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Wednesday, March 31. 2010ABS Statistics Confirm ADSL Has Reached 'Saturation'.......John Linton ......while wireless broadband continued to grow at an amazing rate - 40% over the six month period The ABS published its six month survey of the internet market yesterday: with the predicted results of no growth in ADSL and huge growth in wireless broadband.The 'caveat' on all such reports is that they are based on the information provided by 101 'ISPs' and I have trouble trying to think of that sort of number of companies still in the business (though it's more accurate than when the ABS apparently took input from over 800 'ISPs'). So, personally, I have little faith in the exact numbers but I do accept the trends as being a good indication of what is going on in the ISP business. So what to make of the current report? It seems to confirm that the marketplace will not buy any more ADSL services than is currently reported and that the marketplace's 'appetite' for wireless broadband continues to be very, very strong. This obviously confirms that the various current providers of ADSL services will continue to escalate the current price/download war and that there will be less profit in providing ADSL services than there is today. Of course that is the equivalent of stating the bleeding obvious but then...... The announcement of unlimited downloads by AAPT, the latest plan changes by Internode and Optus and the sale of Netspace are all clear indicators of this 'bleedingly obvious' conclusion. As this report shows: opinion is growing on the likely effects of the impact of wireless on wire line data usage. The other alarming/interesting statistic provided by this ABS report is the growth of some 30% in terms of downloads in a six month period - compared to some 20% in the previous six months. Our own statistics confirm the escalation in download usage as being higher than this but I have even more doubts about the accuracy of reporting on this aspect than all of the others. However it makes no real difference except to, possibly, point out that even with the fall in IP costs of around 50% over the last 12 months, back haul bandwidth didn't fall by anything like that much. This in turn means that the average cost of providing an ADSL service actually increased over the past year rather than fell - and that's a really important 'statistic' provided by this report because the only reaction available by ISPs in a static market is to reduce prices/increase what is provided if they are basing their business plans on 'growth'. Of course, each individual ISPs situation will be different and the ABS report only gives overall trends. Telstra, by far the largest provider with around 50% of the total customer base, is going to be affected the least because it has incredibly high margins at both the retail and wholesale levels and could reduce its cost the most and the easiest because of its hugely inefficient internal operating and personnel costs - with a few strokes of the pen you could take many millions of dollars a month out of their cost of supplying internet services (I suppose Justin Milne's departure and non-replacement is one public example of that). I think it is likely to be an example of what will happen across ISP land - some fairly severe reductions in personnel by many, if not all, ISPs (except Exetel and any similarly run operations). However, even 'cut to the bone' operations like Exetel will have to carefully consider what the ABS report signals for the future and make changes using the information provided by the publicly listed communications companies six monthly ASX reports and now the ABS report for the first half of the current financial year. Fortunately for us, we recognised what the likely marketplace scenarios would be for FY2010 and (unlike Telstra) predicted the likely outcomes more accurately. Having had that 'moment of smugness' we are not exempted from the stark realities of the ADSL marketplaces in the current calendar year. There is little doubt that the ADSL business is going to be a lot more difficult over the coming months than the wire line telephony business has been over the past two years - and for the same reasons - a declining market, even fiercer price competition and a better replacement technology accelerating the stagnation/decline. The future for ADSL looks bleaker than it did some six months ago and its likely that there are 'darker clouds' below the horizon. I wouldn't like to be the person responsible for the growth forecasts of any ISP made at the start of this financial year. (now I say that - I realise it includes me - but as at 9 months in to this financial year my conservative forecasts are slightly over the numbers predicted in late June 2009).
Sunday, March 28. 2010Back In Australia.......John Linton ......everything looks a little 'greyer' despite it being a very pleasant day. We got home a short while ago after a 16 hour journey 'door to door' and started to look at what's been happening in communications land during the short absence. Maybe it's the effect of 5 days of relaxed activities in another country but nothing much seems to have happened over the past week that affects anything Exetel does: - Telstra seem to have started another one of their endless 'promotions' offering ADSL2 to Exetel customers (and I assume other ISPs customers) at below the wholesale prices they sell Exetel ADSL1 connections for which is the way they get round ACCC invigilation ("oh no officer - we haven't changed our retail pricing we are just running a limited promotion for a short time - honest"). - We have made some progress in one of our two legal matters with Telstra and have also attempted a way forward with our case against the TIO. - One of the two banks we use wrote to us agreeing to lend us around $A8 million to buy IP bandwidth from SCCC or some other carrier providing that.....etc......etc. - Sales of all but one 'product' tracked to plan over the week - Telephone and email customer response times continued to track towards the EOFY targets So, all in all, I may be able to take more time off in the future as I could have contributed nothing to anything at Exetel over the past week. My main task in the 3 days or so left between now and the start of April is to decide on how to address the apparent positioning of voice telephone calls (and 'lines') becoming a 'standard' inclusion in broad band plans - whether ADSL, Wireless or the putative 'NBN2' fibre offers. It seems that the consensus of the 'bundlers' is that Telstra's voice call services are dead meat moving forward and those suppliers that have any sort of significant revenues from telephone voice calls on the PSTN/ISDN are rushing for the exits and trying to mitigate the damage with VoIP - it's been coming for a long time and maybe this is just an acceleration point? I did notice in the tracking we do that there has been a threefold increase in data plans including 'unlimited' voice calls as part of the 'deal'. Over the past year these offers have become more real and less deceptive and are a sensible approach in almost every way. Voice calls are only another data stream and they can be easily 'included' in a data product offering. The childish mumblings about "mums and dads not having the technical abilities to handle VoIP" are as inaccurate now as they always were and few people with an IQ above their shoe size wouldn't be able to change their PSTN to VoIP in a few minutes with simple instructions. We have been offering various plans that include VoIP for some two plus years now and have developed our own systems and installed our own switches over that time to be able to offer progressively more sophisticated VoIP services (as well as the SMS and FAX services) and we are now able to offer a pretty good MoIP service on Nokia hand sets and on Apple iPhone handsets in the near future.
Amazing how quickly a holiday begins to fade from your memory. Friday, March 26. 2010Pity Work Somehow Intrudes No Matter How Far you Have "Fled"......John Linton ....but,even in Eden there was a 'serpent'. We have almost completed the changes to the basic network topology we began almost two years ago which added one or two (depending on location) direct IP feeds in to each State and the ACT and now the installation of the latest versions PeerApp caching engines firstly in Sydney in December last year, then Brisbane in late February and today the first stage of adding caching in to Melbourne. The network can now deliver 6 gbps nationally which is around 100% more than it could a year ago and the switches and routers have been upgraded to match the increased capacities.In line with these capacity upgrades we turned off the NetEnforcer IP restraints earlier this month and will physically remove the hardware within the next few weeks. All of these plans have now been implemented and, in many ways have simplified the design of the overall network and have made delivering data to any end user faster. For a company of Exetel's size this has been an expensive and complex process that, now it has been 'completed', will start all over again. I had hoped that we could have made a decision on IP and other service supply before I left Australia but, although we received some attractive offers they did not meet the criteria we had set for acceptance. I don't know whether our acceptance criteria were too tough or we have not found the correct ways of dealing with the possible providers. It really doesn't matter because at the prices we have been offered we can't meet our future plans for residential services so before we do anything else we must review those plans in detail and, as my grandmother once said to a bewildered grandchild of tender years - "then we must cut our cloth to suit our pocket". I only allowed this to intrude into this short holiday because I received two emails this morning from possible suppliers asking me when a decision would be made. Looking at the various performance reports available to any customer you will notice that usage across all links has fallen slightly since some 500+ of our heaviest down loading customers have been attracted to AAPT's unlimited down load plans and TPG's versions of them. you may find it surprising that so few users can affect a national network so markedly but it actually does happen as you can see - Exetel's customer base continues to increase but the net average usage per user has slightly declined over the past 6 weeks and it will be interesting to see if that trend continues. We have two proposals to increase our 6 gbps of national bandwidth by 2 gbps at zero cost to us by some interesting financial modeling which we negotiated on the basis of offering a combination of unlimited options and better pfwyu plans in the near future. I was attracted by the 'marketing potential' of that scenario but both Steve and Annette believed it was not what we needed for the longer term and we should not put short term gain ahead of longer term cost advantages. Over the last few days of not dealing with the minutiae of the business my more relaxed 'mind' has come to regard that view as more sensible than my own initial understanding of what we needed right now and moving forward. So the holiday break has served a useful business purpose as well as a personal enjoyment purpose. I would like to have 33% more bandwidth at the current cost level now but I agree that having 50% more in 5 months at less cost would be a sensible trade off providing we can adapt our current operating plans to meet that change in scenario - and, of course, meet whatever changes will now happen in terms of what the large providers of IP services to the Australian marketplaces in which we operate will do. I'm not going to think about it any further as I still have the best part of two days left before we return to Australia and I still haven't been able to locate an antique dragon figurine I have been looking for to give to my youngest son. Saturday, March 20. 2010Unlimited ADSL2 Plans.......John Linton .........not for the faint hearted or companies without access to major customer connectivity bandwidth (let alone large amounts of IP at minimal costs.
PS: An interesting comment on another aspect of Krudd's Folly: Saturday, March 13. 2010Time Of Too Many Changes......John Linton ........or that's the way it seems to me......time to retire? So, TPG completes the purchase of Pipe for a more than reasonable price and the next thing after that announcement from my RSS is this: Earlier in the day I had read this: which is an indication that you should always consider everything a lot longer than you ever have time to do. It's far too early to make any sort of predictions on what current Pipe customers will stay beyond their current contract end date but, I suppose, that Internode's announcement is pretty clear evidence that SCCC bandwidth is, currently, more cost effective than Pipe's "foundation customer" pricing that Internode pays for Pipe bandwidth - discounting what seemed to be a negative assessment about Pipe's 'quality': "The Southern Cross Cable proposition, with the lowest latency to the While the new NZ consortium's statement is simply that, a press release of intent, it seems no more unlikely than Pipe's original 'press announcement' that they were going to build an international IP link and it may happen and it may even happen within the estimated time frame....only time will tell....but it's an indication that whenever you make a decision in this industry it is always wise to commit yourself to as short a term as possible. We are reaching the end of the tender process for IP and have received one proposal that, subject to completing the tender process at the end of next week, we would be happy to implement. We have still to receive responses from one of our major suppliers and one of the 'keenest' of the 'new' suppliers in the market so we will not be making any premature decisions but while I am sure that Internode may well get better STM16 pricing from SCCC than we would, the current on offer pricing is the best we have seen and, despite the up front investment cost, is still likely to be the best for our current needs - though the 3 year time frame we were basing the math on maybe nearing the 'adventurous' end of the risk analysis spectrum - based on what we are beginning to become aware of. The major issue, for us, remains what will happen in the Australian ADSL market and how quickly we can continue to build our business user base against our highly ambitious target of developing business revenue to a level that exceeds current residential internet revenue by July 2011. We completed our first 12 months of this process at the end of February and we are almost on target so far - in this easiest stage of this ambitious project. I say easiest because obviously the monthly sales targets were quite low as we built the operation from ground zero (in terms of developing a brand new set of selling concepts with a brand new set of people) and also developing a support capability well ahead of the time it would be needed (a much longer process though I was amused to see that Exetel was ranked very highly for its support services in two recent surveys). Perhaps TPG's purchase of Pipe will work out just the way the financing case documentation would have predicted - David Teoh rarely makes a bad buying decision though this one is very different from the pattern his previous purchases 'established' going back to the early 1990s and up to the time of purchasing Soul....very much a purchaser of distressed assets unless my memory is less reliable than usual. Maybe the buying out of Pipe will simply benefit NextGen as they are a logical alternate supplier to buying from a company that simply wants to use your money against you and, from initial looking, NextGen is providing the same services as Pipe at much lower pricing. So...you can never take anything for granted in the Australian communications industry....or if you do, you tend to pay a very heavy price for your insouciance. PS: Some 11 days ago I 'predicted' that EFtel's shares would be less than 1.5 of a cent before the end of March - yesterday they fell to 1.6 cents - a 20% drop in 11 days. The directors can publicly talk up the company as much as they like but the shareholders don't seem to be listening - you have to wonder who buys such shares and what their expectations are? http://www.asx.com.au/asx/markets/equityPrices.do?by=asxCodes&asxCodes=eft
Thursday, March 11. 2010The Long Predicted 'Clone Wars' Begin To Escalate....John Linton ......with TPG being forced to offer "unlimited" ADSL2 as AAPT's "Unlimited" begins to make TPG's future forecasts subject to revision. You can always tell when a company has been 'caught out' by a competitor - it announces that it will announce in the future some product/plan that will meet the characteristics of some competitor's already released plan. I guess in TPG's case it has to arrange to replace all those bus posters and bill boards it just put up with new ones - is that the 4th time in nine months? Who said the current saturation of the ADSL market wouldn't create a blood bath? The ABS statistics on the state of the Australian ADSL marketplace are not due out until 31st March but the recent price cuts by AAPT and now TPG and the increasing use of 'unlimited' around the marketplaces are pretty indicative that all is not well in ISP prediction land. Apart from the various publicly listed company half year results there have been many other less obvious indications that the sales predictions/revenues/profits of a number of Australian communications companies are far from what they predicted when this financial year began. As I said back in October 2009 (and several times since) the lack of 'natural' growth in the ADSL2 market could only lead to one thing - fierce competition characterised by price cutting. Only Telstra has some sort of protection because its competitors don't have the coverage that Telstra does - although, of course, coverage by AAPT and TPG et alia are in the 'most popular' exchanges in terms of the majority of ADSL users. The most obvious result of AAPT/TPG's unlimited plans will be that it effectively puts a new, much lower, 'cap' on what the high end spenders will be prepared to pay for an internet service - there will be no more plans above $A100.00 per month once the 'dust settles'. Not that that user demographic is very large in the first place and even at the current high prices for those plans they seldom if ever make much or any profit. So AAPT and, when they join the fray, TPG have begun to change the ADSSL market for the better by reducing the cost of ADSL generally. However, even at $A85.00 a month it is still well beyond the budget of the vast majority of ADSL buyers in Australia - I have no way of knowing what that might be but I doubt that it exceeds $A50.00 a month and is much more likely to be $A40.00 a month. I could be totally wrong......I often am. I suppose that TPG is assuming that the shareholder vote tomorrow approves its takeover of Pipe and TPG would then have access to large quantities of 'free' international IP (just as AAPT already has). That would depend on how many of Pipes current users continue to be happy with buying IP and other services from a competitor who is using their purchase monies to destroy their businesses. I wouldn't have thought that too many would do that.....but, as PTB remarked about a different demographic, you can never under estimate the lack of business acumen of Australian communications business managers. It will now be interesting to see what Telstra does - and to a lesser extent what Optus does. Telstra will be the least directly affected of any ISP by these particular events as they would have very few customers who fall into the demographics of 'unlimited usage' customers. However they already have been and will continue to be negatively affected by the repercussions of the 'unlimited' plans on offer because it more starkly contrasts just how massively overpriced Telstra's ADSL offerings are. Similarly Optus plans are now exposed as being far too expensive for far too little. It will depend on whether both those companies 'market guidance' that they both expected to see 'improved results' for the second half of FY2010 are a reality or just wishful thinking.....and, I would imagine, what they are seeing in their new applications and churn aways right now. Not a pretty sight? It isn't all downside though for other communications companies - at least not yet. Firstly, $A85.00 is not going to do all that much apart from costing any company (irrespective of how low cost their IP and connectivity bandwidth is) more than they receive for such plans on average and moving any of their own customers currently paying more than that down to that level. Secondly the percentage of the 'total market' willing to pay $A85.00 per month is likely to be less than 10% (at the very most) and more likely to be somewhere South of 5%. Thirdly, and quite possibly you might think perversely, it will benefit other ISPs who will lose some very small percentage of their heavy users to TPG/AAPT but in doing so will reduce their own operating costs. The problem for other ISPs is a future one, and quite possibly in the very near future, when AAPT/TPG try and make similar offerings at the $A50.00 per month mark. I, on behalf of Exetel, have a very different concern which has nothing to do with 'unlimited' residential ADSL. I am wondering what price changes AAPT/TPG will bring to the business marketplace now they are saying that unlimited IP and connectivity band width costs less than $A85.00? Both of those companies have many thousands of business customers who, I would have thought, would be ringing their account manager putting pressure on those companies to reduce their now massively over charged monthly business services.....and there is no doubt that will begin to happen if it hasn't already. The trouble for AAPT/TPG now is that they have told the world how little it costs to deliver IP to an end user and their business users will now want the same deal - except that would mean a reduction in business revenue of something like 75% - not something share holders would be happy about unless TPG/AAPT could treble or quadruple their take up of new customers. My 'concerns' are purely based on how those companies will 're-position' their business internet plans. Times will, undoubtedly, get tougher in communications land over the coming months and we will have to find some way of providing unlimited plans to our customers without going broke - it needs some 180 degree different way of looking at it as all the ways we've looked at it so far have been un 'doable'.
Wednesday, March 10. 2010Buying Pipe....A Good Decision?John Linton I read a couple of speculation pieces in the Australian financial press over the last two days as to whether the required 75% of Pipe shareholders would approve the $A6.30 per share offer made by TPG to buy the company - the views were similar - probably but not as certain as it once was. I have no idea other than the shares have fallen back in price over the past day or so (I didn't really look before Monday of this week) and it would seem that you could make a quick profit if you thought the offer would go ahead. I really have only one interest in Pipe - which of course is how TPG ownership would affect Exetel in terms of the various circuits we buy from Pipe (our business is less than $A50k a month and we are in the process of replacing $A30k of that with an alternate supplier at a saving of around 40%). It did make me wonder what the Pipe business is actually worth if other customers are being as overcharged as Exetel have been over the past two years and how many of them will either ask for big price reductions or, like Exetel, be concerned enough take their business elsewhere anyway. Steve has been dealing with various IP suppliers as part of our contract review process and is finding some surprising 'bids' that also make me wonder just what Pipe's revenues are likely to be in the future if the information he is seeing is going to continue a trend. A year ago we were paying around $A180.00 for 'pure' IP traffic. By July of last year that had fallen to $A125 per mbps and by November it had dropped to $A90 per mbps. By January pricing had fallen to $A70.00 and the quotes that Steve is now negotiating are around $A60.00 per mbps - a fall of 66% in less than 12 months. Now clearly if these sort of prices are being offered to Exetel then you would have to assume that companies with larger IP usage would be getting better offers - unless they are foolishly tied in to long term contracts for some reason or another. Exetel currently 'deploys' almost 6 gbps of IP - 4.5 gbps of 'pure' IP with another 1.5 gbps from our Akamai, PeerApp and peering resources.....a fair bit for a company of our size but much less, one would assume, than the larger communications providers. However it is reaching/has reached a size where we can consider buying directly from either Southern Cross or one of the newer entrants into the Australian marketplace. The 'difficulty' of buying direct is the up front costs that, depending on the source of the IP, varies between $A3 million and $A5 million. They are hefty sums of money but deliver bandwidth at prices below $A50.00 per mbps in the first 2 - 3 years falling to less than $A10.00 per mbps in years 4 - 15 - at least that's what it appears to be without going through the contract in detail. At $A10.00 per mbps the cost per gigabyte delivered to the customer (for the IP portion) is around 5 cents a gigabyte compared to around 35 cents today....a huge difference for end customers who download large amounts of data. While there is a big up front (big for a company of Exetel's size) payment required it would mean that we could reduce our 'pure' IP cost by 75% from what we were paying in March last year and still pay much less after paying back the money we would have to borrow plus the interest. (around $A40,000 per gbps per month) I guess that's what TPG found attractive about the Pipe deal. But, and there's always a 'but'. If IP prices continue to fall as they have over the past year, and I think I am beginning to get a glimmer of an understanding of why that might be the case, today's deal is not as good as it sounds - even ignoring the risks of borrowing $A4 million in a very difficult marketplace. It seems likely that the cost of buying IP will be lower next year than the $A45.00 that the 'purchase your own IP' deal (ignoring the cost of paying back the money and interest) has locked you into for three years. The SX deal, while up front more expensive provides much lower pricing 'today' than $A45.00 per mbps (perhaps half of that if you extend the loan term beyond three years) but never quite gets you to sub $A10.00 per mbps. The trouble always is - trying to work out what price IP will be each six months as time passes - and, of course, what amount you will need in 3+ years time - maybe not as much as you need today. Then again.....IP and intra-capital city prices might not fall further and all sorts of other things may change in this very difficult year. Perhaps the Pipe owners and shareholders who have already sold their shares made a very good decision. PS: Another straw in the wind indicating no market for an 'NBNN2' that could never be sold at the price it would cost: Saturday, March 6. 2010
Plus Ca Change, Plus C'est La Meme Chose Posted by John Linton
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Comments (12) Trackbacks (0) Plus Ca Change, Plus C'est La Meme ChoseJohn Linton
http://public.mrtg.exetel.com.au/bwsummary/total-supplier-bandwidth.html and scroll down to the bottom of the first four MRTG reports. You will see that the average IP usage by Exetel customers has doubled on average over the past year and that (from the top graph on that page) it now peaks at around 5.5 gbps briefly twice a day. 12 months ago we were paying close enough to double what we are paying for IP bandwidth today which reduced by around 25% in August last year and all bandwidth we purchased from November onwards we paid around 50% of what we paid in March 2009. On a 'melded' basis we are paying around 35% less for bandwidth (per mbps) than we did 12 months ago but we are using double what we used 12 months ago. However our other costs, ADSL port charges, customer connectivity bandwidth have not reduced over that time and our support costs have risen as we move towards meeting the 1 minute call wait times we aspire to be providing by mid 2010. We are in the final stages of selecting a 'short list' of suppliers to deal with post July 1 this year and there are some new vendors that we are considering although, as almost always in business, our preference is to stay with people we know and have some reasonable knowledge of. IP, as always, continues to fall. This is partly due to our continually growing purchase volumes and partly because there are significant technology advances for the cable owners that lower their operating and delivery costs - (more capacity on the same physical infra-structure). Similarly the cost of inter-State connectivity continues to fall with some well overdue falls to some of the 'smaller' locations. So we would expect to be able to obtain significant discounts in both IP and inter-State transits post July 1st but, as you would see from the MRTG reports in the user facilities month on month growth in customer usage leaves the cost per customer pretty much the same even if , over a year, you manage to reduce those costs by 50%. Our major problem is the actual port monthly rental costs and the cost of the port provider's bandwidth cost between the customer exchanges and our POIs. It is absolutely unfathomable for me to understand that we we now buy IP at a slightly cost than the carrier's charge us for back haul from their exchanges. At today's IP rates of sub $A70.00 for IP and falling towards $A50.00 we will soon be paying 20/30% less to get data from the other side of the world than we do for data from 2 kms away.These costs remain disproportionately high and mean that even at a notional $A1.00 per month profit it is difficult to keep the costs of providing ADSL services to residential customers above break even without the constant 'micro-management' that sometimes annoys some percentage of current customers at any given time. We intend to address that issue differently this year after failing to make any progress over the past 5 years and we will either get what is reasonable or we will radically re-think our approaches to residential marketplaces - there are a number of different scenarios we could consider. We want to complete our 'short list' of possible suppliers for FY2011 and also 'short list' our market approaches by Friday week so that we have a realistic time frame to bring about whatever changes are decided before the last of our current contracts are up in late August. That is a tough time frame for some of the people we are talking with who find our approach to 'negotiating' unusual (no meetings and discussions - just a reply to our RFP in writing with any questions put and answered by email) and definitely no "what price are you looking for" nonsense. It always surprises me that so many large companies are so 'flexible' in their pricing that it can vary so widely. I wonder why they do that? I learned a really hard lesson on the last trip to Sri Lanka. In the 'negotiations' we had for the rental cost of the new floor space and then for its fit out I asked for, with no negotiation permitted, pricing that was 20 - 30% better than that being offered - and got my asking price. It showed me what a complete fool I had been when we first went there and got completely ripped off in our total naivety. I don't intend to continue to make that mistake in paying far too much to Australian suppliers as we have for the past six years. It is humiliating to realise how incompetent I have been all these years and how much more difficult my incompetence has therefore made it for Exetel to survive let alone grow. No fool like an old fool describes the last six years perfectly. Maybe I just don't understand this industry now? Maybe I never did? Sunday, February 28. 2010Perhaps It's Just The Calm Before The Storm.......John Linton .....but I don't seem to be seeing the more general changes I had anticipated by this time.
So what does it all mean? ADSL is slow/static/falling for more than one or two suppliers with Telstra perhaps suffering the worst as the largest provider always will - they have the most to lose in terms of the largest number of users paying absolute top of the tree pricing for bottom of the ocean services and inclusions. It's also looking as though the 20 years of 'bundling' services is reaching an end with the long beloved wire line telephone line rental and 'low cost' (that's a laugh) telephone calls so threadbare now even the dumbest of the dumb buyers can see though it. Trying to 'bundle in' mobile telephone services is now becoming the last gasp in that particular con but it is not going to be very easy to shear the sheep until they bleed for that much longer. So while the total mess that is the 'NBN2' continues to eat away at communications I like the ideas of offering back up wireless services with ADSL plans but, having looked at it several different ways over the past few months, we haven't come up with a viable way of doing it. In the mean time let's hope that March turns out as well as the previous 2 months of this calendar year......I didn't know why that was either. Saturday, February 20. 2010A Busy Week In Both Sri Lanka And AustraliaJohn Linton We are heading home in a few hours having stopped over in Singapore again due to the difficulties of getting reasonable connections to and from Australia to Sri Lanka. I keep in regular touch with what is happening in Australia whenever I am away mainly through our GURUS management system and, of course via many, many emails and the occasional phone call. We have had a very good week in Australia with ADSL setting a new daily application record after we returned the application fees to their previous levels which is the first time we have ever set a 'record' for ADSL applications in a February. We have also made our largest ever business sale (and surprisingly this was made in Tasmania) which is really nice to see as another indication of how our young business sales force is maturing and how they continue to out perform their much more 'experienced' competitors in all sorts of situations. So they were both very satisfying 'events' to have been achieved in a week that in the past 6 years has never produced very much of interest. Assuming the last week of February stays on the same 'tracks' as the first three weeks we will have another consecutive record month (despite the 28 days) which will be a really good result in these more difficult times in terms of ADSL market saturation and the beginning of the series of 'initiatives' by all sorts of communications companies to address their first six month shortfalls in terms of both their sales/revenue levels and their profits. I have referenced the AAPT 24 x 7 unlimited ADSL2 plans but there are now signs that several other ISPs are trying to make changes to their offerings. I think it will be another ten days or so before new initiatives from Telstra and Optus become clear but the rest of the publicly listed ISPs will report their half year results in that time and the December 31st 2009 half year report from the ABS is due next week.....which will shed more light on ADSL progress in Australia. We keep building out our Australian network in terms of upgrading edge and core hardware and continually, as we always have, increasing the amount of customer connectivity and IP bandwidth we deploy. The stronger dollar has helped us a great deal in buying much larger routing and switching power over the past year which has provided us with much more flexibility and at least two new capabilities that our multi 7300 architecture never allowed us to do. These new facilities plus the new caching provided to us by both Akamai and two of our other caching suppliers continues to push the cost of a gB of IP ever lower as the months go by. Interestingly the two new multinational IP providers that have been 'tiptoeing' around supplying IP in Australia are getting a little more committed and a little braver and it will be interesting to see what IP pricing will begin to be offered over the balance of 2010. Our current buy prices of 'raw' IP are now falling well below $A100.00 per mbps with the caching contributions driving the per mbps price to well below $A30.00 for the first time in our operating history. Our costs, as a relatively small communications company, can't approach the much lower costs of a company like AAPT (which allow them to offer their unlimited plans) and nothing like the costs enjoyed by Telstra and Optus but they currently look like falling by around 40% from our bench mark buy prices in 2009. If that in fact turns out to be the case then it will give us some interesting opportunities if we can work out how to use this scenario to our benefit. Of course the benefits that Exetel may derive from these circumstances will also be enjoyed, and to a greater extent, by all of the companies with which we compete so they may not give us any real advantage other than we don't try and make as much profits as our competitors do. As always after a few days in Sri Lanka I feel invigorated and I am looking forward to getting back to Australia and seeing first hand what has changed in the week I have been away.
Tuesday, February 16. 2010
Wireless Broadband Continues To Make ... Posted by John Linton
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Comments (19) Trackbacks (0) Wireless Broadband Continues To Make 'NBN2'.....John Linton ......look like the the political stunt it always was. I read this earlier this morning: not in the context of anything wonderful but just as the typical technology advance that is associated with any technology - technologies just keep evolving to meet ever more demanding requirements. It always surprises me that the dummies who comment about wireless broadband seem to have come down in my grandmother's "last shower of rain" in making their comments about how "wireless bandwidth will never be enough for ADSL users" and "wireless speeds will never be enough for ADSL users". Are they really so ignorant of the development of technology generally, and communications technology in particular, that they have forgotten or have no knowledge of the evolution of data over copper? Have they forgotten that in the very early 1970s that the speed of data transmission was 2400 baud (remember that word usage?...used by Emile Baudot when he was pioneering the development of data transmission in the first years of the 20th century). 2400 is close enough to bits per second which began to replace baud as the bit transfer rate leapt to an incredible 4800 bps in around 1972. Of course by the time 'commercial' internet emerged in the early 1990s the rate had doubled again and throughout the dial up internet 'era' it kept increasing until it was a massive 56 kbps!!!! )f course knowledgeable people were aware of the Bell Labs development by two young engineers in Chicago in around 1992 of commercial modems that could deliver 2 mbps x 2mbps over the same copper lines and had been selling those services to business customers in Australia for over a decade before Telstra finally got around to introducing their super fast residential internet service at a massive 512/128 kbps. So now residential internet can run over copper at 20 mbps down and 2 mbps up in ideal conditions some 40 years after it began to be used in Australia but the dummies (who may well have come down in the last shower) don't either know anything about wireless technology, don't bother to inform themselves before commenting or are, well, just dummies in every aspect of communications technologies. For those with less than total short term memory loss you will remember that it was only an election ago that Krudd thought promising 12 mbps speeds to 'most' Australians within 5 years was a pretty amazing election winner. I was one of the few really stupid people who said that wireless would deliver those speeds to a lot more Australian users in a lot shorter time and at no cost to the tax payer. Currently there are something like 3 million wireless broadband users, a fair number in rural and regional areas, paying a lot less than the prices mooted for the 'NBN2' - well BEFORE THE FIRST 'NBN2' USER HAS BEEN ACTIVATED! Telstra's 'stunt' announcement today/yesterday is irrelevant other than it illustrates how fast wireless broadband technology is moving and, with the testing of LTE in Australia later this year by both Telstra and Optus how quickly it will continue to move. It is not beyond reasonable possibility that there will be more wireless users than their will be ADSL users before the first 'NBN2' mainland user is activated - and that will have been accomplished without a single tax payer dollar being spent....let alone several tens of billions or whatever the current wild estimate is. For the nay sayers (who have zero knowledge - just a couple of unattributed sould bites) the 'NBN2' has become a reality before anyone has either costed the build and ongoing maintenance or sorted out how enough customers can be found to make a sensible (non-government subsidised) selling price even vaguely attractive. The amount of column inches printed saying positive things about the viability (financial and commercial) of Krudd's face saving stunt would probably reach from Sydney to Alpha Centauri and back - and every one of those column inches have almost certainly been written by a 'journalist' who hasn't got even the basic understanding of communications technologies or Australia's communications user bases and their requirements and their financial limitations. What would happen if Krudd spends the future of Australia on a pipe dream network that nobody wanted to use?
Tuesday, February 2. 2010Too Many People Are Buying Exetel Services.....John Linton .......and it's making a nonsense of our short and medium term business planning. The recent 'phenomenon' of a rapid and ongoing surge in people selecting Exetel as their broadband provider is going to pose some quite severe and unwelcome problems for us as we move into the 'real' months of 2010. While it may seem strange under any circumstances to 'complain' about business increasing it is in fact a quite real issue for a business of any size - but I'm only concerned about our own business. My first issue is to find out why this is happening and the most obvious answer is that the pricing we started to put in place in November and completed in December is far too 'cheap' and is attracting the 'wrong' types of new customer...and yes, for all those people who read this musing and conclude that I am denigrating 'all' customers by that phrase try a remedial English reading course so you don't understand those few words to mean that....the delete key on my email client is wearing out. Every commercial entity has some sort of customer analysis software that provides management with the ability to look at their customer base as a whole and, via the wonders of modern data base software, by pretty much any characteristic or demographic they choose and by whatever multiple sort conditions they can dream up. So, with very little effort I can look at Exetel's total customer base in terms of such things as gross profit per customer, usage in any particular time slot by customer, number of recommendations, time with Exetel and pretty much anything else you would want to know or can dream up either as a one off enquiry or as a 'standard' repetitive report. I did some examination yesterday and I didn't like what I saw. Our plans for ADSL for 2010 have been based on a set of highly competitive marketplaces with constantly better 'deals' being offered by Telstra et alia via sneaky 'direct marketing' tactics that avoid examination via the ACCC. We made the assumption that as Telstra got squeezed it would find ways of buying new customers as its older customers ran out of the incentives offered when they locked themselves in to long term contracts in the past and less of them would fall for those tactics when Telstra approached them to resign a new contract. We figured that companies such as TPG and iinet would struggle to keep their shareholders happy by meeting their promised growth numbers and, within their much greater financial limitations, also try new promotions while attempting to keep their current customers paying their bloated plan fees - in the case of iinet. We saw Telstra's huge ADSL2 advantages being used to significantly reduce our 40,000 plus ADSL1 customers because we couldn't see how any customer could continue to buy ADSL1 services when they had to pay more for them than for an ADSL2 service. Similarly we could see the rapid reduction of land line prices (not in actuality but by including 'free calls') as further eroding our ability to provide the Optus included wire line plans. There were many other considerations which all added up to the 'impossibility' for Exetel of growing our broad band business very much - if at all. Therefore our 2010 broadband business was based on a 'graceful decline' over the coming months with that rate of decline slightly accelerating over the last six months of the calendar year. That may still be the case as the months go by because I haven't seen anything happening anywhere in the places I look that tells me anything different. I am looking forward, with even more interest, to Telstra's half year results and those of the other companies I can understand something from what they report. Our November/December price decreases were aimed at trying to ensure the decline of our ADSL customer base was kept to as shallow a curve as possible and the only notionally profitable residential customer revenue we lost would be more than compensated for by adding twice the amount (in the early months of 2010 growing to four times the amount later in the year) of business revenue which was also much more profitable in terms of gross contribution and required much lower support and provisioning costs. A simple plan - and elegant in its simplicity with a symmetry of something approaching beauty in the financial numbers it delivered - nothing like maintaining a modest revenue growth while the associated profit doubles over a shortish period of time. With business users predominantly using the network from 7 am to 7 pm it also provided an elegant engineering scenario going forward with very little or no additional bandwidth required. It was based on Exetel moving towards a much higher proportion of its revenue coming from business users which provided a much higher profit per revenue dollar ratio and far less overheads in terms of provisioning and support.....something we have been putting in place since early 2009 and planned to accelerate in 2010. But the December, to a lesser extent, and now the January take up of ADSL has very clearly signaled that, for reasons we now need to discover, that our assumptions and perhaps our ADSL pricing are not remotely correct and if they continue we will have to make some not insignificant changes. Getting a plan so terribly wrong is really disappointing.
Saturday, January 30. 2010"I Will Never Buy From Exetel......John Linton ....because you outsource Australian jobs to illiterate monkeys in India who can't speak English". (direct quote from an email I received earlier this morning). Far too much has been been made, in the Australian media, of the current nonsense in the Indian media about how unsafe Indian students are in Australia because Australians are racists - apparently this will cause a lot of Indian students to go to other countries to obtain their tertiary qualifications rather spending the money charged in Australia. Nothing like a media beat up to produce negative results for all and sundry. Having come to Australia as a migrant some years before the first fleet arrived I can state without equivocation that Australia, or the parts of it I have seen over the decades, was very definitely 'racist' in a variety of relatively benign ways but, in my opinion, has become less benignly racist as the overall proportion, and sources, of migrants to 'born in Australia' Australians has increased. Now my pig ignorant correspondent of this morning tends to demonstrate the truth of this observation. Firstly Exetel don't "outsource" anything including jobs. We have invested a considerable sum of money (for us) in setting up a wholly owned subsidiary company in Colombo, Sri Lanka where we directly employ and train and manage our own staff, currently 45 but growing, to provide services to Australian residential customers. As noted that office is in Sri Lanka - not India. When we commenced this program in June 2008 Exetel employed around 30 people in Australia and today we employ 45 people in Australia and that number continues to grow at a rate of 2% to 4% per month and is planned to do so each month of 2010. Exetel, like every sensible commercial or, for that matter, non-commercial enterprise constantly examines ways of keeping its costs at the lowest possible level. Our major costs are customer connectivity set by Australian based carriers (irrespective of their ownership) and we can do little about addressing those issues. Our second major cost is International bandwidth where, because there is more competition, we can do something about those costs - and we do by constant re-negotiation. Our third largest expense is personnel costs where we can control much of those costs by astute hiring of really good people and then creating an environment where we can encourage a higher quality on the job performance than that achieved by any of our competitors. One major personnel issue we never successfully addressed in the four years prior to establishing an office in Sri Lanka was to keep degree qualified engineers interested in providing residential customer support for more than around twelve months either as a CSR or in taking a supervisory/management career path in customer service. Not unnaturally university engineering graduates in Australia want to go on and become 'network engineers' or 'sys admins' rather than continuing to stay in what they see as 'entry level positions'. So, as a small but continually growing company we hired good engineers into CSR roles and then allowed them to move to 'more interesting' positions in other areas of Exetel. My observation over 20 years is that is a common issue in the various support centres I have been associated with. This meant and means that retaining knowledge and skill in customer support is a perpetual problem. A, not very good, solution was to pay good, degree qualified, customer support engineers double what they could earn in any other 'more interesting' job and you could get two years out of them as a CSR but no more than that. The solution we came up with, a much better solution, was go to another country where we could pay good, degree qualified, engineers three to four times what they could earn in any 'more interesting' job and thus be able to retain their services as a highly competent CSR for 3 -4 years before they moved on. We have done that and if you look at the qualifications of the engineering, billing and provisioning personnel Exetel is lucky enough to employ in Sri Lanka you will see how successful this operation is: http://www.exetel.com.au/staff-sl.php in terms of hiring degree qualified people. You can't see from that listing how long the people hired on this basis stay with Exetel but the first two 'experimental' SL engineers we hired on a work from home basis almost four years ago are still with us - one as a shift supervisor the other as a team leader. We have, of course, got a very long way to go in fully developing the potentialities that are now available to us but the issue of not being able to retain highly qualified people is a thing of the past. It is also a major bonus that Sri Lanka has a Buddhist culture and that cultural characteristic is a major, major plus for people who have to try and assist unhappy people - particularly too many 'Australians' whose "me before everyone else and that better be right now a***hole" has always been very difficult to deal with. There are some very, very stupid people in Australia - the email I referred to previously indicates just how stupid people can be and also the reference to "monkeys" indicates how racist more 'Australians' than you might think are. (this word is used frequently by some particularly stupid Australians quite openly as can be seen from this moronic would be Exetel customer's public forum postings): http://forum.exetel.com.au/viewtopic.php?f=288&t=35020
While I still think Australia's 'racism' is usually more tribal loyalty than xenophobia there appear to be an increasing occurrence of the latter.
Wednesday, January 27. 2010Damn The Slow Down - Full Speed Ahead.......John Linton ....(apologies to Admiral Farragut). I completed the review of the Exetel FY2010 business plan between a very pleasant Australia Day family lunch and the Murray/Nadal match. I ended up making no changes although I believe that the Australian economy will not be particularly strong over the next six months and all of the signs that I can vaguely understand mean that Australian exports will not continue to boom with the PRC running out of infrastructure to build and their recently announced credit controls signaling a change in money supply policy which combined with the ongoing problems in the USA mean that there will more likely be a widespread recession than not. In other words I really have no clue as to the future changes to anything and how they may or may not effect the Australian communications industry. I am basing the various decisions of not really changing anything on a number of different factors that are also individually influenced by the fact that we have already had not only the best January we have ever had but also the best month we have ever had by a fair distance in terms of new customers and larger volumes of usage of some of the ancillary services. It's also necessary to consider that we have also had the highest expenditure month in our 'history' due to the continued rapid growth in personnel and the continued growth in network bandwidth and facilities.....and that is a cause for double and triple checking. I haven't changed my mind that the ADSL market is saturated and the coming 'price wars' between the larger ADSL suppliers will continue to make negative impacts on the profitability and rate of growth (or should that be the rate of decline?) of current ADSL customer bases but I think that Exetel has reduced its own ADSL prices to points that even the bravest of large suppliers (and I seriously doubt there are many/any) will have a lot of trouble reaching so we have been able to see the 'hit' that involves in current ADSL profitability - and that is for a company that operates on the slimmest of margins. It isn't a pretty sight but better to get used to working with even slimmer margins than in the past than suffer the consequences of not doing that. Similarly, I continue to believe that wireless broadband will continue to grow at the expense of low end ADSL as well as being used in every laptop/notebook and an ever larger percentage of mobile phones. While the profits to be made from wireless broadband (at least for companies like Exetel) will continue to be zero or negative I think that can be turned around as the months go by. As part of a 'complete' suite of communication services it has to be made a non-money losing offering some time in 2010 - just how that is to be done I don't really know right now. In the same way our VoIP business has continued to grow at a progressively faster rate each month and we are now seeing much more interest from corporates in our VoIP offerings - though sales so far have only been to the 'braver' commercial entities. I expect our residential VoIP business to grow much faster in 2010 than it did in 2009 as the take up curve steepened appreciably in the last half of 2009. Personally I use VoIP on my mobile and from our office and my home land line and I can't see why any sensibly competent person wouldn't do the same. It amazes me that so many sensible people I know in business still use PSTN/ISDN and still pay, no matter what 'great deal' they claim to have, so much money each month and, more stupidly, do without all the benefits that VoIP provides that conventional telephony simply can't do. Our corporate business continues to grow very quickly and by the end of February we would expect to have twelve fully operational corporate sales reps bringing in over 100 new corporate customers per month and if we do in fact make that happen we will aim to grow the corporate sales force to 24 by the end of June. Our overall aim is to be bringing in around 400 new corporate customers a month by early 2011 and although that sounds very, very ambitious we are basing it on the levels of development we achieved in 2009 in taking a 'concept' to a deliverable reality. We are reaching the ability to provide a "total communication services solution" with our 6 'add on' services and we will make more effort to use that advantage over the next few months as I don't see any other communications service company being able to deliver the complete range of services that Exetel has gradually put in place over the past three years - perhaps that's because I don't look hard enough. So - an aggressive approach to a tough year - hopefully based on a sensible understanding of the realities of what may happen over the coming few months. I guess we also put our money where our mouth is over the last 48 hours and decided to invest more money in Exetel by buying additional floor space to accommodate the personnel growth we need to make the 2010 business plan a reality.
Monday, December 28. 2009Coming Up To The End Of Another Year.......John Linton Like a lot of other people, it seems to me that this year has passed in a flash with almost no remembrance of what we were doing last January and with very little memory of what happened in the other months of 2009. I spent some time yesterday completing the final changes to the business plan for the last six months of the current financial year and have only got some minor details to complete. I, of course, don't have the final figures for December but we had already set new records in almost every aspect of our activities well before Christmas so the final figures will come as no surprise when we get them in mid-January. Both calendar year 2009 and the first half of financial year 2010 have been exceptional for Exetel and, though it might sound self congratulatory, we have managed a difficult twelve months very well both from our customers view points (we have lowered most service prices quite substantially) and we have made enough profit to increase our donations to endangered species by almost 50%. Achieving those two objectives for a sixth successive year is very satisfying - the fact that the business has continued to grow at a faster rate than that of the companies with which we compete in quite difficult times is also pleasing. Looking at the 'master plan' that extends over a much longer period than twelve months we accomplished three of the major aspects of that 'wish list' which is more than we have ever managed to achieve before which is some sort of indication that the company is 'maturing'. Possibly the most difficult achievement and certainly the longest time frame was the completion (as far as such a thing can ever be completed) of the transformation of the National network from a 'star' topology hubbed out of Sydney to a 'meshed' network of 8 'independent' PoPs with standalone capacities to connect both Telstra and Optus wire line and wireless customers (it is not yet possible to connect AAPT ADSL2 services 'locally'. This was accomplished late December and over the two and a half years it has taken us to make these changes the network has grown, in terms of bandwidth and routing power, by almost 300%. It has been a considerable engineering achievement over that time. The second major long term achievement has been the establishment of Exetel Sri Lanka to handle all of Exetel's back end processes. This has taken us the best part of four years (counting our timid beginnings) but it has mainly been accomplished over the past two years and has involved almost everyone in the Australian company. By every sensible measurement Exetel now provides better provisioning, billing resolution, technical support, residential sales and programming services than we have done at any time of our existence. As we had zero knowledge or expertise in setting up such operations in a third world country when we decided to do it this is a particularly pleasing achievement. The third major long term change has not been fully accomplished but 'all' of the difficult 'bits' were successfully put in place in 2009. This was the setting up of a corporate sales and support operation that would build exponentially on the painstaking and patient work we had put in over the previous five years in creating all the required back ground services required to build a business service revenue that would grow to be larger than our residential revenue over a two year period. In 2009 we hired the first 12 of the planned 48 sales people we plan to 'put in place' by December 2010 to provide services to medium/large to large business organisations. So far each one of the sales people we have hired have got through their very tough probationary period very quickly and have begun, jointly, to develop into a formidable sales force - as AAPT made the point to them - "in November you sold more services than AAPT Corporate in house sales teams and all AAPT's wholesale customers put together." Not bad for a group of people in their early 20s whose average experience of communications technologies was less than 4 months. So, Exetel has accomplished a great deal in 2009 which was not the easiest year we have experienced. Looking forward I think 2010 will be a lot more 'difficult' than 2009 in several ways.....and we will have to change Exetel even more next year than we did over the past 12 months - we will finish the details on how we plan to that by the end of the week. |
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