John Linton
Over the weekend I received three more "are you interested in acquiring..." emails from 'brokers' acting on behalf of small (very small) communication companies/ISPs. Having been involved in 'start ups' several times in my commercial life I know how gut wrenching it is to reach a situation where you don't think you can continue and need a way out of the increasingly nightmarish situations start ups too often find themselves in and I take no pleasure from receiving these communications.
I don't keep a 'record' of these sorts of communications but, since I returned from holidays in early August I'm sure I've received more than a dozen or so such enquiries - a sure indication that a combination of tougher financial times and Telstra's retail sales policies are making life even tougher than it has been in the past for every other provider of communications services in Australia.
When I was involved in starting Swiftel in 2003 it seemed that there was a new 'ISP' coming to the market to offer services every few days of each week. The situation seemed to have barely changed when we started Exetel in January 2004. From just about the time we started Exetel the number of start ups in any given month seemed to decline at an ever faster rate to a point that I can't remember when I last became aware of a new ISP/Communications company making itself known in Australia. Of course there had always been a high 'mortality' rate among such start ups but, previously, that never seemed to discourage new people entering the market with fresh hopes and obviously what they believed were fresh ideas.
Based on the annual ABS figures on Australian ISPs (which I can never understand as they appear to include resellers of other ISPs and even resellers of resellers) but the trend is clearly downward, and downward at a steepening rate, in terms of the number of ISPs the ABS includes in its survey.It is an inevitable aspect of most products/services in most markets that, over time, the number of supppliers decline, either by 'merger' or by ceasing operations as large becomes the only way of developing the economies of scale required for commercial returns on investments.
I think the latest report from one of the ISP penny dreadfuls (Eftel) sums up the plight of small communications companies:
http://www.asx.com.au/asx/statistics/announcementSearch.do?method=showAnnouncementsForIssuerId&issuerId=5905&timeFrameSearchType=D&releasedDuringCode=W
Despite the 'enthusiasm' of the text the figures in the report (and bear in mind these are 'preliminary which means they are unaudited and only submitted because at the time of the submission deadline no auditor has agreed with them) show a massive deficiency of current assets (cash) over current liabilities. The text of the report also talks about the "slow down" in the ISP business (reflecting EFTels virtually zero growth) which, based on Telstra's/Optus'/Etc published figures doesn't affect other ISPs (it certainly didn't affect Exetel in the last 12 months).
So perhaps, Australia will see no more 'start up' ISPs and will be left
with the BigPond/Optus Retail/Vodafone Retail Store Network and
precious little else in terms of sourcing residential communications
services. Perhaps a few 'specialist' providers will cling on for a year
or so or perhaps they won't. A dreary scenario in terms of 'choice'
and more importantly value but it appears almost inevitable.
Why would such a scenario be inevitable? Well, if you listen to/read the assertions of the non carrier service providers you would form the view that there will be many thriving alternatives to the three ugly sisters of Australian residential communications and companies would take major umbrage at my casual dismissal of their likelihood of survival.
A most obvious example of such an umbrage taker would be '3' whose owner has spent over $A3 billion building a completely unnecessary 4th mobile network in Australia. Even that huge expenditure isn't capable of matching the rival mobile networks and '3' has had to put themselves in the hands of Telstra for the 3G roll out and then has had to become a 'Telstra HSPA' reseller for the majority of the continent as it, even with it's huge financial resources, can't fund/justify the investment in what's required to actually offer the required 'Australia Wide' services.
It remains to be seen, and I think it will be seen quite quickly what the next five years hold for Australian communications companies.
I don't think many are going to like the reality once they get their heads out of the sand.