John Linton's Personal Musings

John Linton

According to the various reports associated with the listed communications companies annual results, particularly Telstra's, the increase in new ADSL customers has rapidly slowed over the past 6 - 12 months and is forecast to slow further over the coming 12 months. The same pattern was evidenced in Optus results and it was further indicated in iinet's recent ASX report. The ABS figures for June 30th 2009 will become available soon if they follow the timing of previous year and some sort of aggregated growth over the past twelve months will become easier to determine.

One interesting indication from the recent iinet results was the apparent zero growth, or worse, for the Westnet operation. I don't know what you make of the figures shown on slide 13 of the iinet results that you can find here:

http://www.asx.com.au/asxpdf/20090817/pdf/31k3w5j5j1v9y5.pdf

but it looks to me that 'Westnet' whose customers are, based on previous iinet public statements, almost entirely 'off net' have not increased at all (a proportion of the nett additional 5,000 customers could be iinet customers as they must sell to some new customers who aren't connected to their own DSLAMs - or at least I would have thought so). So the figures indicate that 'Westnet' probably went backwards (something that seems to have happened each time iinet takes over another ISP). I suppose when any company gets 'taken over' there will be significant upheavals which would inevitably result in some sort of 'hiatus'. If I'm reading the figures correctly the 'hiatus' was of a significant length and had a major negative effect. You can do your own arithmetic (mine is not too good) but although iinet's words put a positive slant on the numbers the total of 'off net' and 'on net' customers increased at around the same rate as Telstra's and the increase in the second six months is lower than in the first six months though not such a sharp drop as Telstra's.

Perhaps I'm reading too much in to it and the growth is stronger than what I can see in my personal reading of the various reports from Telstra, Optus and now iinet. There are no indications that I can see in the first 6 or so weeks of the new financial year that ADSL growth is slowing - in fact for the last ten days ADSL sales have suddenly increased quite markedly by over twenty percent. I can't explain that other than we introduced new plans on July 1st and again on August 1st which may well have boosted sales above the trend line (the new plans weren't aimed at doing that - just aimed at preventing new sales from dropping and reducing the churn rate) and in any event our volumes are not significant in any overall market sense. But where they are significant is that, together with HSPA sales our new customer acquisition rate (gross not net after churn away) is running at well over 50% above the rate this time last year for which I have no explanation for at all.

It will be interesting to see the TPG figures when they eventually become available but that won't be for some time by which time the year will be too far gone for them to be of any use in this fiscal year's planning fine tuning. So the only information to come in a reasonable time frame are the ABS figures in the next week or two and then its back to 'blind speculation'. I'm happy with the early results for Exetel though a few weeks is no true indication of anything real - though better to have good early figures than bad ones of course. Personally I'm hoping the growth forecast based on the ABS figures (when they are available) doesn't look too negative as it is always a strain to have too great a disparity between the growth you are planning and the 'trend line' you develop from the ABS and other reported 'actuals' - too high and you never stop worrying that you are endangering your company and too low and you worry an equal amount about losing an opportunity. 

The big unknown, at least for me, is what will happen to ADSL1 take up and also the churn away rate to our or someone else's ADSL2? Harking back to the iinet figures on slide 13 you see the need to answer that question - iinet's/Westnet's "off net" 'growth' was 5% over the whole of FY2009 with 'growth' in the period 1/1/09 to 30/6/09 falling to less than 1% -which assuming the trend line holds means net loss from now onwards. Exetel's trend is not like that and we would also expect that HSPA helps us add significantly in terms of 'ADSL1 users' who download less than 2 gb per month. However I would like more information on how ADSL1 is going to move over the remainder of this financial year. From what I see within our own user base ADSL1 customers migrate to ADSL2 pretty much as soon as the option becomes available. In our case there are only around 3% of our current ADSL customers that remain on ADSL1 where we have an ADSL2 option available. We obviously lose ADSL1 customers where other ISPs have a not too expensive ADSL2 service available where Exetel doesn't.

If anyone has any hard data they would care to share that would be very helpful.