John Linton ....that companies like Exetel are now faced with is - is there any future in continuing to buy residential services from Telstra Wholesale? It's a strange scenario as the only reason the Exetel became involved in providing end user services was because Telstra created a wholesale operation that allowed start up companies (as Exetel was then) to enter the business. Nevertheless, seven or so years later the concept of buying wholesale services from an organisation that sells those service to retail end users at lower prices is not a tenable scenario. Unlike some others in this industry I am not 'whinging' about this situation but Exetel does have to make decisions based on current and likely future circumstances.
'Things' have changed a great deal since Exetel entered the market in January 2004. In those 'old days' Telstra was selling residential ADSL services at sky high prices and was providing almost non-existent end user services to an almost totally 'uneducated' end user market with no experience in using the internet. There was a clearly defined, and profitable, opportunity for start up ISPs (providing they had some sensible engineering and marketing skills) to become a Telstra Wholesale customer and provide an ADSL service at something like 50% of the prices that Telstra Retail was then charging and still make a reasonable profit. For Exetel, that lasted for around two years before Telstra started to react to their increasing loss of future customers by playing a less virulent version of their current "win back games".
Fair enough - no-one can seriously complain that Telstra Retail was always making far too much money out of providing a simple service and end user across Australia were better off paying Telstra less for a simple service rather than the ridiculously high prices they were previously paying - in fact, a simple reminder that competition is good for end users. And so, this has been the case for some years now and shows no sign of changing in the immediate future. Is it good for Australian residential users? I would have thought it would be impossible to argue that it isn't. Is it good for companies like Exetel to try and offer well priced services in the face of a wholesale provider who sells those services to retail end users at lower costs than they sell to Exetel? Clearly not. So what does an Exetel type company do in such circumstances?
Well.....toughie....but as Exetel only entered the residential ADSL market on the basis that it would provide services at the lowest cost but at a quality and reliability equivalent or better than any other provider in Australia - the answer is pretty obvious. If we can't provide a lower cost service than Telstra to residential end users then we have lost the only reason for being in that market and need to face reality and concede that there is no purpose in offering Telstra based residential ADSL services any longer. Telstra charges more for ADSL ports and back haul, by a huge margin, than Optus or AAPT does and is far more difficult to deal with - in every aspect of business. The business dealing difference could well be totally Exetel's fault but that doesn't seem to be the case in our dealings with ALL of our other suppliers so I am not certain that is the case. I am unequivocally certain that Telstra's wholesale prices are approaching double those of our other ADSL providers.
When we started Exetel 100% of our revenue came from Telstra dependent services. Over the years that percentage has steadily fallen.....a significant reason being Telstra's 'win back' campaigns targeting our residential ADSL users.Today, Telstra supplied residential services account for around 30% of our revenue and contribute almost no profit. I doubt that our situation is any different to similar sized companies, if in fact there are any left of our size, and the decision to 'get out' of the Telstra supplied residential market is pretty cut and dried on a financial basis and we have been "umming and erring" about taking that decision for several months now. Probably the only reason that has prevented that decision being taken is, quite probably, a misplaced concern for our longer term customers who would be affected (I am assuming they have stayed with Exetel because they see some value in resisting Telstra's constantly repetitive 'win back' attempts).
It's a very difficult decision but one that Telstra makes easier to approach every time I read the daily ADSL win/loss report. News like this also reminds everyone that a recession is never pleasant for businesses under assault:
http://www.smh.com.au/business/jobs-under-pressure-20110820-1j3ls.html
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