John Linton I read the report that M2 had bought Clear yesterday for around $A25 million.
http://www.smh.com.au/business/m2-in-clear-to-add-20000-small-and-medium-businesses-to-the-books-20110201-1acee.html
The rationale was that Clear had around $A70 million a year of revenue from business customers and is said to increase M2's annual revenues to around $A500 million annually. It's not a name that many retail buyers are aware of being mainly an agglomeration of failing or failed businesses that have been bought up over the years and put together as a more powerful whole - a rising (until very recently share price) and an interesting balance sheet. Like many other companies M2's principal income and profits are made from mobile sales and the generous carrier payments associated with them with ADSL being a relatively small part of their operations and wire line telephone (via their acquisition of the failed Commander group) comprising the bulk of the rest.
I was interested in the update on M2's operations because they seem to out "iinet" "iinet" in their approach to growing their overall business via acquisition of other companies and it clearly has worked out very well for them assuming the reported figures are accurate and the share price continues to hold up. Of the companies that provide services to the residential marketplaces it seems only Dodo continues to rapidly grow from its own efforts and that always seems, at least to me, to be nothing short of miraculous when taken in the context of its apparent business practices. But I really have no idea of how they really operate only seeing what is reported in the media. In terms of 'industry consolidation' it may mean something but two companies that few outside the industry have ever heard of 'merging' their quite different businesses is not going to mean much.
What it seems to mean, in terms of Exetel's interests, is that more emphasis is being given by various comms companies to business customers as the revenues, and more importantly profits, from residential ADSL and telephone services continues to shrink. While I think I know a reasonable amount about business customers, their motivations and imperatives, and how to sell to them I remain more than a little confused about what will really happen over the coming months and for the rest of this calendar year. As I commented about that TPG email to one of their customers a week or so ago; it is a very dangerous situation to find yourself in - a supplier that has a customer base that they have been ripping off for years suddenly being confronted with one or more competitors offering better services and much higher speeds for less than half what they are currently charging their customers.
This is exemplified by a sale we made yesterday to a private school where we could provide 4 times more bandwidth at less than half the price the school was paying to Telstra and had been paying for years. That pretty much sums up the scenario for almost all business customers of Telstra and it doesn't really change a great deal as you go 'down' the supplier status list. It appears to me that all of the 'business' suppliers have been content to simply use Telstra's umbrella to charge "Telstra less 10 - 15%" as their pricing strategy. Practically every, if not every, business in Australia is paying more than twice as much as they could be for business data services because of this scenario. All of those suppliers will begin to face increasing customer loss and/or continually decreasing revenues from their current business customer bases as more and more business customers become aware of how they have been over charged for decades.
It's a pretty 'frightening' scenario that doesn't happen very often in business. A whole industry that has spent the last ten years (at least) being over charged for simple services while the providers of those services simply increase their profits each year by 'pocketing' the lowering of supply costs delivered by new technology. Maybe that will simply continue but as Telstra eventually was forced to radically change its approach to the residential markets as competitors whittled away its 100% market shares to less than 40% the same thing will eventually (perhaps sooner rather than later) happen in the business marketplaces. It's really only a question of timing and how passive the current business decision makers on data services really are.
Exetel has had a really good result from its decision two years ago to build a corporate sales team and we are currently rapidly expanding that out bound sales capability in both Australia and now in Sri Lanka. I have noticed the reaction of several current business data link suppliers reactions to Exetel's activities - which are typically "we will meet whatever price Exetel offers". It is a silly thing to do (simply confirming in the customer's mind that they have been paying way over the odds for a very long time) and will have to be replaced with something more sensible in the immediate future as more data companies make similar offers as they too move more 'heavily' in to the business marketplaces and/or take some sort of actions to protect their over paying customer bases.
I will have to give more thought to how they might try and do that.
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