. Talk about hyperbole - there is now a bidder even dumber than the tender issuers. I particularly liked this piece of rhetoric from the old communist aparatchiks of the Labor Party:

"The Government has made its objectives clear. The new network must
provide open access, encourage downstream competition and innovation
and enable services to be as affordable as possible."

Now if Dr Yunus Muhammed (remember I'd just been inspired by listening to what he had to say about addressing poverty in the third world using commercial principles) it might have, almost, made sense - but coming from a grossly over paid, self serving, 'johnny come lately' political hack with zero knowledge about the topic on which he was pontificating it just sounds ridiculous. (as does almost every other statement made in this piece of cr**).

Does ANYONE in Australia seriously believe that ANY purely commercially driven organisation is going to do ANYTHING but make as much money as they possibly can out of any investment they choose to make?

Does ANYONE in Australia seriously believe that REGULATION of a monopoly situation is going to do ANYTHING to stop the monopolist from charging whatever they like and delivering to themselves as much commercial advantage over any competitor as they possibly can?

In this post modernist political world we currently live in (where the giant US commercial entities pay for the president of their choice to start wars for the benefit of its oil and armaments industries and the Europeans starve the third world with agricultural subsidies and turning food into oil) there is clearly a need for those rare individuals such as Yunus Muhammed and governments like those of Bangladesh to use commercially based skills and entrepreneurship to address problems that other commercial entities can't or won't address for "commercial reasons". That is a wonderful concept that transcends either the outdated free market or socialist 'doctrines' which have blighted the planet since the end of the second world war - and probably since 1924 for all I know.

We used to have such things in Australia until the governments of the day sold them.

The problem is: Where is our Yunus Muhammed?

Let's hope someone finds him very soon and he is able to do what so obviously has to be done. - it certainly won't be done by either Terria or Telstra.