John Linton I read this article yesterday:
http://www.itnews.com.au/News/98962,cashedup-primus-on-isp-purchase-path.aspx
but didn't think any more about it at the time other than I noted the excellent profits the Australian company stated it made - $A130 million seems a handsome return in an industry more noted for making losses than profits. It seems to make iPrimus the third largest communications company in Australia in terms of profits made - something I hadn't realised before. Given the difficulties of starting up a foreign owned operation in Australia it is even more remarkable though, for those who remember iPrimus origins in this country they did get away to a 'free gift' start at the expense of one of NSW's stupider utility companies if I remember correctly.
I re-read the article earlier this morning when someone emailed me to ask me who I thought the 'target ISPs' were mentioned in the article which I had no idea about:
"Bhatia said that it would use its freed up cash position to recommence negotiations with several ISPs, particularly those in some financial trouble."
and:
"We're talking to a couple of ISPs with 20 to 25,000 plus customers...."
I didn't know there were any ISPs in Australia with 20 - 25,000 customers. I wouldn't have thought that an ISP as small as 25,000 customers would have the 'buying power' required to operate effectively in today's ISP markets but that would entirely depend on their customer demographics and the scope of any 'sweet heart' deals they may have managed to negotiate with their suppliers. My memory of having 25,000 customers was that it was very, very tough to be able to compete with the various 'special offers' that abound in this industry while being able to cope with need to stay financially solvent - it seemed to me from what I remember of that time that it was one of the more difficult sizes to run an ISP business and we only got through it because we had diversified our income streams into additional services.
Obviously there must be ISPs of that size; but what I found even stranger was that the sub text of the statements clearly implied that at least one of the "two" were based in Queensland. My knowledge, which I've already said is clearly deficient, would make the only possible Queensland 'target' iSeek which is a sort of semi Optus wholesaler to small ISPs rather than being an ISP itself. I could be totally wrong - it wouldn't be the first time. Optus have had some success with such multi-wholesale models over the years, at least for a time, but I have trouble conceptualizing how iPrimus would buy out a wholesaler 'broker' of Optus ADSL services and make any commercial sense out of such a transaction in either the short or long term.
So it remained a puzzle to me and I passed on my comment that I didn't have a clue who iPrimus could be considering buying out. However it did occur to me that with the demise of PeopleTelecom (bought out in the usual 'smoke and mirrors' methodology by the dumping ground of failed businesses known as M2) that there are few ISPs of any 'medium' size left in Australia to be targets for acquisition - irrespective of whether they are in "financial trouble" or not. Based on the published claims (and it's noticeable that such claims are few and far between over the past year) the ten largest ISPs in my guessed order of size are:
Telstra, Optus, TPG, iinet, AAPT, iPrimus, Internode, Dodo, Adam Internet, M2
- but I'm really guessing after the first four names as there is almost no published information that I have seen. I have even less idea of what the situation is with any other of the smaller communications companies though occasionally you see nonsensical (and often self contradictory) statements made by one or other of them. As I have seen no credible information about the non-public companies in that ten list I would have less than no idea about their financial status apart from looking at M2's balance sheet and P and L for the 2008 year which seems to indicate a significant hand to mouth operating environment.
2008's departures of Westnet, Soul and PeopleTelecom and the constant fall in the number of ISPs (often tiny and actually VISPs rather than ISPs) reported by the ABS do indicate that providing internet services isn't a very profitable business to be in for all but a handful of operators. A recessionary financial environment (if not a recession) currently being experienced in Australia is not going to help companies who are already 'struggling'. All of which indicates that iPrimus, and quite possibly both Optus and iinet may well buy up some of the remaining operators during 2009 and 'natural attrition' will see the quite probably unpublished end of several more along with the continued 'erosion' of the very low end operators.
All of which will almost certainly result in higher prices for internet services for both residential and business customers over the coming 6 - 9 months as, of the 'top ten', only TPG makes any attempt to offer affordable internet services. All the others are more than content to 'shelter under the umbrella' of Telstra's sky high pricing which continues to damage the operations of any business in Australia and punitively 'taxes' every residential user. However that's the way it is in this country and it won't change any time soon.