John Linton I had the third meeting in three days with companies that want some sort of joint venture (or in two cases that was simply code for buying Exetel at a bargain price because we are obviously so stupid we would do that) yesterday which must be some sort of record for 'approaches' in a single week. I was trying to add up the number of approaches we have had over the years but my memory is not good enough - I could get to over 30 but of those I doubt that any were ever 'real' and none but 2 or 3 got further than the initial approach. Yesterday's meeting was little different to the average - lot's of multiples of EBITDAs thrown around together with 'creative' payment methods (read ways of non-payment) and offers of value based on future performance (read ways of non-payment) and the final 'killer' - no cash but shares. I suppose it was good to end the 'working week' with a good laugh but disappointing to see how many gilt edged creeps there are in the Australian communications industry.
What was a common thread in the first and third of the 'approaches' was that they were based on fear and weakness - eroding customer bases and shrinking margins. Not an encouraging scenario for 'joint ventures' let alone comfort that ready cash could ever be forthcoming. What seemed to be equally apparent was that these companies had not only not seen this situation approaching but they had no ideas as to how they could now deal with it other than somehow reducing the costs of supplying residential ADSL services by having greater buying power achieved by something or other. Not one of the companies this week nor any I can remember over the past 18 months or so seemed to realise that the days of easy money from selling residential ADSL services at high margins were dead and buried. Perhaps the days of making ANY money from selling residential ADSL services is also getting to the 'dead and buried' period of its 'life time'...but that's a different matter.
I am not pretending for one moment that Exetel is swanning through the year without a care in the world - we very definitely aren't. But we actually planned to reduce our 'dependence' on residential ADSL services by actually planning month on mpnth reductions of ADSL customers and although that hasn't yet happened we definitely will not be 'caught unawares' if it happens in future months. Any company of our size would be very foolish not to factor in the 'price wars' that will be an ever growing influence on the residential ADSL marketplaces over the next 18 months. Personally, I'm only surprised that in the first two months of this financial year we have not yet seen a greater 'churn away' and have, surprisingly, seen an increase in new and churn in business - but it's only a moment in time and I don't expect us to remain this 'fortunate' throughout the remainder of this financial year......though maybe I'm being overly cautious.
The offer of TW ADSL2 has continued to surprise me in the number of people who have taken it up - both current customers (approaching 1,500) and churns from other ISPs (almost 200 in ten days). The churn ins don't mean much but the number of Exetel customers who have upgraded is very pleasing because, on limited evidence, those upgrades have coincided with a massive drop in the churn aways to Telstra which is presumably what they would have done if we hadn't offered an alternative. So that has been a good thing and will hopefully last until Telstra Retail launches the next phase of its 'welcome home' programs.
I am not a pessimistic person by any stretch of the imagination (the few people who know me well enough would say my ability to ignore unpleasant reality is legendary) but my personal view is that no matter how tough any comms company is finding today's operating environment, come Christmas 2010, they will look back to today as 'the good old days' - a view I shared at two of the meetings with potential 'joint venturists' earlier in the week. In the mean time Exetel will continue to try and more rapidly increase the revenues it derives from business services and other non-ADSL services to protect itself against any erosion in residential customers/revenue which also provides the added protection that one dollar of non residential ADSL revenues provides 10 - 15 times more 'profit' and it would take an awful lot of residential customer base erosion before Exetel's financial capabilities were affected....at least that's the current plan.
Maybe I have it all wrong.
Copyright © Exetel Pty Ltd 2010
ABN 350 979 865 46