John Linton's Personal Musings

John Linton

....if in fact the olfactory sense can be stimulated by reading words on a screen.

After three full 'normal' days of making Telstra ADSL2 plans available and seeing the results (obviously small because we are not a large company) of the number of current customers who have applied to change to the just released Telstra connected ADSL2 plans I can better understand the 'panic' that seems evident in the various statements and actions of some larger ISPs. I am not 'getting carried away' with the numbers (mainly in regional areas but a surprising amount in what I would call metropolitan areas) of our own customers who are moving from ADSL1 to the new Telstra based ADSL2 services. However the numbers are surprisingly high and the more pleasing aspect is the churn away to Telstra Retail numbers have dropped incrementally on each of the three days indicating that the new plans have stopped that particular problem that we have been experiencing for some two years.....at least temporarily.

We need to see what happens over a full month to determine more clearly what will happen at this stage of Telstra's 'win back' campaign bearing in mind that if the current offers don't produce the results wanted by Telstra's board then the 'inducements will be racked up another notch and if that doesn't work then more notches will be racked up until it does produce the market shares demanded by Telstra's new initiatives. As a correspondent noted yesterday about iinet's ludicrous announcement of their 500/500 gb plan:

I alluded to the return of wholesale to the communications marketplace in what I wrote yesterday but didn't have 'space' to actually make it clear what I meant. At the risk of boring the people who did get the point I will make it clearer. The current crop of self proclaimed "major players" in the residential data market all got to where they are today courtesy of buying services from Telstra and relying on Telstra's sky high pricing to be able to make fat margins themselves by simply re-selling Telstra's services. They relied on taking customers away from Telstra by simply offering a Telstra service at a slightly lower price and, as they grew, by buying out smaller ISPs that had run out of money or interest in continuing in the business. When they grew to a certain size they decided that they were 'a player' and made the move to implement their own partial networks relying on an incredibly low access price to Telstra's "last mile" copper connections to residential dwellings.

Rational thinking - as far as it went but only rational for the short term - there never was any medium let alone long term benefit in this approach.

Consider what the under pinning of this thinking really is:

1) Telstra will be content to let you take its retail customers based on pricing by Telstra that makes this easy to do.

2) Telstra will be content to let you take its wholesale customers (by buying them out) because it lets you earn so much money by providing you with the ability to earn it because of Telstra's high pricing.

3) Telstra will just 'sit there' and let you do this until Telstra has no customers

4) Telstra has no ability to stop this happening

The proverbial 'blind Freddy' could see that this just wasn't going to happen...."and so it came to pass that after enduring the discomfort of the peasant's sword's pinprick irritations for long enough the mighty dragon bestirred himself and in with one blast of his fiery breath reduced the annoying pygmies to ashes, turned over with all annoyance gone and resumed his slumber" ....I haven't read fairy stories to my children for a very long time so I have undoubtedly misquoted it. I am far from a fan of large companies ways of dealing with competition but I am not dumb enough to assume that if an incumbent loses market share it will just do nothing until it goes out of business. 

What do these companies that have based their whole business 'strategies' of gaining market share by simply pricing and selling slightly below it reaping absurdly high margins think Telstra is going to do now? Well - perhaps its now occurring to them that two things have already happened that will make life 'different' from this point onwards. The first thing is that the market they have depended on for the growth they have promised their shareholders has no more 'easy' growth in it (maybe even a steepening decline?) and by buying up many of the medium sized suppliers they have nowhere to find quick market share improvement. They must now rely on keeping the customers they have (under increasing pressure from Telstra and others reacting to Telstra) and then taking more customers away from the fewer suppliers left in the market than any time in the past - and that is now going to be made very much more difficult by the chief source of that type of growth not only protecting its remaining customer base much more effectively but by attacking their own customer bases incredibly more fiercely.

I have over simplified the situation because I don't have the time and I'm sure you don't either to examine the scenario in the detail it requires but perhaps you get the picture that shareholders in companies like iinet and TPG may well see that 2010 was the high water mark for the achievements of companies that compete with Telstra and that it's all 'down hill' from here.

Maybe I'm completely wrong.

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