John Linton
We continue to look at our ADSL1 and ADSL2 pricing parameters for the second quarter of this calendar year as more indications emerge of changes in attitudes among some of Exetel's suppliers and as the overall rate of growth in the communications industry, at least according to the ABS and some sensible industry analysts, continues to shrink at a slightly faster rate - currently estimated at close to 4% for the year ending on 30th June 2009 and likely to finish the year below that.
Exetel's revenue growth in the period 1/7/08 to 28/2/09 has been at a rate of a fraction under 24% (compared to the same 8 months from 1/7/07 to 28/2/08. In some ways it's nice to think your business is growing at a rate of 600% of the theoretical 'industry average' but our tiny size is, of course, a major factor in achieving this, largely meaningless, statistic. Another way of looking at it is that 24% is considerably slower than our 'historic growth' of over 30%. However, what we have noticed is that our revenue growth over the first 10 weeks of 2009 is back to the above 30% compared to the first ten weeks of 2008. Interesting in some ways but not truly meaningful in any way I can determine.
Our focus for 2009 remains in growing our business user base at a much faster rate and therefore our business sector revenue. The reason for that is that when we did the planning for 2009 we decided that the lack of growth in the ADSL market and Telstra's likely non-selection to build the 'NBN' would produce some 'seismic shifts' in the big carrier's "marketing promotions" to try and shore up their ADSL bases and make some sort of revenue contribution as their wire line revenues continue to decrease at a faster rate.
So we have two more weeks to decide what we do, if anything, with our residential pricing for ADSL and HSPA. We've been pretty happy with the overall results we have achieved over the past five years in staying alive as a company while pursuing a policy of offering the lowest priced broadband plans in Australia with an increasingly more comprehensive range of 'add ons/value adds' than any other broad band provider. Personally I think the 12 hour 'bonus' download period is of immense value to a broadband user and we have, over time, increased the 'free download allowance' from 20 gb to, currently, 54 gb. The other 'add ons' of free SMS's, free faxes, large amounts of free web space and large number of free email accounts and a free fixed IP are pretty comprehensive and are widely used by Exetel customers.
How the current offerings can be improved remains to be seen - there are a lot of pressures from a range of areas that need to be dealt with to just maintain the current levels of offering. What is somewhat intriguing are the indications that the major cost component of ADSL broadband (the monthly charge for the basic 'port' charge) which have been sky high since ADSL was introduced by Telstra some 8 years ago may reduce by some amount in the not too distant future. This is absolutely by no means certain but it is the only way that residential prices from Exetel can be meaningfully reduced. As I briefly discussed yesterday the likely fall of IP costs by something like 40% wont deliver much of a decrease because, from what we can see, the average usage of IP by end users is increasing by almost that amount - based on the trends of the past 12 or so months.
However what Exetel does isn't relevant (except to Exetel customers of course).
What almost certainly will happen is that Telstra will 'be forced' to reduce its incredibly high residential "list" prices for ADSL2 and will have to deal with how that affects their incredibly high ADSL1 "list" prices. They have, of course, already done this for over two years via their string of "special offers" which have effectively meant that they have been offering broadband services at below wholesale costs to an increasing percentage of their user base. While this is 'legally' defensible because of various factors the end result is that they have almost run out of the ability to sell to even the dumbest users at their "list" prices and have achieved most of their 'competitive' objectives (restraining take up of competitor ADSL2 offerings) and milking dry the ADSL1 marketplace.
What Telstra actually does is completely unknown to me but if Telstra lowers its 'umbrella' pricing then every other high priced ISP will be force to lower their pricing irrespective of whether their own operating costs are reduced - which unless Telstra changes their port charges - they wont. So the 'new' Telstra 'marketing' policies are likely to be based on lowering their ADSL2 charges to end users (using whatever subterfuge they select) which will force all of their competitors to reduce their end user prices (and their profits - for those of their competitors that make any). The net result, for broadband end users, will be lower ADSL and HSPA prices over the balance of 2009.
Of course, this is pure speculation on my part but it is the scenario we are basing our own, irrelevant in any broader sense, future pricing considerations on. The problem is to find a way to remain the lowest cost provider in the Australian marketplace in the face of significant new 'special offers' from an increasingly desperate Telstra.
Tough problem. We will continue to look for ways to use HSPA to enhance the ADSL
'attractiveness' but there are many barriers to doing that. Hopefully we
will find some way of overcoming the underlying problem of the price of
data but if we can't do that we will have to find a completely new set
of parameters. The same applies in attempting to use mobile plans in
that mix.
Only one solution has come to mind so far.