John Linton's Personal Musings

John Linton

It appears that Australia is going to experience very bad financial times 'real soon now'......according to the various people who are most widely reported in the media, including even some of the more responsible Australian financial media, though I note there are no citations of the same people's previous flip flop pronouncement's that Australia will only be marginally affected by the 'GFC' and that their skillful, timely and forceful interventions have prevented recession in Australia:

http://business.smh.com.au/business/one-in-four-firms-to-cut-staff-20090420-acp8.html

So what actually is going to happen in Australia?

Actually the only real interest I have in the future state of the Australian economy (other than to feel very sorry for those people who may be severely negatively affected by any significant down turn) is how it will affect Exetel's abilities to discharge its obligations to its customers, employees and suppliers. So far I've seen no negative affects from the widely touted 'slowing of the economy' in those terms and, given that Exetel may well not have bought as well from its suppliers in the past as it should have (almost certainly due to my very poor negotiation abilities), all I have seen, and am seeing, is a slight beneficial increase in our 'survivability' by achieving slightly lower buy prices for virtually all of the base 'components' of our service offerings.

Neither I, nor anyone else at Exetel, claims any credit for those small positive achievements. They are the obvious and historically proven consequence of every 'economic down turn' in financial history - prices of almost everything fall....and of course they fall by larger amounts for our larger competitors so we actually gain no direct competitive advantage from these predictable scenarios. However we do gain the slight financial benefits of either a slightly increased profit margin (which because our profit margins are so low is actually quite significant) and by passing on the majority of the savings we have made to our end users we do very slightly increase our competitiveness in some marketplaces as our competitors seem to rarely pass on any cost price reductions they obviously achieve over time...different rationales for being in business....nothing untoward. In fact in other parts of the world you see this sort of thing happening:

http://www.nytimes.com/2009/04/20/business/20isp.html?_r=2

I do wonder sometimes why Exetel hasn't been able to reduce its end user pricing more than we have done over the past five years given the continual decrease in the prices of many of the 'components of our services over that time. I'm excluding the ADSL1 services provided by using Telstra Wholesale infrastructures that (for Exetel) have moved either not at all (in the case of service activation and exchange to Exetel back haul costs or only very slightly in terms of month port rental costs). However it is true that the cost of providing an ADSL1 service has fallen in terms of pure IP costs which have fallen (for Exetel) 66% in five years and the addition of caching IP which we introduced some two years ago which reduced the cost of that portion of the traffic by over 80%. ADSL2 service components have reduced more dramatically over the past three years falling by over 40% for the ADSL2 specific costs and benefiting from the same pure and cached IP component cost reductions noted above.

I suppose this is because, while these very significant cost reductions don't appear to be directly translated in to the same scale of price reductions to end users, they have in fact been applied but perhaps because the cost reductions have been applied over time it doesn't 'jump out at you'. Then again many people simply dismiss service enhancements (usually provided with no increase in the plan cost) as being "of no benefit to me" and therefore dismiss them as benefits/cost savings although for the people who use them they clearly are very much a cost saving. A reasonable enough view for any particular person to hold.

Exetel has now ended its annual contract negotiation season for the majority of the service components it buys and, generally speaking, we have achieved cost reductions on every component and service and product we buy - some larger than others but overall larger than we achieved some 12 months ago....a pretty clear sign of tougher times for the providers of these services and products consistent with 'economic times' being tougher now than they were 12 months ago. My only concern is that as times continue to get tougher over the coming months (assuming that does become the case) then our competitors will benefit from the even lower prices that may well prevail later in this calendar year. I realise that's very much a 'sour grapes' attitude and I don't mean it in that way - I meant it simply as a recognition that the best pricing for many items will be July - November 2009.

We could have bought at lower costs in several instances if we had been 'braver' or more adventurous. However we are an innately conservative company in some surprising aspects of business and we chose not to 'buy on price' in more instances than I think we would have in past years. While I have absolutely no knowledge of Australian or global economics and financial scenarios I, personally, think that there will be some quite serious risks in operating a small business in Australia over the coming 12 months. Personally, I wanted to avoid as many of those as we could foresee....even though it meant paying more than perhaps we should have in several instances.

Laugh for the day:

http://www.youtube.com/watch?v=tH35CVig3fQ&amp