John Linton's Personal Musings

.......but why does it so often immediately have to become under threat?

The second half of July was much stronger than the first half of the month and by yesterday afternoon all of our financial targets had been met and all but one of our sales targets had been exceeded with the one sales target we missed was only by 3% against a very, very tough number - so the first month of what we predict will be a very difficult year has ended 'happily' for Exetel. This is a great result, not to mention a great relief, and allows us to be a little more aggressive in August than we had expected to be able to be. So we get a day's grace before the new month starts tomorrow. I sometimes wonder how people in business or who carry monthly financial or sales targets ever become so used to the pressure of those influences that they accept the pressures almost without noticing.

The disposal by AAPT of their consumer customer base is completely irrelevant of itself to anyone but those customers and, now we have had some explanations from AAPT as to the 'logisitics' of the sale there would appear to be no immediate impact on Exetel's business dealings with AAPT. However that didn't prevent us from receiving two approaches from 'brokers' (on behalf of interested parties) asking us if we were prepared to sell our "AAPT customers now that their future of supply is so uncertain".  I asked as politely as I could bring myself to do what had become "so uncertain" but, of course got no remotely sensible reply - clearly haste of approach had been so great that no rational thought had been put into the actual rationale for talking to us.

Unlike presumably the attitude we are meant to have to our customers, we don't consider them to be so much 'live stock' to be auctioned off at the felicitous juncture of market pricing and carried weight. Personally, I am concerned about Telecom New Zealand's plans for the remaining AAPT wholesale operation which they appear to have clearly stated will be sold as soon as a realistic price is offered for that business and, given, that the $A50 million they will receive for the consumer operation will do very little to fix their financial issues in NZ it will obviously be a sooner rather than later time frame for that to happen.....and it wouldn't matter who says what to the contrary....that is an inevitable rsult...only the time frame is unknown. That gives us serious issues to work out how to deal with.

We have based a significant amount of our growth over the coming year on the move in our month by month revenue from residential ADSL to 8 other products/services one of the most important of which is business Ethernet which we were planning to source predominantly from AAPT. We had planned for no growth from ADSL - in fact we have planned for a decline in ADSL customers and revenue facing the inevitability of Telstra's desperate attempts to reverse its customer base decline and the frantic financial give aways that will entail and the resultant reactions from the other larger ISPs.

So there appears to be little doubt that AAPT Wholesale will be sold off sooner rather than later giving Exetel a fairly difficult problem in how we repair the gaping hole in our future business plans. The thought of becoming in any way dependent on the likely buyers of the AAPT wholesale business is not an appealing outlook unless the buyer was Optus - which it's difficult to see how it could be given the various factors that now apply to the business. Exetel is definitely faced with the two issues of finding a sensible migration to another infrastructure for its residential ADSL BYO Line customers and a new source of cost/effective 10/20/30 mbps business grade services which have been allowing us to progressively move our revenue streams from residential to business over the past 18 months or so. The time frame in which this needs to be done is, obviously, unknown to us and could be far enough away for it not to matter as much as I am postulating here. However it would be very imprudent to take the view that it isn't important to find a sensible set of alternatives as quickly as possible.

So - back to the drawing board - one more time.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

...."competition" in Australian communications provision continues to reduce.

I read about the possible/probable sell off of the AAPT residential communications business to iinet by Telecom NZ with a degree of concern yesterday. I understood that it been an on again/off again 'disposal' for some several years but it is different when it actually appears to be about to happen. Of course I know absolutely nothing about what is actually being proposed or why the sale of the wholesale business to TPG (as well as the retail business) failed to proceed. The insider gossip appears to be that TelNZ is selling its 16% stake in iinet to a range of institutions today and will sell the residential base direct to iinet for around $A50 million also today. In one sense it is just one more sign of the current turmoil in the Australian communications business and the pressure the 'NBN2' is bringing on all Australian communications providers and, in turn, the changes that will continue to take place because of that 'initiative'.

We will wait to see what actually happens before making any decision how/if what ever it is will affect Exetel's purchases from AAPT Wholesale. In one way the only effect could be that the loss making part of AAPT is disposed of and the remaining part becomes instantly profitable as a stand alone operation - just as the previously absorbed Powertel was. That will very definitely be the 'story' coming from whatever stays in existence as AAPT. However, apart from our main business with AAPT of business services, we have some 15,000 residential customers on BYO telephone line ADSL2 services which must be affected by the sale of the residential ADSL2 customers to iinet or TPG (I think the reason iinet's shares are on hold is the sale of the 16% stake by TelNZ rather than a conclusive indication that iinet are the buyer of the AAPT residential business rather than TPG).

I am not sure how selling off the residential ADSL2 customer base to iinet/TPG/whoever affects the financial calculations of costs of wholesale services or even if the DSLAMs themselves to which the residential services are connected become part of the deal - we'll have to wait and see. Irrespective of the 'configuration' of the deal there can be no doubt that the economies of scale will change in some way. As everything we have with AAPT is contracted there is no problem with the situation in the short term but, as we discussed at yesterday's board meeting, we would be foolish to assume that circumstances won't change over time and that time is in no way under our control. We moved the relatively small amount of business we did with Pipe away as soon as we could after Pipe was taken over by TPG (for the obvious reason that we didn't want even a small part of our business under the control of an aggressive competitor) and we would view the current sell off by AAPT in the same way.

If the wholesale part of AAPT is not now, at least for the moment, being sold we can breathe a sigh of relief that a company like TPG is not going to control the 500 or so business Ethernet services we have installed over the past year or so on two and three year contracts. However the 'published' statements from AAPT that they are not proceeding with a current sale because they expect to make a future sale on more favourable terms to NBNCo is even more worrying in itself because, irrespective of such statements, I don't see how NBNCo is going to be interested in keeping alive the copper that the Ethernet services run over. So this is something that we will have to do something about after discussion with AAPT that go beyond the bland re-assurances that nothing will change - things will very obviously change - and not to Exetel's benefit.

Fortunately in both the residential and the business scenarios we have some immediate solution choices albeit that involve some significant amounts of effort by our provisioning and sales personnel. We could move the current residential AAPT (SSS) customers to either Telstra or Optus - depending on which of those suppliers was the more accommodating. We could stop selling new AAPT Ethernet Business solutions and provide pretty much identical Optus business Ethernet solutions and move the current customers to an Optus network once their contracts expire - doubtless there would be commercial advantages for us in doing that if it became necessary.

So - another day - another left field problem. Lucky we are a very resilient bunch of people.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

....in getting anything worthwhile done - and then keeping it done.

It is always pleasing when you see some tangible results of programs you started a long time in the past and sometimes despaired at your doggedness in persisting with them in the face of 'passive resistance', often no progress for periods of time and more often than not - backwards 'progress'. Way back in late 2004 we decided that to allow Exetel to expand from the less than ten people working in the company at that time we would need to create some knowledge data base for our new employees to shorten their training cycle and we should also make that data base available to our customers to reduce the number of telephone help calls we got about mundane aspects of the service. This was the start of our 'exewiki' project that has progressed glacially slowly for almost six years now - often ceasing making any real progress and becoming totally out of date.

The concept appears simple and hardly onerous - simply get people within the company to record 'perfect' answers to commonly asked support, provisioning, sale and billing questions. Piece of cake. Obviously as this is in every employee's interests (and every customer's) a comprehensive 'wiki' should be able to be created in a few months - at most. Unfortunately that has not been our experience and it has taken us well over five years to create a 'wiki' of around 1,000 of the most commonly asked questions which can be found here:

http://exewiki.exetel.com.au/index.php?title=Main_Page

It is merely a 'step along the way' and the plan is to increase the number of entries to closer to 2,000 by the end of this calendar year. However this has required us to employ a full time 'technical writer' as well as a fairly full time supervisor of this process to continually re-assess the content in detail and to constantly update the entries; as well as to add new ones. However that has not and is not going to produce the required results - of itself.

From March of this year we have instituted a monthly 'exam' for all of our telephone answering personnel whereby a randomly (computer) generated set of 60 questions. This is produced from the total number of wiki entries and each person who talks to customers is required to 'sit the exam' and therefore demonstrate that they have continually read the updates to the wiki and can give the correct answers to the questions that are most commonly asked by Exetel's customers - and not just the questions that are pertinent to their area of support  - but questions that cover all areas of Exetel's operations and products. This simple process has seen a significant increase in the level of, correct, knowledge possessed by all telephone answering personnel which can only have made the customer experience better in terms of both speed of answer when they call and accuracy of information.

We are taking this process one step further from July in that the scores on the 'knowledge exams' will play a major part in determining future salary increase amounts and the time frames in which salary increases will be given. It is anticipated that this will accelerate the level of knowledge increase - particularly among new hires we make throughout FY2011. We are doing this by taking a rolling average of the previous four months test scores to create a rating from 1 - 5.

The other major initiative in FY2011 will be the encouragement for our customers to participate in improving and adding to the 'wiki' via a program of offering financial rewards/credits to those customers who add new entries or significantly improve on current entries. We will do this via a forum section and our monthly news letter. Over the coming months we will also re-create our AI functions based on the research we are funding at the Sri Lanka Institute of Technology to provide a free form English Language interrogation ability - however that is also going to be a long project that will be very difficult to accomplish.

So, a long way to go, but we are now seeing the first real improvements to our support processes via an over five year old initiative that has seen more road blocks than freeways over that time.

PS: for anyone interested in great minds:

http://www.smh.com.au/opinion/society-and-culture/decline-and-fall-of-the-us-20100728-10w1x.html

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

I don't think I can be described as a 'Telstra Lover' having commented on more than a few occasions about their various predatory and just straight illegal, in my opinion, practices.....but I think the reported statements by the senior management of Internode, iinet et alia about Telstra's recently announced ADSL price reductions are an embarrassment to the people making them and are so childish they are incredibly embarrassing for the industry as a whole. They make the Australian communications industry sound like a sheltered workshop. The whining senior managers of some of Australia's larger service providers are barking up completely the wrong tree - Elizabeth Knight provides the logical reasons behind Telstra's recent announcements - and the new realities in the communications markets:

http://www.theage.com.au/business/telstra-sheds-its-role-as-top-shark-in-the-pond-20100727-10ufz.html

Firstly let me say that Telstra's new pricing is long overdue and only reflects the fact that companies like TPG have been decimating their customer base for some time resulting in Telstra continuously losing net customers for over twelve months. What did anyone expect them to do about that? I wouldn't have thought any, reasonable, person would have expected them to meekly watch that trend accelerate? So they cut their plan prices (at least in theory) to what looks like attractively low prices - assuming you want a 24 month contract and also want to bundle in your a wire line telephone service and a mobile or too. So what?

Any other ISP that had its own DSLAM could match that offer and make money, or at least as much money as Telstra makes on that pricing by simply matching the price. What they probably can't do is to offer the $200.00 or so credits that Telstra is also offering to sweeten the deal further. However Telstra has made themselves an 'also ran' in terms of being an ADSL provider since 2001 so it is well past time for Telstra to become a competitive provider again......before they lose the 'critical mass' of customer base size and have a whole new set of problems to address.

The problem for iinet, Internode, iPrimus et alia is that they have had a feather bed ride courtesy of Telstra's excessive pricing for so long they have forgotten, if they ever knew, how to actually sensibly price a service against ongoing competition. They cry crocodile tears about "wholesale" pricing but those with DSLAMs already get connection to an end user's residence for $A2.50 per month and it is hard to see how even if that price was reduced to zero (which would be completely unreasonable) it would make any difference so it is hard to know what they are bitching about.

Exetel doesn't have any ADSL infrastructure (for reasons I have set out over the years) and will be very badly affected by Telstra's new pricing and even more badly affected by their 'special offers' of multi hundred dollar "sign on credits" via their expensive marketing/direct selling/advertising campaigns. A combination of the 'ADSL Wars' that have been raging over the past year and the mooted NBN caused us to re-think what our involvement with residential ADSL would be some 2 years ago when we realized the possible results of what we predicted would happen - I doubt that our 'insights' were unique and I doubt whether any other actuality was ever going to be possible. It's a standard aspect of commercial life.

Exetel, in its very small way, has stayed 'alive' in a very competitive set of market places by NOT using the simplistic price mechanism used by so many other ISPs (including all of the current sook/whingers) - their contribution to Australian ADSL pricing was simply to take Telstra's prices and offer similar services at a few percent less (Exetel's pricing was always based on taking our total costs and adding a few percent). The problem with the sook's pricing policy is that while it works very well for some time it eventually reduces the incumbent's market share from the 100% they started with to less than 50%. At that point, all over the planet for 4,000 or so years, the incumbent uses the remainder of its power of size to re-assert its market numbers by taking the cold shower of cutting its prices and firing enough personnel to pay for the reductions in its grossly fat profit margins.

Commerce 101 for the under fives.

So - what will happen about Telstra's new pricing? Almost certainly nothing 'legally' or via the ACCC (ADSL2 is not a 'mandated' service and Telstra can point out it doesn't have 50% or more of the market in any case). What has to happen is for other providers to either compete with Telstra or decide that Telstra will now do to them what they have been very content to do to Telstra for the past ten years - sell services to customers at costs lower than those once lean and keen companies did but have now become the new "Telstra" overpriced services. Meanwhile Telstra will grow its market share in Zone One and will take over 100% of the market in Zones 2 and 3.....unless other ISPs decide to reduce their own internal costs to allow them to reduce their own bloated end user prices.

......and the really bad news?....these won't be the last price reductions by Telstra.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

....the 'phrase' has been around for several years now but I have yet to find anyone who can provide an explanation of what it means - and I have tried Google. The Wikipedia entry is simple (although I automatically distrust anyone who uses the term "paradigm shift") and appears to describe a standard VPN using a thin client adaptation so perhaps 'cloud computing' is simply 'thin client' with a more appealing name. If that is the case it's an interesting marketing ploy for a saturated market but the commercial concept has been around for at least ten years but (it used to be called ASP - "Application Service Processing" in those days), as far as I'm aware it has never gone anywhere.

However, in technology, everything continues to change so maybe 'cloud computing' does have a future and, according to this article, the future is closer:

http://online.wsj.com/article/SB10001424052748704719104575388374158004334.html?mod=WSJ_Tech_LEFTTopNews

Now I would re-emphasise that it could only be an economic arrangement that provides an economy to a large user to buy software licenses one way rather than another. Doubtless there will be 'marketing' rationales for other benefits but when all is said and done no organisation really has a problem asking end users to insert a CD to load the new opsys or application....or to have the required software suite downloaded from a central source.

Irrespective of my personal dismissive opinions you can see why Google would be licking its corporate lips at the thought of opening up Microsoft's monopoly of corporate office applications and it struck me that it is something that may 'catch on' in Australia if it is marketed well enough. Certainly "content" is the buzz word of the moment - usually in the context of residential market places but it could also apply to corporate and business marketplaces.

We have recently begun to market a hosted PABX service as a natural extension of selling Ethernet data links to small/small medium and medium large business customers. The service is simply an extension of the services we already provide to ourselves in Sri Lanka and to those of our employees who work from home plus a 'control panel' for the customer so that they can maintain their own extension list functionality and other control characteristics of an in house telephone system. That service or some version of it is planned to become a major contributor to Exetel's revenue over the coming two years if we are successful in delivering the sorts of services we have in mind.

We are also completing our first data base programming contract for one of our data link customers and have three more enquiries about providing similar services to other customers. Beyond that we have two 'solid' enquiries from small Australian ISPs to buy customised versions of our own automated provisioning and service fault handling systems which, if I thought they could pay a reasonable price for them, we would proceed with. Then there are the enquiries we are now getting to provide call centre services to one small and one not so small ISP. All this, currently low level, interest in outsourced services is a pretty fair indication that 'cloud computing' may very well be a fancy name for something very basic but it does seem that we may well be going to operate in a progressively more out sourced world.

Overall I think that's a good thing for Exetel because it seems that the Australian communications industry that has existed for the whole of my time in Australia and for 60 years before that time is going to be torn apart by a couple of dilettantes who not only knew nothing about what they were doing but didn't care a jot about it. Now there is the ever dumb Australian electorate who may make arrant stupidity some sort of 'reality' for a further 2 or 3 years before it all falls in a heap. Irrespective of whether or not you accept my personal view of the devastation that will be caused by Labor's incredible stupidities you will be forced to watch as the relatively competent Australian communications industry is torn apart and some 0 - 30,000 people lose their jobs and service delivery collapses.

It's encouraging, at least to me,  that there may be some different sources of revenue to replace the ones about to be lost.

PS: Today marks the passing of the third anniversary of my starting writing this blog - a long way past the year I took a bet that i could originally do.Why am I still writing it? I really don't know.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

One thing you can't happen noticing about 'business' in Australia since I returned from my almost now forgotten holiday is the amount of caution, if not outright pessimism, that comes up in almost every conversation I have had with people over the past two weeks. I mentioned that even our bank manager called us to see if we needed to borrow any money and he made several references to the lending around Australia (except in mining) being as though some financial 'tap' had been turned off somewhere. I personally know virtually nothing about economics or world financial trends or anything related to those subjects but I have my tickets to this week's Bonython lecture and I am looking forward to having the simpler aspects of those subjects explained to me by Niall Ferguson:

http://www.smh.com.au/opinion/society-and-culture/civilisation-goes-west-leaving-empire-on-the-edge-of-ruin-20100725-10qeu.html?rand=1280065793351

"''You had the golden opportunity, but it was frittered away in a pseudo-Keynesian spending binge.''

So much for Kevin Rudd's and Julia Gillard's claim to
have saved Australia from the global economic crisis. The world's most
famous economic historian has just given them an F."

I was sent some of the notes made by an acquaintance who was fortunate enough to have attended the CIS conference over the weekend not because he thought I would understand much of what he sent but because he thought they would give some better understanding of next Wednesday's address. I can understand the concept of epochs ending and have enough understanding of past epochs ending to understand why 500 years of European pre-eminence is reaching its particular 'end of days' - I also understand that such endings have no abrupt end and are generally only capable of being seen in hind sight by all but the very skilled. It seems inevitable that advantages that 'push' one part of the planet's residents towards pre-eminence eventually 'move' away from the beneficiaries due to inexorable changes in population and empowerment. Large populations will inevitably 'prevail' over smaller populations given enough time - nuclear arsenal and war like mentality or not.

I'm not sure whether becoming (or even now being?) a mining colony of the PRC is very appealing to the majority/any Australians but given Australian's voting Federal and State elections it seems unlikely that they would ever notice such a transition until the terms of trade made it clear that Australians were only useful for extracting ore and coal and oil and gas and shipping it from an Australian to an Asian port. But that's probably far enough in the future for many people not to concern themselves with. But it is pretty obvious that many more people within the Australian communications industry have become uneasy about the future over the last little while than at any time that I have noticed in the past. If the current government gets re-elected then I would think that number would increase rather than decrease. Telstra's latest attempt at buying its competitors customer bases is just another example of the changes that are taking place. They may very well succeed but the new lower prices will mean that more than a few Telstra employees will no longer be able to be afforded over the coming months - not even Telstra can try and reduce a service's revenue by 25% and fly with the same formation....they will be able to join the centre Link queues with the employees of the other Australian communication providers who they helped put out of business.

Why is this the case? Why are so many people I meet in business expressing extreme caution about "how things may turn out over the next year or two"? Perhaps it's because it hasn't been since the Whitlam fiasco that Australians have been exposed to 'amateur hour' in the government of their country? 'Good on you Kev' lasted less than three years before even his own 'political persuasion' couldn't tolerate his stupidity any more and created modern Australian history by getting rid of him before the electorate did....that is the electorate that so joyfully voted for him in the first place. And now.......well 'wouldn't it be good to try a woman as PM'?.....well - wouldn't it be good to elect Kevin Rudd because he MUST be better than that John Howard guy....for the same reason electing a communist influenced union hack is never a good idea irrespective of gender...... doesn't anyone ever learn? Rudd was a fiasco equivalent to or surpassing the greatest Labor clown of all - Whitlam. Will those fools that voted for Rudd actually remember that?....it was less than three years ago for goodness sake....they haven't had a common sense injection since then....their political 'views' are still infantile and cause great harm....doubtless why so many people in business are so negative about their company's immediate prospects.....its hard to have to have lived with the current bunch of morons without having to contemplate, even after they have proven to be a total disaster, the same "Kev is so brilliant" voters are going to prove themselves to be terminally stupid all over again....I guess stupid people never actually realise how stupid they are.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

.......it appears to me that all these new 'experts' appear to have forgotten that what makes the current copper network so profitable is the line rental and the PSTN call charges......neither of which will be available in the future.....and if there was no revenue from line rental and call charges....then ADSL wouldn't be affordable (does anyone really think that $A2.50 a month recover the costs of connecting and maintaining a residential user to a national network?

Of course, all the dim wits in the current Federal government haven't got the slightest idea of how a network works so they aren't aware of the issues involved. However Telstra, the overwhelming beneficiary of charging sky high prices for EVERY Australian to use the network that had been purchased in the Telecom Australia sale some 15 years ago, would know the figures very well. So, what Australians have been paying for telephony services since the inception of the service over 100 years ago has determined how much money has been available for Telstra's previous iterations to waste in the multiple ways they have chosen to waste it including the ludicrous feather bedding of their personnel, particularly 'management', structures.

The same problem besets Optus and, to a lesser extent, the other larger telephone service providers. What are they going to replace all that profit with based on its sky high pricing (forced on everyone else by Telstra) which actually distorts there current overall revenue and the personnel structures used to support that revenue? Obviously Telstra and Optus can replace wire line revenue with mobile telephony revenue but that still leaves a massive profit hole and a much diminished 'sized' company in terms of revenue and personnel establishment.

So what happens if fibre replaces copper over the coming years and, as is currently one of the conditions, the copper is turned off progressively as fibre reaches the different areas? Telstra, Optus, whoever is currently providing the PSTN connection and call services is faced with replacing them with.....what? The same cost services over fibre? Dream on. No future telephone service is going to be based on anything remotely like the 130+ year old concept of having a piece of media connecting an end user to another user. They will use their mobile (probably MoIP and if they still have something as clunky as a "fibre line" telephone it will be VoIP at VoiP costs.....currently 80% lower than residential telephone charges and continuing to fall. So all current providers that derive revenue and profit from wire line rentals and call charges will see that money disappear, one way or another within a very few years.

Every scenario I can see or have heard offered doesn't address the major issue facing ANY replacement of the current PSTN services which the WHOLE Australian communications industry is based - how does an industry 'down size' when faced by political intervention which pays no heed to the current complex infrastructure delivery? No point in saying that commercial solutions always sort themselves out - the 'NBN2' isn't a commercial solution....it's political idealism based on an ignorant electorate's support because only the 'benefit' (if you can call speed a benefit) has been offered with the costs being not supplied but being deliberately hidden.

So....no need to panic.....there is enough anti-Telstra sentiment around (and quite understandably) to continue to 'persuade' the idiots in the parliament, the media and the always pig ignorant electorate that an 'NBN2' is the right way for Australia to go....and perhaps in the grand sceme of everything progressing it could be - so little is known it's impossible for ANYONE to make such a call.

I can speak totally impartially as Exetel has no wire line rental or call revenue (except ADSL2inc services which comprise less than 3% of total revenue)  and we face no problems in losing large  chunks of wire line rental revenue and the profits from ludicrously high call charges. How Telstra and Optus deal with that loss is, I am sure, the subject of a great deal of analysis and planning. The question you have to ask yourself is (apart from "Well - do you feel lucky?") is - "how dose a whole industry manage to downsize it's operations when/if confronted with a massive drop in some part of its revenue and a massive increase in its base costs (no more $2.50 a month connectivity to end users anywhere in Australia for you).

Sometimes, once every ice age or so, it is better to be small and unencumbered in terms of the services you offer even if that was achieved at a significant loss to your ease of life - this seems to me to be such a time.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

.........can't say the same for the outlook between now and Christmas.

Yesterday was an interesting day with the monthly board presentations by the 'department' managers. Exetel has come a long way since it consisted of one person in a small back room of our house and two 7206's and four IBM servers in the Powertel Data Centre in Clarence Street. I would have thought that any relatively competent 'senior manager' who listened to those presentations and asked whatever questions they wished to do based on a pretty good understanding of the overall Exetel business (as I do and did) would have formed the conclusion that Exetel's issues/problems/opportunities are being dealt with by thoroughly experienced, highly competent and skillful people who have a detailed grasp of the responsibilities and enough and competent enough personnel under their charge to meet this years very aggressively difficult targets. Then again it might well be my lack of acuity.

We are now almost one month in to our FY2011 business plan and, on balance, all the key trends are positive with revenue slightly exceeding the first month's estimates in all but one of ten product 'sectors' and ADSL1, perversely, actually making net gains and well exceeding our initial forecasts.....this despite Telstra Retails huge new cash giveaways to make current ADSL1 users of other ISPs move to BigPond. So, as you tend to do when you have run the same business for a while, you tick off four more weeks in which you have grown your company, if not by very much then at least achieved growth rather than decline, and you start worrying about the following month.

I obviously don't know how other company's are 'seeing' their first month of the new financial year. The impression I get from my two long term acquaintances in the Australian communications industry is that July is not going to be any sort of month to write home about and that, like Exetel, they have gone into the new financial year with very conservative expectations. From what I can gather from our suppliers - most of them are not seeing anything very positive and even our main bank manager is trying to lend us money which is some sort of sign that the overall business 'climate' is not as good as he/his bank would like it to be. Perhaps I am reading too much in to too little information.

A great deal about the start of FY2011 has been disrupted by the recently called Federal Election. My observation, since I grew old enough to notice, is that a Federal election always seems to produce reasons for a wide range of businesses (business managers) to "wait and see what happens". Why? I have no idea at all - it isn't as if an election has ever changed a single thing in the overall operation of the country - even/especially when some big change is 'promised'. (Remember "Work Choices" and how Rudd/Gillard were going to "sweep them away" at the last election? - notice any difference now? - of course not). Notwithstanding the reality - several significant decisions we were expecting to happen in August are now on hold until "after the election". It's as if senior decision makers are capable of only pursuing one thought at a time and a Federal election precludes anything else being considered for 6 weeks or so.

So, it appears that August is going to be a more difficult month than July is turning out to be following the previously established results of elections being called. I wonder how many more 'negative' things can effect business results - there never seem to any positive influences like mining companies  get from building booms around the world every few years. Probably the real benefits of having a global business instead of a small sector in a small country's economy with massive competitors.

Still, we can continue to do the best we can and, hopefully, by the time August starts we will have recovered our long held position of offering the most for the least in all of our residential services which will be a great achievement after the continual issues with which we have had to contend over the past four or five months. If we can in fact achieve that I, personally, will be happy to deal with whatever Telstra next throws at our (and I'm sure other ISP's) customer base - completely free services with $1,000 'cash back'?

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

I have been asked to give a short presentation on what I thought would happen to the Australian communications market if the 'NBN2 became a reality to one of Exetel's suppliers next Monday so I used the time I usually devote to writing a blog to sketching out what I will talk about. Sorry if that's "cheating".

1a) How Exetel Sees Current Markets And Challenges

Exetel’s revenue growth dropped from 24% in FY2009 to 20% in 2010


ADSL services grew less than 5% in FY2010 and are planned to fall in
 FY2011


All other services grew over 20% in FY2010


Exetel expects to continue to replace ADSL revenue loss with business services
gain in FY2011 – and replace ADSL profit loss at 10 x


Exetel expects wireless broadband revenue to grow strongly in FY2011 – if we
solve a few problems

1b) How the NBN will impact Exetel assuming it
goes ahead as currently planned


We have no experience with NBN fibre as yet


We have begun some tentative letter box drops in fibred areas but only received a few actual
orders due to no official turn on yet.


We were very encouraged by the Telstra Point Cook fibre trial which, depending
who you believe, showed Exetel as getting over 20% of the alleged 300 fibre
orders placed so far in that small suburb.


Until the current election is decided we have not made any assessments of what
impact NBN will have on ADSL over the coming year – almost none is the current
guess.

2. Potential
future Telco industry structures under an NBN – retail and wholesale

A fascinating speculation – where it’s possible to see
some possibility of opportunities for small companies like Exetel


It, obviously, depends on what ‘discount’ structures are employed by NBNCo and
what attitude any discount receivers take to wholesaling


We currently have a wholesale agreement direct with NBN Tasmania and are
assuming we will be able to have the same arrangement with NBN Mainland – that
is simply an assumption.


If NBNCo, firstly goes ahead, and then goes ahead in some sort of reasonable
way/speed then the wholesale residential market changes completely with neither
Telstra nor Optus having any real reason to continue to exist as a residential
supplier of wire line telephone or data services.....by choice.....and possibly
not by being able to make huge profits from wire line services because neither
are effective as resellers without their own networks to artificially control
end user prices. Both have resisted VoIP and will pay the price for that delay.


So a possibility is how Telstra and Optus proceed – mobile only?


If there really is some sort of real central government control for national
fibre then there is not a very bright future for either Telstra or Optus and
the wire line service market will change completely.


It seems problematic whether there will continue to be a recognisable wholesale
and retail market for telecommunications services in the not too distant future


3.            Wholesale
market future trends under an NBN and what you see are the opportunities for
Optus Wholesale across fixed broadband/data/voice in the residential and business
markets

If there is a significant discount structure provided
by NBN Mainland then little needs to change – Optus and Telstra will be able to sell to
‘wholesale customers’ at lower than those customers can buy from NBN direct and at some
sort of acceptable margin – you would assume.


IP can continue to be sold


Wireless remains a growing and major service


VoIP rates could be made a major service but the current pricing is so far away
from competitive that it would need a complete re-think.


“Content”, in whatever form that will take, appears to be the major opportunity


Business links remain ‘untouchable’ by the NBN, at least for the time being and
needs more concentration on....unfortunately ‘protecting current revenue’ is
going to be very hard to deal with by Telstra, Optus and many others.


4.            What
alternate/differentiated strategies could Optus Wholesale pursue to ensure its
relevance and growth in an NBN world


Is Optus going to wholesale NBNCo fibre?


If so is Optus able to offer any advantage over offering the NBN fibre services
being bought direct by Exetel?


If yes – then nothing changes from the current arrangements Exetel has with
Optus – we leverage your buying power to obtain a financial benefit.


All other services, particularly wireless and large scale data and, possibly,
IP remain the same as they are today


Content, particuarly entertainment, remains a key attribute of residential
fibre services.

5.            Where/how
do you see the Optus Wholesale and Exetel relationship growing and continuing
to succeed in an NBN world

We see very little changing as residential fibre is not
something that we are particularly interested in right now and the questions
previously asked have exhausted this topic pretty much.


Fibre affects Optus/Telstra because you make so much revenue/profit from
PSTN/non-voip calls – that it is something for you to deal with.


Exetel (apart from the ADSL2 services that include a bundled phone line/calls)
has no wire line telephone rental and very little ISDN/PSTN call revenue so it
is of no concern to us. (voip revenue now  exceeds wire line telephone call
revenue and continues to grow)


MoIP will begin to affect Mobile revenue and Mobile will continue to eliminate
wire line revenue – as you know much better than I do.


Exetel is planning to have no residential ADSL revenue within the forseeable –  I
would assume that Optus would be wise to do something similar.


in the mean time Exetel will continue to buy more mobile data and more business
services to more than off set the loss of ADSL revenue -  to either company - at least that is the plan.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

I read the report that Telstra was in the process of again revising its operational management structures with the objective of reducing the number of 'senior' managers employed in their business. The article I read was here:

http://www.itwire.com/it-industry-news/strategy/40554-telstra-cutting-dead-management-wood

but it seemed to me to be self contradictory in that it described as "senior managers earning in excess of six figures" which seems a very low 'senior management' salary to me. I would have no idea where the very precise number of "330" people possibly using their jobs as it would either mean that a decision has already been made or it is just a number plucked out of the air by someone or other. Whether any particular number, 330 or otherwise, is meaningful would depend on the actual number of 'senior managers' employed by Telstra before any reductions were/are made.

You would have to assume that Telstra will be reducing both the number of employees and therefore the number of managers if it proceeds to sell off its network infrastructure to the government 'NBN2' over the coming years but that wouldn't have an effect either now or in the near future. So why would any company reduce its personnel generally and its 'senior management' in particular? There only appears to be one possible reason - gross feather bedding built up over the years despite El Sol's best efforts to reduce Telstra personnel while he resided in Australia.....or what it really means is that Telstra had a pretty bad year and before they publish the FY 2010 results they are going to have to appear to have addressed some of the issues....perhaps that's too cynical.....time will tell.

Exetel had a very tough year in FY2010 with our lowest percentage growth of any year we have been in existence - 19.93% (ex gst) compared with an average of 27.71% over the past four years. Unlike Telstra we are not reducing personnel or especially reducing 'senior management' personnel but are increasing our personnel numbers in almost every aspect of our business - not that we actually have many people in total anyway....still just less than 100 in Australia and Sri Lanka. Exetel's current plans for the coming year are based on increasing our number of personnel by around 15% (obviously depending on how each month progresses against our planned targets) with our number of 'managers' increasing by the same percentage.....assuming that the company is able to develop suitable people.

One change to our business that has been brought about over the past 18 months has been the percentage of 'sales' personnel to all other personnel - in both countries. 2 years ago we had 2 'sales' people and didn't even have a sales telephone number or email address for residential services. Since then we have slowly acquired 9 residential sales people (all in Colombo) and 18 corporate sales people in Sydney meaning that we now have 25% of our total personnel devoted to sales activities with that percentage planned to increase to well over 30% by the end of this financial year - assuming we continue to meet our planned revenue targets. A very big change to the 'old' Exetel methods and processes.

It will be interesting to see how the large carriers and providers react to the current situations the different companies will continue to be confronted with over the coming months and next year or so. I very much doubt that it will be only Telstra who begin to realise that they have pursued a mistaken set of directions in personnel acquisition, retention and increased remuneration over the past few, or more, years.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

We continue to struggle to find ways of maintaining a sensible position in providing ADSL2 plans that are competitively attractive yet do not lose us money in the current and likely near future marketplaces. We have looked at various ways of providing differentiators that would make sense to prospective buyers but have struggled to do so in marketplaces in which offerings from providers  are increasingly 'identical' in price and base inclusions. Our current views are that we will not be able to make any radical changes but will have to resort to 'marketing' initiatives for the first time in our corporate 'life'. I have always abhorred the trickery/lies used by so many providers in presenting services based on wildly mis-representing the truth by omitting or obfuscating key 'negative' aspects of the services they were conning the customer into buying (I will not repeat my views about mobile telephony marketing). Perhaps a country that elects Kevin Rudd as prime minister defines why 'marketing' succeeds over substance here - and in many other places.

So I thought about combining the 'best' (perhaps that should be the worst?) of Dodo's ads/offers with the 'best' of TPG's offers to produce a 'super plan' that would blitz the market - or at least double our current sales. I came up with something like this:

80 gb peak/180 gb off peak for $A60.00 with FREE telephone line  bundled with service

NO minimum spend on telephone calls

Excess usage at $3.00 per gbyte

NO set up fee

24 month contract

$150.00 early termination fee

Off Peak period - 3 am to 9 am (or some other period entirely but 6 to 12 hours)

....or some variations of such a plan....maybe a $30 a month plan with 1 gb of downloads and perhaps some naked versions along similar lines.

Alternatively we could go down the current customer reward path of providing $100.00 - $150.00 bonuses to current customers who sign up new ADSL2 users with the 'sign up bonus' split between the referrer and the referee (free activation to the referee and the balance to the referrer).....or something more radical....once you get in to the swing of this way of offering services then the sky's the limit.

With the new ADSL2 offerings from Telstra due to re-define the marketing standards for the Australian communications industry just 'around the corner' it seems that it is past time for Exetel to change from substance to ephemera and from no surprises to marketing mist (if not going as far as fog as so many providers do). I have no idea what will transpire over the remaining days of July but it seems likely that there will be some more changes to 'head line' rates and 'bundles' before the 'ides' of August so we will 'keep our powder dry' until then (don't you love marketing talk). It's a whole new world once you become 'inventive' and take your eyes off conservative ways of looking at running a business.

Any way - if anyone has any brilliant marketing ideas  - please let me know - I don't think I have the kind of imagination that is suited to marketing methodologies.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

......in every aspect of human life.

I read this earlier this morning:

http://online.wsj.com/article/SB10001424052748703720504575377472723652734.html?mod=WSJ_Tech_LEFTTopNews

and thought that how significant (apart from reducing the 'need' to grow and fell trees to produce something as ridiculous as wood chips) a change this will make to so many people around the world over the coming few years. While I understand the last two or three human species generations have become effectively illiterate and many of them have never chosen to read a book in their short lives to date it is the clearest possible indication that the remaining book readers catered to by Amazon will soon stop buying 'conventional' books that have, for over 4,500 years contained the whole of the planet's knowledge and been the principle method of spreading one person's knowledge and ideas to anyone else who was able to read what he wrote.

So a plus for the world's oxygen supply and a minus for book shops that will go the way of black smiths - killed off by changing technology.

As I commented the other day about ADSL1 plan price changes - it was only less than ten years ago that ADSL1 was 'brand new' freeing internet users from the terrible slowness of dial up which itself had been around for, in reality, less than ten years as a commercial service. So now with ADSL2 which we began to 'seriously' examine yesterday and will make further efforts today to determine what we can do in providing more 'attractive' ADSL2 services to those people who still prefer a wire line service to a wireless service or to those, few, who have the option of a fibre service. ADSL2 has been around for less than 5 years and it seems very likely that it will not be around as a significant service well within the the next five years with a combination of fibre/wireless providing too many end user benefits for it to survive beyond that time.....though there appear to be many ADSL2 providers who think differently based on their refusal to acknowledge that the total number of ADSL2 users has plateaued and is now declining. Sometimes I wonder whether the people responsible for such thinking have actually been in the Australian communications business for more than five minutes.

As has been the case for over a year now - the various larger ADSL2 providers continue to make every effort they can think of to 'protect' their customer numbers and in doing so are providing ADSL2 plans at ever lower costs - consistent with the large overheads that all of them suffer from that puts an artificial 'floor' under the end user pricing. This 'floor' is partly caused by the fact that all ADSL2 services ('naked' or not) require some sort of copper telephone line to deliver the service and the only telephone lines available to do that are, of course, owned by Telstra who has now, if all goes to plan, agreed to turn them off as government owned fibre reaches more residences. In the mean time all ADSL2 providers have to hand over a lot of money to use the copper lines on which they are dependent. That plus the cost of ADSL2 DSLAMs/back hauls and advertising, selling and support costs all add up to a pretty 'high floor'.

As Exetel have less of those sorts of costs than the larger providers we are able to offset the 'lower costs' provided by owning our own DSLAMs and back hauls to some extent and the fact that we do no marketing or advertising and have very, very efficient automated systems and far lower support costs than most residential communication providers allows us some flexibilities not available to the larger providers - including the major advantage of not needing to make a commercially acceptable profit from ADSL services. Irrespective of these advantages we have never made much more than a break even result from providing ADSL residential services and even that has become much more difficult over the past year or so as the 'writing has appeared on the wall' and the 'investments' in ADSL2 mini networks has become so much rusting iron in terms of future value thus accelerating the scramble to add more customers before the source dries up completely.

The only sensible, financial, solution to this situation for any ADSL provider is to draw a line from today's level of ADSL revenue that falls to zero at some month in the future where the revenue from ADSL services will be zero. Commercial organisations that do that then have to draw another line for another revenue source that equals or surpasses the revenue (and profit) lost from ADSL services and then make that happen - planning/hoping that the second line will become shorter and the first line will become longer but, whatever level of reality is applied, planning for those two things to happen coincidentally. Of course, there will be a continuing market for ADSL2 services for some time yet - just a progressive decline in total numbers forcing the 'market share or perish' driven companies to ever lower net pricing against an increased level of 'services' included at the 'magic' price point.

Not a small challenge.....but, like the problem the book shops now face, technology is inexorable and there's no point in refusing to face facts so any company that plans to stay in the Australian communications business must 'move on'.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

Q: How many psychiatrists does it take to change a light bulb?

A: That  isn't the question - the only question is does the light bulb want to change.

I have been involved in some aspects of managing all or significant parts of commercial operations for more years than I can care to remember and over those eons I have been involved in some very, very strange situations - pretty much covering the gamut of all the good, bad and dreadful situations someone could imagine being some part of commercial 'life'. However, with one purely opportunistically lying situation so far in the past that Annette had to remind me that it had actually occurred I have never been aware of any sexual harassment occurrences in the more than several workplaces in which I have worked let alone had any responsibility for - until now.

It just goes to show that, irrespective of how much 'experience' you may think you have, running a company of any size will continue to bring you 'challenges' that are beyond any experience you have built up and about which you have no real idea how to resolve - especially, in this instance, where it occurs in another country whose general and IR laws are totally unknown to you. If such an alleged instance was brought to my attention in Australia then I would have at least the general understanding and commonsense of how to deal with it and would have immediate legal resources to determine and guide my immediate actions. But this allegation has been made by a Sri Lankan probationary staff member to Annette during her periodic reviews of all SL personnel so it now has to be dealt with via the additional complication of distance and no 'face to face' discussions with either of the two people involved for the moment.

So, for the ten days I have now known about this situation, it has intruded in to my mind at all sorts of awkward times and has taken the edge off everything else  I have been thinking about. I have taken all of the actions that Australian law requires to be taken and have begun to get direct advice from a SL law firm that specialises in this area of the law in SL. Having no previous experience in any aspect of commercial life is a major drawback in attempting to resolve a situation. Having no ability for face to face meetings with either the protagonists or a legal advisor makes everything much more difficult than it already is. Spending any time on such a negative issue when time is already too short to spend time on the 'life or death' issues that require attention in the 'real problems' a business faces every day is a major, unwanted distraction.

So - my coming week is already negatively affected before it's properly begun and until this situation is resolved it will continue to be negatively affected. 'The obvious solution' is to fly back to Sri Lanka, get detailed advice from an experienced solicitor and have a suitable person appointed to find a sensible solution - something I'm almost certain should be done. However I have been away from Australia for three weeks and had left a lot of things to be resolved on my return which require my presence in face to face discussions here.So....I am not sure what I can actually do but I do realise Exetel as a company (and the directors in particular) have to put an end to the current distasteful situation in the best possible way for all parties including ourselves.

It is so pleasurable to be part of the management of a commercial enterprise of Exetel's size.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

.......impacts on networks........none so far.

I had a look at the 'impact' of the 60 or so Point Cook fibre users on the links between Telstra and Exetel in Melbourne and there were none that I could see. Of course 60+ users are a tiny sample but you would expect to see some sort of impact on the link which is also used to carry the ADSL1 traffic between Telstra ADSL1 users and Exetel. We added the fibre users without making any change to the link that was already in place and there is no noticeable difference to the minute by minute usage. All well and good. It doesn't mean much in that aspect of the 'transition' between proving services over much faster fibre than copper so far.

I was more interested in the amount of the average download that would occur once a user had 'super fast fibre'. Again nothing seemed to change from our point of view as a provider. The Exetel ADSL customers who changed to fibre didn't seem to increase their downloads in any way and the new customers (the majority) averaged less than 10 gb with almost half averaging less than 5 gb. With only 60 or so customers from one very small area these early results are not really indicative of anything but it will be useful to compare the July usage with June usage for those customers who have had the service for a full two months.

We will connect the first NBN Tasmanian customers before the end of this month (I never expected to say this but there is a more bureaucratic and slow moving communications company in Australia than Telstra) and I will be particularly interested in the download profiles of the customers who have signed up with Exetel compared to the Point Cook customers. Both back haul and IP costs are horrendously high in Tasmania (4 to 5 times more expensive than mainland services) so it's going to be a critical factor moving forward in that State. We have made no allowance for any significant impact of fibre customers in the current financial year because, even with an election now only five weeks away (which will settle the future of the 'NBN2'), it is still too hard to determine whether or not there will be any alternative fibre offers from either Telstra or Optus and therefore what time frames may be involved.

On balance, and not getting 'carried away' with the current 'results', I think that the current largest providers of ADSL services will have many more problems to deal with than companies of Exetel's size if/when fibre alternatives to ADSL become more commonly available. Like the possible opportunities in Sri Lanka (in a completely different way) it would be nice to be 'first' into a new service area rather than last and be able to provide services on a different basis to the largest companies who have a great deal to protect and less 'room to manouvre' than a company of Exetel's size has. Not that we expect to get much market share but it will be far easier to 'compete' with much larger companies whose efforts, no matter how anyone tries to spin it, are going to be far more 'fractured' than our own.

I think, generally speaking, that wireless broadband poses similar problems to the largest ADSL providers and I have held that view for over three years now. The continuing growth of wireless broadband usage has gone pretty much the way every knowledgeable person around the world predicted it would go with those predictions saying that downloads via wireless broadband would exceed those of ADSL by the end of 2011. So much for the silly and totally ignorant expert's claims that "there will never be enough wireless spectrum for wireless to take over from ADSL".....as Dr Ian Malcolm once famously said: "life will find a way" and he was only a character in a pot boiler. Meanwhile our immediate problem is to find a way of 'staying in the game' as a sensible provider of wireless services amid the carnage that appears to be today's wireless market places. To do that we either need our current carrier to provide services more logically or we need to find a different carrier.....I am leaning towards the second alternative as the more likely at this particular time.

It's a beautiful, sunny Sydney winter's day so I am deferring any further work for an hour or so.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46

A little earlier this morning we completed the ADSL1 plan revisions following a day or so of discussion and a lot of number crunching based on an examination of the current competitor's offerings in this increasingly 'forgotten' sector of the marketplace. It seems somewhat strange to me now (as the person who set the original ADSL1 plans back in late December 2003 when ADSL1 was going to represent 100% of our business at that time) that we look at ADSL1 so differently as it enters the 'late sunset' of it's technological life. ADSL1 revenue now accounts for less than 30% of total revenue for Exetel down from 50% at this time last year although the number of customers has only declined by around 10%. Still - 30% of total revenue is a sizable 'chunk' of any company's income though the business plan for the current year shows a continuing decline.

We were able to reduce the 1500/256 plans a little via a slight price reduction from Telstra (the first in almost 5 years) which, simply gave us the slightly lower buy prices that have been in place for other wholesale customers for at least up to two years. As far as I can determine this means that we have recovered the position we always aimed to be at since we commenced in this business - the lowest priced plans with more inclusions than any other Australian provider for both 1500/256 and 8192/384....which are the only speeds that are still ordered by new users though the occasional 512/128 plan is sometimes bought. I was surprised that it actually took as long as it did to complete that review but then so much has changed since we last did it and doubtless so much will continue to change.

Because of the time taken to complete the ADSL1 review took so long we haven't had a chance to look at the ADSL2 review at all and only cursorily looked at wireless broadband pricing and positioning. I will do some work over the next three days on these plans but need a lot better insight into what's happening than I have at the moment - practically none. ADSL2, in some ways even more than ADSL1, is being 'squeezed to death' by over supply and the desperation of so many suppliers to 'maintain their customer base' let alone grow it. The ABS statistics are still well over a month away and it would be nice to see what their report contains. Although, given their source, those figures are 'rubbery' at best they usually provide some sort of trend line in terms of overall direction.

As the new financial year develops it should become more and more obvious what impact fibre will have on ADSL2 and, depending on the roll out time frames by the mobile carriers, what impact wireless broadband will have. The impact of fibre won't be that great and, depending on exactly what happens after the next general election, may vary greatly - irrespective of whether the current Labor government is returned or not (if Labor loses and the Coalition dumps the 'NBN2' then I would expect to see Telstra pursue its own fibre solutions aggressively and immediately which would quite possibly have a bigger impact than if the 'NBN2' continues on). Wireless broadband, if delivered even more widely at higher speeds will have a significant impact on the current ISP scenario and, from what I can see, ADSL2 is already past its 'universal' appeal and will follow ADSL1 in to a continuous decline in user numbers.

So the challenge is, at least for Exetel, to manage the interregnum as best we can with the very limited options available to us and use acuity and operational efficiency to overcome the problems of size and price disadvantage - not the easiest of tasks at the best of times and particularly now - at least that's how it seems to me.

Marveling at the beauty of rural England, its village life and its wild life seems a very long time ago.

Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46