John Linton
.............As If The CFOs and Board Members Of Dozens Of Australian Communications Companies Simultaneously Suddenly Understood the Realities Of Their Annual Reports And Cried Out For Changes. (with apologies to George Lucas)
Maybe it has something to do with TPG/SPT cautioning the ASX that instead of the "significant profit" it originally stated at the time of the 'merger' for FY2008 its actual results would be a $A31 million loss due to a raft of major write offs (oh dear - who didn't see that coming?) thus joining the list of negative news about communucations companies and their performance in FY2008. Maybe it is due to the fact that it's becoming time to face up to what happens to the NBN fiasco now there is going to some clearer time frame for that to have an impact that has to be more seriously considered? Who knows - but whatever it is, if in fact it isn't just a coincidence heightened by the start of the new financial year, it's resulted in a significant 'ground swell' of contacts being made with Exetel.
My email and inbound phone calls have been more 'interesting' than usual since I returned from my now almost completely forgotten holiday earlier this month. Apart from what is widely published in the Australian media (those parts relating to communications/telco topics) it seems that there is an intensifying 'unease' among the people with whom Exetel does business - in terms of supplying products and services or seeking to supply us products and services. I don't think I've ever had a two week period when I have been contacted by all of Exetel's main suppliers and almost all the possible suppliers with whom we've had some sort of dealings with over the past 6 months.
On top of those 20 plus calls/emails from suppliers and would be suppliers I've received almost the same number of calls from 'competitors' (small ones who aren't really competitors but are in one or more of the same businesses that Exetel is in) or from companies who are in similar businesses to those that Exetel is on the fringes of or is contemplating. The common theme of the contacts is the desire for the caller to get more business from Exetel (in the case of the supplier/would be suppliers) and in the case of the 'fringe competitors' to buy services from Exetel (bearing in mind that we have never been or put ourselves out to be a 'wholesaler' of services.
Two of the enquiries from 'small competitors' interested me greatly. They were to enquire whether we would 'out source' our support and fault logging/resolution services using the new facilities in Sri Lanka once they were fully operational and, more interestingly to me, if we would license our automated procurement and service activation software and our bill checking software. I was also interested in the 7 enquiries as to whether we would 're-sell' the HSPA services we have yet to activate and if not would we be prepared to sell the Huawei 'sticks' we have been negiotating for directly. One approach was to buy IP bandwidth from us which I found quite bizarre.
So what is happening at the 'fragiler' end of the communications supplier level? Why are people approaching a very small company like Exetel (who buys from wholesalers) to 're-wholesale' services and products? It makes no economic sense (we can't provide a cost/effective pricing under such circumstances) and as the people who approached us have no personal or other knowledge of us it seemed to hint at a degree of panic/desperation to make it known that they were in a position where it seemed appropriate to approach a company like Exetel and, presumably, other such companies.
Four of the non-supplier contacts were from 'intermediaries' approaching Exetel to see if we had any interest in buying communications companies (three ISPs and one VoIP provider). As I have never seen such sales ever work out to the buyer's advantage over the last 15 years (with the one exception of Connect.com's acquisition by AAPT I noted in a previous blog) we didn't waste the enquirer's time by indicating any interest though the more curious of our directors would have liked to have known who they were. Apart from anything else we aren't in any financial position to pay a few million for someone else's business.
It seems to me that a number of things can be determined from the recent media reports and the enquiries/contacts made directly of/with Exetel:
1. The large wholesalers are getting rid of/not accepting as new customers companies below a certain size or financial 'profile'.
2. Those same large wholesalers, partly from doing 1. above, and partly as their larger buyers increase their moves to their own networks are facing declining revenue outlooks for the new financial year.
3. The changes brought about by HSPA to the remaining dial up market is removing a much larger than expected revenue/high profit stream from those companies that still have a significant number of dial up customers who are now not 'automatically' moving from their supplier's dial up service to the same supplier's ADSL service.
4. The possible intensifying effects of HSPA and the NBN fiasco on some companies ADSL2 investments (including the effect of their dial up customers no longer being a 'certain' future ADSL2 customer) is causing some rapid recalculation of payback and ROI.
Whatever the reasons may be, even if its just a chain of coincidences exaggerated by me not being contactable for 4 - 5 weeks and the onset of the new financial year, it seems that caution is required for the forseeable future in determing any new 'investments' of our very scarce financial and personnel resources.