John Linton .....and 2010 is finally over and already being forgotten....at least by me...and it's a perfect Sydney summer's day. The January recurrent billing run has been completed on time - well up on January 2010 (around 12%) and almost 380% up on January 2006 (our running 5 year growth base point). So in terms of 'figures' we continue to make progress in all areas of our business objectives except residential ADSL where we continue to lose customers to Telstra Retail's offers on a month by month basis. Not exactly a surprise.
We also sent out the January Exetel customer news letter advising all customers that we would be increasing the plan costs for all residential customers who are out of contract by $10.00 or, alternatively they could move plans before midnight on 31st January 2011....or move to another provider if that provided them with a better solution for their needs. It appears to be a very 'brave' decision (as Sir Humphrey may well have said if his opinion had ever been sought) but it is in fact the only decision that we could have made at this stage of Exetel's life. The simple fact is that we make no money at all from providing residential ADSL services and have lost money for most of the past 18 months, every month, on providing these services. Only the profits made from business data services and other services have allowed Exetel to continue to provide residential ADSL to our customers and that is not a sensible basis for operating any business.
By increasing each of our out of contract ADSL plans by $10.00 they are still, with a very few exceptions, lower cost than those of almost all other providers who sensibly provision their networks to provide full services at all times of the day/week/month....they are just not by far the lowest cost that they have been for the past seven years. However they will actually produce a, very small, profit now and they will ensure that the customers who remain with Exetel will contribute to the company remaining in business rather than ensuring it didn't. We expect to lose some, unknown, percentage of our current customers particularly the newer ones. The bald fact is that every customer on an out of contract plan loses us money so, while it's always very sad to ever lose any customer, the basic financial fact is that Exetel is financially better off and the customer who has found a better option is better off so everybody wins....not often you can say that in a competitive market place.
You can never be certain of any forecasts or predictions in life generally and competitive business in particular but we dd plan for the inevitable eventualities of a stagnant residential ADSL market with ever fiercer pricing competition some two years ago when we looked at the simple arithmetic available to us at the time and which has remained pretty much the case, month by month, since March 2009. This is that if we could average obtaining 80 new corporate business accounts at a rate of $50,000 per month (at 30% gross margin) we could lose up to 9,000 residential customers each month (at the then gross margin of 3% - now 0%). Financially, assuming we could generate that level of new corporate business which looked very, very difficult two years ago but not at all difficult today then we would survive whatever the combination of a saturated residential ADSL marketplace and Labor's 'NBN2' ventures would produce.
The chaos that was 2009 and 2010 residential ADSL came about exactly as predicted....however that was pretty obvious to anyone in the industry with an IQ greater than their waist measurement. The depredations of Labor's meddling with the communications industry is also becoming apparent - but I will let my views on that remain unpublished as they seem to cause consternation at my stupidity by too many people and I have no interest in appearing to be more stupid than I already know myself to be. After seven years I think it can be demonstrated that Exetel actually now provides better residential services than any of the companies with which we compete for a broad section of residential end users. Hopefully some 1.5% or so of Australian users of such services will see that is the case and will continue to use Exetel. If they don't then we have wasted seven years of our, and 100 other people's precious time on Earth and a great deal of our share holder's money.
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