John Linton
.......and it's making a nonsense of our short and medium term business planning.
The recent 'phenomenon' of a rapid and ongoing surge in people selecting Exetel as their broadband provider is going to pose some quite severe and unwelcome problems for us as we move into the 'real' months of 2010. While it may seem strange under any circumstances to 'complain' about business increasing it is in fact a quite real issue for a business of any size - but I'm only concerned about our own business. My first issue is to find out why this is happening and the most obvious answer is that the pricing we started to put in place in November and completed in December is far too 'cheap' and is attracting the 'wrong' types of new customer...and yes, for all those people who read this musing and conclude that I am denigrating 'all' customers by that phrase try a remedial English reading course so you don't understand those few words to mean that....the delete key on my email client is wearing out.
Every commercial entity has some sort of customer analysis software that provides management with the ability to look at their customer base as a whole and, via the wonders of modern data base software, by pretty much any characteristic or demographic they choose and by whatever multiple sort conditions they can dream up. So, with very little effort I can look at Exetel's total customer base in terms of such things as gross profit per customer, usage in any particular time slot by customer, number of recommendations, time with Exetel and pretty much anything else you would want to know or can dream up either as a one off enquiry or as a 'standard' repetitive report. I did some examination yesterday and I didn't like what I saw.
Our plans for ADSL for 2010 have been based on a set of highly competitive marketplaces with constantly better 'deals' being offered by Telstra et alia via sneaky 'direct marketing' tactics that avoid examination via the ACCC. We made the assumption that as Telstra got squeezed it would find ways of buying new customers as its older customers ran out of the incentives offered when they locked themselves in to long term contracts in the past and less of them would fall for those tactics when Telstra approached them to resign a new contract. We figured that companies such as TPG and iinet would struggle to keep their shareholders happy by meeting their promised growth numbers and, within their much greater financial limitations, also try new promotions while attempting to keep their current customers paying their bloated plan fees - in the case of iinet.
We saw Telstra's huge ADSL2 advantages being used to significantly reduce our 40,000 plus ADSL1 customers because we couldn't see how any customer could continue to buy ADSL1 services when they had to pay more for them than for an ADSL2 service. Similarly we could see the rapid reduction of land line prices (not in actuality but by including 'free calls') as further eroding our ability to provide the Optus included wire line plans. There were many other considerations which all added up to the 'impossibility' for Exetel of growing our broad band business very much - if at all. Therefore our 2010 broadband business was based on a 'graceful decline' over the coming months with that rate of decline slightly accelerating over the last six months of the calendar year.
That may still be the case as the months go by because I haven't seen anything happening anywhere in the places I look that tells me anything different. I am looking forward, with even more interest, to Telstra's half year results and those of the other companies I can understand something from what they report. Our November/December price decreases were aimed at trying to ensure the decline of our ADSL customer base was kept to as shallow a curve as possible and the only notionally profitable residential customer revenue we lost would be more than compensated for by adding twice the amount (in the early months of 2010 growing to four times the amount later in the year) of business revenue which was also much more profitable in terms of gross contribution and required much lower support and provisioning costs.
A simple plan - and elegant in its simplicity with a symmetry of something approaching beauty in the financial numbers it delivered - nothing like maintaining a modest revenue growth while the associated profit doubles over a shortish period of time. With business users predominantly using the network from 7 am to 7 pm it also provided an elegant engineering scenario going forward with very little or no additional bandwidth required. It was based on Exetel moving towards a much higher proportion of its revenue coming from business users which provided a much higher profit per revenue dollar ratio and far less overheads in terms of provisioning and support.....something we have been putting in place since early 2009 and planned to accelerate in 2010.
But the December, to a lesser extent, and now the January take up of ADSL has very clearly signaled that, for reasons we now need to discover, that our assumptions and perhaps our ADSL pricing are not remotely correct and if they continue we will have to make some not insignificant changes.
Getting a plan so terribly wrong is really disappointing.