Thursday, October 23. 2008I Can See Clearly Now.........John Linton ......It's gonna be a bright, bright, sunny day (Johnny Nash): http://uk.youtube.com/watch?v=HagzTRmUBIE .....but actually the rain hasn't gone - it's bucketing down here. I have had some time to consider two aspects of Exetel’s future planning for the coming five years on the flights and in the many waking hours of the early morning that are available due to a time displacement of five and a half hours. I have previously alluded to the major problem that any small communications company in Australia faces especially one that has built a large portion of its business based on providing broadband services that are sourced from either Telstra or Optus. That, very simply put, is that there can never be enough money made available as ‘profit’ to actually make it worthwhile doing for any length of time – and, in my opinion, that ‘length of time’ is now receding rapidly in the planning ‘rear view mirror’. Irrespective of any future changes that may or may not be made by Telstra the fact remains, in my opinion, that Exetel can never add enough value to a Telstra sourced service to ever make any real difference to an end user’s value. I’ve always known that doing this would be difficult and have been encouraged along the way by the fact that other companies had found, apparently, that it is possible to buy a base ADSL or telephony service from Telstra at a realistic price and add sufficient value to offer an end user a ‘better’ service than Telstra may choose to provide. I had thought, and I fully understand that it’s the fault of my own naivete that I was so wrong in my thinking, that over time and as volumes of business grew, margins might slightly improve in terms of buying base services and that a rigorously operated, tightly cost controlled and amazingly fully automated operation would be capable of not only providing a differentiated service but would be able to do so at a lower cost to the customer and still leave enough for the ‘business’ to become and remain ‘financially robust’. I think if that was going to happen – five years is long enough for it to have happened by now. I can only, and sensibly, conclude that it hasn’t happened by now and therefore it’s not going to happen. Not exactly an Earth shattering view and one might well observe that it shouldn’t have taken almost five years (on top of previous direct experience) to reach such an obvious conclusion. A valid view point – what else can I say? For even the most pragmatic of people, the triumph of hope over experience can still cloud the most incisive of minds – and I think it’s a long time ago that my mind, by the kindest of measures, could be described as incisive. As it’s such a major decision it couldn’t possibly be made based on one person’s view. However it doesn’t take much of a look at the communications industry in Australia to see, and only based on the published and verifiable ‘evidence’, that outside the two other largest mobile carriers and possibly TPG/SPT , Internode (about which there is no useful published information) and undoubtedly some other company or maybe even two that I have either forgotten or am unaware of, that only Telstra is a successful communications company in Australia. Every other communications company that has based all, or a significant part of their business on using Telstra Wholesale services either has ‘disappeared’ or has struggled on not making any money – though undoubtedly iinet et alia would dispute this jaundiced view (to which my reply would be – look at the accumulated losses on your balance sheet). However – this isn’t an exercise in whatever other companies may or may not have achieved (as I clearly can never know any realistic details). It is based on looking at the future with the actual facts and figures of close to five years direct experience all of which say there is no realistic commercial future for a small company like Exetel basing any future plans on buying services from a company such as Telstra – or indeed any company that either does or is likely to adopt the same or similar ‘policies’. …and by “similar policies” I mean the bizarre situation where a small company finds the ‘retail arm’ of its wholesale supplier having its retail arm directly approaching its customers offering the end user lower prices than the wholesale customer can buy for – quite a bizarre business situation when you think about it. What possible reason would a sensibly managed commercial organisation have for spending money to offer a customer they already have (via their wholesale business) cash incentives to resign with their retail business for less money than their wholesale customer was already paying them? I can only think of one reason - but perhaps I'm not bright enough to understand what's really happening. So – ‘no more over priced ADSL tail circuits and back haul costs for Exetel’ – from any provider – there is no way that Exetel can make any progress at all in pursuing that ‘profitless’ path. We can probably stay in business and even make a small profit and probably continue to ‘package up’ an end user offering that may well continue to appeal to some tiny percentage of the overall marketplace for a year or so but – among other things – where is the value in doing that in the wider ‘scheme of things’? There isn’t any – for anyone. Buying HSPA Layer 2 services (not Layer 3) from a carrier, at the moment Optus, removes several of the issues that render ADSL services so impossible for Exetel in the future and are a realistic ‘transition phase’ because a small company (and Exetel is a good example) can much more easily ‘construct’ an end user offering that wouldn’t ‘compete’ with the carrier’s own multiple market directed offerings but would address marketplaces that the carrier itself couldn’t and would never want to address which goes a long way towards resolving the problems of a wholesaler who ‘prefers’ to do their own retailing. The other point is that there would be a true competitor to Optus (Vodafone)in this country that would eliminate almost all of the problems involved in the ADSL versions of broadband and its ‘add on’ services. Again, a company based on something different is much more easily ‘transposed’ to geographic areas other than Australia should that ever be considered to be a sensible thing to do. So the issue resolves itself to something quite concrete – not providing ADSL1 services in the not too distant future or any other ‘services’ that are in any way dependent on a wholesaler who will see every market as one in which their retail operations should have precedence. Distance and a different environment provides greater clarity of thought – or is it the propensity to have two, or three, for the road? Damned if I ever could tell the difference. Damned if I ever really cared now I come to think about it. Trackbacks
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So are you saying that in the next 12 months you expect to exit the ADSL and ADSL2 market, and become a 3G-only ISP?
Comment (1)
I am saying that if every time Exetel signs up a customer the customer's details go on a list that is then used as a prospecting tool by the supplier of the service to subsequently approach the customer to move away from Exetel by offering the customer a faster service at less than we charge plus the money to cover them breaking their Exetel contract then I am an idiot who needs to be removed from playing any part in managing a commercial enterprise.
Comments (12)
if Telstra is acually using Exetels ADSL 1 customer signup details, which they are privy too by way of them setting up the adsl tails, wouldn't this be seen as a form illegal activity on Telstra's part giving Exetel some legal recourse in this instance.
Comments (2)
I understand your feelings regarding Telstra not playing fairly to a point where you don't think it is truly worthwhile for Exetel to try and compete. I was under the impression however that ADSL1 was more profitable for Exetel than ADSL2+ because you were unable to give a referral bonus for ADSL2+ due to tighter margins. So if ADSL1 is still profitable, be it currently more or less profitable than ADSL2+, and the amount of customers connecting/churning to ADSL1 plans is still significant, then I personally do not see why Exetel should pull out of the ADSL1 market. You would be turning away people who would in turn be recommending Exetel to their friends and family, which is what Exetel relies on to grow; you would be turning away people who would eventually sign up to a second, third or even fourth Exetel service, suppose a VoIP or mobile; and you would be eliminating a target audience, which you contact via email, who might eventually migrate to your preferred HSPA and ADSL2+ services. From a customers perspective Exetel is a godsend in these current financially difficult times with hard to beat prices. This is the time when Exetel should be taking market share, not exiting the market.
I've tried to summarise as much as possible. I hope you don't mind me weighing in, and I apologise if my views are misguided as I have no experience in the telecommunications industry, and obviously have no understanding about Exetel's current position in the market. I just think it is a little too rash to do this, especially when no other ISP is doing it. It would be too big of a disadvantage. Comment (1)
I will be converting to an ADSL2 service as soon as my current ADSL1 contract expires at the end of December. This should be to both mine and Exetel's benefit.
I don't see Exetel's current HSPA service as a replacement for ADSL due to the $25 per Gig cost for downloads above 1Gig. So John has a little work to do before Exetel would be a 3G only provider. Even though John is suggesting winding down the Telstra Wholesale relationship, I would envisage that there will be some reliance on OPTUS for some time to come. Comment (1)
The situation applies to any supplier who also retails.
I doubt that it's 'illegal' in that it can be defended quite simply - Telstra Bigpond loses an ADSL1 customer and therefore has a record of that customers telephone number and name and the ISP they churned away to. The same situation would apply to Optus. So Bigpond/Optus simply mount a campaign to re-contact a lost customer and try and win them back - perfectly legitimate on any first pass look at it. I am not saying it's "illegal" - just that it's not tenable to have a wholesaler who treats retail as more important than wholesale and uses its power of pricing to take away a wholesaler's customers based on re-approaching those customers with a lower priced offer. Putting effort into selling on that basis is not sensible from Exetel's viewpoint. Comments (12)
Referral bonuses are now paid equally for ADSL1 and ADSL2 - they are paid out the application fee 'profit'.
Both ADSL1 and ADSL2 (less so) are vulnerable to either Telstra or Optus retail organisations using churn away information to subsequently 'target' ex customers with "come home" deals and promotions. Telstra Retail has done this very aggressively for well over a year now (I detailed one of the promotions some 12 months ago)and represents 50% of all ADSL1 churn away customers going to BigPond based on pricing offers that are lower than Exetel's wholesale buy pricing. There can be no long term future in dealing with a wholesale provider who acts in such a way. Comments (12)
i have been contacted by telstra after i moved my homeline service to an exetel/optus line service with adsl2.
i assume the point of the call was to regain some level of business from me, but after gleefully filling them in on the plan i was now on - they saw there was no beating this in terms of dollar for dollar etc, and i haven't heard from them since. i took great pleasure in this. Comment (1)
There is absolutely no doubt that HSPA is not an ADSL2 replacement service today - as you point out cost would be prohibitive and speed is not yet there.
Future developments of 3G towards LTE will, largely, eliminate any speed issue as LTE would be much faster, generally, than ADSL2 or "VDSL". Pricing - hmmmmm - another kettle of fish. Nothing I've said should be taken as me believing that HSPA is a 'saviour' to be used to escape from wholesaler predation - it isn't. My recommendations are going to be that we no longer consider ADSL1 or ADSL2 as a significant avenue of endeavour and that we should find a way sooner rather than later of not providing any more ADSL1 services either by offering a suitable alternative or by just watching BigPond take them away with their ongoing offers and whatever they come up with over the next few months. I have never been a 'defeatest', most people who have known me would say I am the complete reverse of that, but I can eventually recognise a lost cause when I've been beaten over the head by the facts for long enough. Comments (12)
The same thing happened to me and I, as you, enjoyed telling the Telstra caller my plan details while they tried to find a competing plan. After a decent pause I was informed that they couldn't and thanked me for my time.
Comment (1)
John - you make mention of 'iiNet etalia making losses'.
iiNet hasn't made a loss in several years now. Not sure which others your talking about. Given - iiNet's migrated much of their customer base to ULL/SSS, but the fact remains that they're still making a profit while a large proportion of their customer base is on a Telstra resold product and they're still turning a decent profit. Comment (1)
I must be reading the wrong annual reports on the ASX - every year, until this year, showed a loss and the accumulated losses on the balance sheet for this year remain huge.
It really doesn't matter to the point that I thought I was making what iinet's actual situation is - as I said there's bound to be one or more companies I've missed that have been of benefit to their shareholders - though I'm still pretty sure iinet isn't in that category. Comments (12)
John - you cant dump ADSL1 or 2+ it would just be like cutting off your nose to spite your face, well at this time anyway.
Have another single malt and reflect on the fact that the idea of starting Exetel is just as good now as it was 5 years ago. Im not a good one on quotes -- but I believe that Malcom Frazer said "life wasnt meant to be easy". Im sure number one son is waiting in the background to start thowing punches when you weary from the fight. Comments (2)
The choice of single malts here is, to be generous, very limited.
My views are pretty straightforward - there is no future in basing a business over the next five years on dealing with wholesalers who will use whatever 'success' you may enjoy as an affront and use their retail business to drive you out of business. Clearly, we can't 'dump' ADSL today or even next year - completely. However I'm much too old to waste the few, if that many, years remaining of my commercial life to 'swim against the stream'. I think the little that remains of my cognitive capacities is still more than sufficient to provide an alternative service to our customers without continuing to jeopardise Exetel's future by dealing with wholesaler's whose only objective is to ensure Exetel doesn't continue to exist. They are my personal views and I have a couple of million of my personal money at risk based on how accurately I make decisions for the future. I will make such decisions very, very carefully. Comments (12)
Would this be a fair way to think.
If (Number of new ADSL customer signups per month > Number of churns to BigPond per month) Then "Life is profitable" Else "Damn it. Need new plan or Exetel will shrink" Every time Telstra sucks a customer back, they're losing some profit via the discounts they offer. If a customer wants to go back, then they probably didn't learn their lesson about trusting the devil the first time Cheers, Mike. Comments (3)
Pretty much sums it up - but they go out of their way to do it.
Goodness knows how that obviously negative commercial outcome can be perpetrated unless the objective is to ensure there are no wholesale customers - I can't think of any other reason. Comments (12)
It could be a bit like the Mortgage crisis? IIRC BigPond pedlers get quite a large (up to triple figure) lump sum payment whenever they achieve a signup. The push might be coming more from individuals who want these big rewards rather than from the massive corporation which issues them.
In this scenario, it's could be possible that the there is no intentional malice against the wholesalers at the corporate level, but rather just a push from individuals and businesses that are BigPond dealers and will do anything to get more money. I reckon BigPond dealers must generally be in it for the money. They'd have to be. How else could they live with themselves selling some of those plans? Happy Travelling back from Sri Lanka Comments (3)
do you ever return the favor and contact customers that have churned away with an offer to return, knowing who they churned to it should be easy enough to estimate when their contract would be due and flag a system generated response when their new contract is due to expire
Comments (2)
You could be right - but I didn't know that BigPond had dealers or agents.
Comments (12)
So are Telstra actually following these offers to ex customers through, or or these the fake deals being offered by their call centres?
And are you saying the ACCC has nothing to say on them offering deals less than their wholesale cost? Comment (1)
The offers are carefully 'crafted' to disguise the true costs.
Yes - we lose a lot of ADSL1 customers to these 'campaigns'. We don't have the time/money to spend years pursuing Telstra through the courts. Comments (12)
I would think that you could have an automated system that would do the followup, email, snail mail or whatever (the automated stuff is generally where your guys do well), not a great cost but a cost nonetheless
Comments (2)
just thinking about this some more, as soon as you got advice that a service was going to churn out maybe you could just send a 'sorry to see you go, here's a discount redemption voucher you can use if you decide to join us again later' type email (possibly base the redemption number around the service phone number so it could easily be followed up), I would think a few people that get suckered into churning out may regret it further down the track and at least you have a chance to remind them that they can always come back, maybe make the voucher transferable if they want to pass a discount on to a friend
as a system generated email it couldn't be too costly to setup and the ongoing cost would be very minimal, you give credits for referals so why not offer something for returning customers, better than just letting the wholesalers rip the customers out from under you without a fight Comment (1)
I was one once some time ago in the hope I could better help people get ISDN in my area, but had to drop it because they introduced an exclusivity clause. Given I was already a dialup ISP and Exetel agent, I could not accept that requirement.
Actually, just reviewing the emails from back then, looks like they're called dealers not agents. (Google for bigpond agent you get nothing...) You can become a BigPond dealer yourself at https://dealers.bigpond.com/applynow/Default.aspx if you so desire I hope this helps put you at ease, John. Comments (3)
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