Ever since NBN Co announced recently that it had contracted Space Systems/Loral to build two Ka satellites for around $620 million – part of a total project cost of around $2 billion – arguments have raged as to whether the company needed to build rather than lease satellites.

NBN Co CEO Mike Quigley told a Senate estimates hearing last week that “having the Australian taxpayer own these new satellites is the right answer,” arguing that suitable capacity did not exist otherwise. Optus also noted that its fleet of Ku-band satellites did not have enough spare capacity for the job.

And yet while NewSat’s name has cropped up frequently in the debate, Ballintine told CommsDay that NBN Co has still to this day had no communication with the company. This despite NewSat’s in-house expertise and well-advanced plans to launch a Ka satellite a year ahead of NBN Co’s slated launch.

His answer to the key question of whether it would have been able to provide the necessary capacity will not go down well with those arguing that there were no other options for the NBN: “Look, it would have been very easy to bunk a ride. We’ve got slots that will have plenty of Ka capacity, we’re flying two satellites – Jabiru 1 and Jabiru 2 have been announced – we could have easily catered for some space on the back of our existing satellites,” Ballintine said.

“And would it have cost a fraction of that cost? Of course it would have cost a fraction of that cost. Do you need a sledgehammer to crack a nut? No… we have perfect orbital slots for this country and we’ve great space knowledge, great teleports. It’s simply disappointing that we weren’t consulted, because we’ve got something to say,” he added.
The NewSat founder was quick to dismiss any suggestion of sour grapes in his comments about the lack of involvement in NBN. He said the company was well on its way to financing its Jabiru-1 launch, with a healthy sales pipeline and strong support among Australian mining companies as well as contracts with the US military. But he said the lack of communication was puzzling.

“Clearly, the NBN have chosen not to speak to us; for whatever reasons no-one has chosen to speak to us about anything,” he said, claiming that NewSat was now the largest employer covering the space sector in the country and noting that its teleports in Adelaide and Perth had been rated among the world’s best by both the World Teleport Association and the US military.

However, he also warned that NBN Co’s excess capacity – one of its two proposed satellites is largely for backup – could at some point find its way into the commercial sector and compete with existing operators. “As a business who looks after our shareholders’ interests, what we were very concerned about is that there’s going to be two satellites,” Ballintine said. “You’re going to have all this spare capacity, it’s going to be resold by a whole bunch of people that put their hand up to resell it, how can you give guarantees that that space won’t find it’s way into the commercial arms of the oil, gas and mining companies who are in Australia? How can you give that guarantee?” he questioned.

“It could have a deleterious effect on our business if it’s not monitored properly. There are a number of other ramifications here. I am certain the taxpayer doesn’t want to be funding the multinationals of other countries who are going to be able to buy cheap space because we’re going to have a bunch of it that is surplus,” he continued.

SALES PIPELINE: Meanwhile, Ballintine told CommsDay that the company was confident that it was on track for its launch of Jabiru-1 in the second half of 2014. He also expected to detail plans for a further four satellites over the coming 12 months.

The next critical milestone for the company will be export credit funding with US Ex-Im Bank and France’s Coface, which he expected to announce in April/May. According to Ballintine, the recent contracts with Lockheed Martin for the satellite and Arianespace for the launch will boost its chances of obtaining the funding given the number of jobs the deals would support.

And he noted that the company had a sales pipeline of about $800 million in 2012. As well as its plans for Jabiru 1 and 2, Ballintine said that a further three satellites were in the planning stages, with a more formal timetable expected to be released later in the year.

Geoff Long

That was the month when Telstra requested and received a letter from Conroy’s office which stated that on his reading of the Australian Competition and Consumer Commission’s statements on its reluctance to declare wholesale ADSL as a regulated service, there was a “high degree of regulatory certainty”. In the light of this forbearance and the then-growth in competitor DSLAM investment, he would welcome a decision by Telstra to enable regional and rural exchanges with ADSL2+. Telstra duly complied and faster broadband was switched on in a whopping 900 exchanges covering 2.4m households.

Given the NBN only connects several thousand customers to date, this 2008 “inaction” remains Conroy’s greatest achievement in enabling better broadband across the country. Yesterday’s decision to overturn that “high degree of regulatory certainty” with a relatively heavy-handed approach to price setting may—funnily enough—represent his second success.

Some may remember that when Conroy ran for office in 2007 he did so primarily on the riff that Australia’s standing in OECD penetration rankings for broadband was low and something had to be done about it (he of course, proposed a $4.7 billion subsidy for FTTN deployment). In the last OECD findings before the Howard government lost office, Australia ranked 12th, having risen from an earlier nadir of 17th when Conroy was in full flight against then minister Helen Coonan.

Since then Australia has dropped to 21st, below New Zealand—which notably has pursued quite radically different broadband policies over the years. The NBN may or may not do something about that. I would argue not as, more than anything, the NBN prompts an inflection point where people must decide to stay with the fixed network or go wireless only. But even if the NBN proves to be an enormous boon for broadband penetration that is some years away. That would seem to be the underlying subtext to yesterday’s decision.

Australia’s fixed broadband market needs a shot of adrenalin, stuck as it is in a holding pattern waiting for the uncertainty over whether or not the NBN proceeds to be resolved electorally. Access seekers will now have a national market with regulated prices (retail minus retail costs as it so happens) to play in. This should, theoretically, kick start competition, which as we all know is supposed to lead to lower prices and higher penetration. Significantly, the decision’s import will endure beyond a change of government.

Of course, as is often the case with the ACCC, the justifications are opaque. Two of them: the lack of DSLAM investment in regional Australia and the high presence of RIMs (11% of all lines) which preclude economic DSLAM deployment were apparently unimportant in 2008 but now present more urgency. Indeed, the ACCC’s detailed documents yesterday inadvertently kick out at the government’s relative impotence on broadband outcomes, highlighting that despite the Regional Broadband Blackspots fibre cable—built at a cost of a quarter of a billion dollars– DSLAM deployments were made in a mere 14 new exchanges last year out of a total of a few thousand! Of course one of the major reasons that DSLAMs are not deployed in great numbers outside of the cities is because of the ACCC’s preferential pricing, which levies a substantial premium for ULL pricing outside of cities.

Somewhat bizarrely, the ACCC’s new pricing preserves this differential, offering a $5 a month discount on wholesale ADSL access in zones where there are already DSLAM deployments. Why not a national price as is the case for wholesale line access and LSS? Significantly, the ACCC has also slashed Telstra’s aggregated virtual circuit charge (analogous to the NBN’s proposed connectivity virtual circuit) nearly in half to $33 per MB from July. But the proposed end pricing—a blend of a $25-30 access charge and the AVCC charges—doesn’t seem too far below Telstra’s average yield on unregulated wholesale broadband access today, which tends to around $36 or so. So big ticks for improved “real” performance and likely broadband competition in RIM areas, with outcomes in regional areas and overall penetration gains likely to be less buoyant.

Nevertheless, the import of the decision is clear. The ACCC has effectively regulated Telstra’s CAN into being a virtual prep school for the NBN environment, with analogous pricing to boot. As it says “Telstra’s ability to leverage its dominant position has the potential to diminish competition. In particular, in the future without declaration, Telstra has strong incentives and the ability to seek to impose such terms during the transition to NBN … The future state of the market with declaration will assist in establishing conditions by which competition will be promoted as all access seekers will have access to wholesale ADSL services on efficient terms.”

More specifically the ACCC has identified an avenue for arbitrage which Telstra could exploit. “Telstra has signalled its intention to bundle NBN services with backhaul to provide a Layer 3 service over the NBN. Telstra has an incentive to provide discounts on wholesale ADSL pricing on condition that ISPs purchase NBN services from Telstra instead of NBN Co or other wholesalers. Such conduct could distort the development of competition at the network layer over the NBN as other DSL network operators could not replicate Telstra’s bundled offers.”

Grahame Lynch

Firstly, it is an indication of just how prescient former CEO Sol Trujillo was when he decided to put most of Telstra’s eggs in the mobile market via HSPA and extended geographic reach. Seven years on, Optus has only belatedly reacted and VHA has, in essence, imploded. The market share figures which will be revealed as Optus and VHA report will make for very depressing reading for their executives. (After this went to press Vodafone revealed its Australian sales had dropped 11.1% in the last reporting period)

Most significantly, 1H2012 will probably constitute the last time that Telstra generates more sales from its fixed services than from mobiles. Telstra collected $4,534m from its fixed line products last half, but that was down 6%. The take from mobiles was $4,393m, up 11%. If that trend is replicated in the second half, fixed line sales will fall to below $4.3b. Mobiles in turn will approach $4.84b. If that comes to pass it could be truly said we have reached an epochal moment in the history of Australian telecommunications.

Indeed, it is becoming harder to even elicit what all this NBN palaver is about. About 4/5ths of Telstra’s new broadband signups last half were to its wireless networks and it now claims 2.746m mobile broadband users. This compares to just 2.519m retail fixed broadband customers. Another 136,000 customers abandoned the PSTN last half. PSTN revenues fell 9%. Fixed broadband is flatlining.

The market that is being chased by the NBN is evaporating before our eyes.

In recent weeks Malcolm Turnbull has been engaged in a somewhat unseemly online dispute with an Internet website and its band of pro-NBN followers who are targeting him over what they allege are his inaccurate claims that the NBN will cause broadband prices to rise. They point to the initial round of NBN retail offers which suggest the opposite. Unfortunately the debate proceeds from a simplistic and unmeaningful premise.

Indeed, NBN Co is starting with a competitive national broadband offer of a notional $24 per month per SIO. This compares well with Telstra’s wholesale fixed broadband ARPU (excluding ULL, LSS) today of a higher $36. But the participants in this debate seem to miss the point that NBN Co is deliberately pricing its initial basic access below cost to meet the market and is subsequently intending to boost APRUs through contrived “last mile” data usage charges (via committed information rate and virtual connectivity circuit levies that are effectively telecom’s equivalent of a carbon tax) that are intended to raise wholesale prices as fixed competition is shut down.

NBN Co’s own corporate plan demonstrates that this effect will increase NBN ARPUs from $23 next year to $32 in 2015 and $52 by 2020. There’s no arguing around it: the only point of an NBN is to provide a faster-than-today service but once you start using it beyond DSL-style speed and download levels you will pay more. This compares with a wireless broadband offer from Telstra where retail ARPUs fell 25% in one year, even as the underlying network speed and performance experience continued to improve.

There was even another sting in the tail for the NBN yesterday. For the first time, Telstra broke out its M2M mobile business and revealed there are 744,000 services in operation. This is for applications such as asset tracking, logistics and so on. Of course a large part of the rhetoric behind the NBN was its capacity to support such things, especially for “smart grids”. Sorry but wireless is rapidly cleaning up this market.

Of course, there may be more nominal wireless broadband than fixed broadband services but the ABS data doesn’t lie—93% of all downloaded data goes to a fixed access line. But how much of this is of the economically useful variety that promotes social inclusion, generates jobs and improves productivity (as per the policy intentions of pervasive fibre)? Megaupload, the storage service famously shut down following the arrest of auteur Kim Dotcom, accounted for a phenomenal 4% of total Internet demand. BT Junkie, the world’s largest Bit Torrent site, closed its doors this week following an FBI raid. Other major global sources of data usage such as QuickSilverScreen have also closed and remaining sites are imposing major restrictions on use. The trend is clear: much of the junk that dominates fixed network data usage is now being successfully targeted by lawmakers and the tools at their disposal, courtesy of things like the ACTA treaty, are only going to get more powerful.

That leaves video conferencing and television substitution as the key future applications of repute, from a public policy and monetisation perspective, for the fixed broadband network. How many telepresence customers at the cash rich end of the market had Telstra signed by early this month? Seven. How many Australians sat down last night to watch live news broadcasts on free-to-air television carried predominantly over broadcast spectrum? Over 4 million.

Grahame Lynch 

Telstra has signed off on structural separation in a deal that the government believes will underpin the success of the NBN, whilst the NBN has been provided with all the legislative support it needs and is, according to the government, making real progress having started commercial services on the mainland.

Given the scale of the structural changes that have marked the last year it was to be expected that industry players would pause and plan for the future but its perhaps not so much the promised changes under the NBN that are causing many in the industry to now stop and think but the back to the future developments of recent months. Whilst the industry may sit on the edge of a new competitive era both the Australian Communications and Media Authority and the Australian Competition and Consumer Commission seem intent on hanging on to tried and tested regulatory tools.

In the second half of the year ACMA questioned the effectiveness of self regulation and warned they will regulate if industry codes don’t address concerns they hold in areas such as complaints handling and customer service. The ACCC, which had already caused considerable disquiet with its NBN point of interconnect decision which many believe favours Telstra, appears to have balanced the ledger by taking a swipe at the incumbent as the year closes. The ACCC has reregulated a raft of wholesale voice services and is considering declaring a wholesale ADSL service including ADSL2 .

The readiness of regulators to go back to tried and tested regulatory practice, especially regulation of access to Telstra copper suggests that despite the year’s developments there is considerable uncertainty about the timing of the changes that the NBN will actually bring. As the NBN company has become more transparent about the progress on its rollout by publishing monthly and yearly schedules, it has become obvious that progress on the NBN may fall short of that promised. December’s monthly rollout update reveals that only a further 6000 brownfield premises will be passed by mid 2012 and only 7800 greenfield premises appear certain to be completed by the middle of next year.

That would leave the NBN with only 10% of its cumulative mid 2012 target – not quite the progress the government would have hoped for. Similarly Telstra’s structural separation may not be the ‘holy grail’ of telecommunications reform that the Minister Stephen Conroy claims and as the year ends and the ACCC mulls over finally signing off on the undertaking Telstra’s competitors have the right to feel cheated by what is actually being delivered.

Just how quickly Telstra ‘s vertical integration can be unwound is utterly dependent upon the speed of the NBN rollout but even if vertical integration is ultimately addressed the undertaking does absolutely nothing to address what is perhaps the real structural shortcoming in the industry – Telstra’s control of cable TV and the resultant horizontal integration that gives it access to content. Given the likely significance of the triple play to ISPs’ success on the NBN, access to content is all important and nothing has been done to address this problem.

Indeed in sharp contrast to the swift and decisive outcome in New Zealand, Telstra may never be separated and the agenda driven by Telstra’s competitors, led by Optus, may never be realised. This is especially so given that in one of the key moves of the year Maha Krishnapillai arguably the sector’s most influential and successful lobbyists has left Optus.

The year also saw the end of another era in the campaign for deregulation, with the winding up of the Australian Telecommunication Users Group. ATUG, which was often a voice of considered reason in the all too often heated debate about deregulation, will be missed.

In a sense 2011 marks full circle for the mission ATUG set out on more than 25 years ago – arguing for liberalisation of a government monopoly that limited private sector investment in the sector. 2011 has seen a fair bit of that monopoly reassembled – 2012 may tell us whether that monopoly can endure.

 In this issue:

• Will wireless broadband households
  take to fibre?
• The curiously political case of LightSquared
• Why data centres are now essential economic infrastructure
• AT&T gets its innovation mojo
• Connecting Africa
• Amazing new developments in optical networking
• The next 20 years for Australian telecom competition

READ THE MAGAZINE ONLINE HERE

or DOWNLOAD A 13M PDF HERE

After a year or more of separate bilateral discussions on the subject between the Commonwealth and the key stakeholders – all tightly locked down via extensive non-disclosure agreements – some industry sources close to the talks are now expecting public announcements on the subject within a couple of weeks. Others are anticipating certainty even sooner. But CommsDay understands that, while the players are drawing close to concluding negotiations on the renewal deals, the final details still remain contingent on the last meetings – set to kick off within days.

With so much at stake for participants, confidentiality around the talks is extremely strict and negotiators are under considerable pressure; the renewal deals are a pivotal element in the plans of both government and carriers. For Vividwireless, the cost of license renewal is a crucial component of the business case for a planned east coast capital fixed wireless rollout, and thus in securing capital to fund that expansion. For Telstra, VHA and Optus, the amount they are obliged to spend on renewing their existing spectrum could partly dictate how much they will be prepared to bid for 700MHz digital dividend spectrum, when that highly coveted asset goes to auction next year. There is also the need for certainty around timeframes, since the existing 15-year licenses are used by the telcos to service existing customers in an environment where wireless bandwidth demands are increasing inexorably.

The federal government, for its part, must strike a balance between extracting optimal value for the renewals and for the 700MHz auctions. This is a particularly key consideration with the government striving to hold onto its promise to return to surplus next fiscal year, having just brought down the surplus forecast to A$1.5 billion in a budget update (against the A$3.5 billion outlined in the May budget) following a $15 billion blowout in its current year deficit.

The Australian Financial Review cited an independent valuation that put the current licenses, collectively, at more than the A$2 billion paid for them when first sold; it tipped the total worth of the digital dividend spectrum at another A$2 billion or higher.

CommsDay understands that spectrum sales proceeds have in fact already been factored into the budget. However, since the transactions are still subject to commercial negotiations, the federal government does not disclose the total amount that it has budgeted to receive, nor whether that figure includes both renewal and anticipated auction revenues.

In March last year, communications minister Stephen Conroy gave key stakeholders a measure of assurance with the notification that renewals would be offered to incumbents who were serving “significant numbers” of Australian consumers or had the networks to do so – alleviating any fears that Telstra, Optus, VHA or Vividwireless (then Unwired) might have had about being forced to go to auction to retain their existing assets.

But key details such as the cost and timing of renewals have taken much longer to bed down, with negotiations continuing throughout this calendar year.

Petroc Wilton

Krishnapillai’s newly-created role will effectively see him running telco products and services for Australia Post, as the company seeks to diversify away from traditional postal services and into newer communications offerings. His duties, however, will be purely commercial; he will not be doing any regulatory, government, or corporate affairs work, putting his new position at arm’s length from his previous role at Optus. “I’m genuinely excited by the transformation opportunity at Australia Post, and the opportunity as part of that in terms of their communications products and services strategy,” Krishnapillai told CommsDay. “The thing that really appealed was that [Australia Post CEO] Ahmed Fahour is a really interesting character.”

“I know the opportunity sounds counter-intuitive to some, because that’s what a lot of people have said to me… ‘are you going back to the public service, is this going back to PMG’? But it’s actually none of those things. It’s a pure commercial role, and that’s what appeals… [to] explore the potential for Australia Post in communications products.”

CommsDay understands that the firm’s new telecom strategy will encompass three main areas of focus. First, the company will develop its strength in e-commerce, based on the fact that many online transactions still require parcels to be delivered; Australia Post’s parcel business is already booming on the strength of its work with eBay and similar organisations. Secondly, the firm will ramp up its financial services and banking portfolio; through existing offerings like passport and license services, Australia Post has already built up substantial expertise in identity verification and payment security.

Finally, Australia Post is mulling a push into broader communications services, with an obvious opportunity developing as the NBN continues to roll out. The company’s massive distribution, trusted brand, logistics advantages and easy-to-use payment systems all present a compelling case for the company to play in the wider telecoms space in an NBN environment.

In its move into the telecoms space, Australia Post commands tremendous advantages. According to brand surveys, the company has perhaps the single most recognised and trusted brand in Australia. Moreover, Australia Post is already well-established as the country’s biggest distribution and logistics organisation, with thousands of distribution outlets.

It’s understood that Fahour viewed Krishnapillai as ‘the missing piece of the jigsaw’; a seasoned telecoms executive to complement the banking and retail experience that he’s built up in his senior management team. Krishnapillai – who leaves Optus on 30 November – will begin his new job at Australia Post next January.

Petroc Wilton

Read Grahame Lynch’s analysis on what Australia Post’s telecom play means

Australia Post brings assets to the market that most telcos lack and that only Telstra can really match. For a start it has a daily or weekly point of contact with almost every household and business premises in Australia—11m in total with nearly 100m items delivered per week. It has 4,500 retail outlets across the country, over half outside of metro areas. It plays an integral role in the fulfilment of e-commerce-generated physical deliveries as well as identity verification and secure payments. In short, it is the ultimate logistics and transactions business.

If one looks at the last decade and a half of the dot com world, it is clear that the companies who have created the most value are the ones who understand transactions and logistics. Witness Amazon, eBay and latterly, the Apple Apps Store. Indeed the slowest growing area of the digital economy has been the access services game, with prices regulated to cost, competition at a fever pitch and governments across the world forced to intervene to subsidise or stage manage network upgrades to fibre because there are few incentives for private capital to take on the task.

The future is now about handling transactions and horizontally integrated bundling. The sale of broadband access per se will likely become a loss leader, with real value coming from bundled services and a cut on transactions. It’s the McDonalds’ model: use break-even hamburgers to get them into the store, make the margin on the upsell to fries and Coke.

Australia Post ticks more boxes than most when it comes to an ability to realise value in this changed environment.

The entry of Australia Post into telco will not be without controversy. Its horizontal integration already steps on toes. Newsagencies, for example, resent the way that Australia Post can leverage its national monopoly in mail and small parcel services to “line extend” into personal gifts, stationery and mobile pre-paid recharge. There has also been talk of Australia Post becoming a bank.

Given the propensity of Australia’s vocal telco community to complain about any perceived advantage enjoyed by the former government monopoly Telstra it is only a matter of time before Australia Post is pinged with the same rhetoric if it achieves any degree of success.

Indeed there is a supreme irony in all of this. The Postmasters General Department was formed some 110 years ago to administer Australia’s postal, telegram and telecommunications services.

In 1975, the department was split into postal and telecom divisions. International services were excluded from the latter in the form of OTC. In 1992, OTC and Telecom Australia were united and eventually corporatised and privatised for around A$60 billion.

Australia Post remained the under-developed and unglamorous sibling, corporatised but never privatised and as of this year, recording a fraction of the profits of Telstra on about one quarter or less of the revenue.

Now Australia Post, under one of Australia’s most seasoned competitive telecommunications leaders with one of the best contact books in the business, is to take on Telstra in a new market environment where Telstra is effectively emasculated from fixed network operation and compelled to separate its operations. How the worm turns!

Grahame Lynch

CORRECTION: An earlier version of this article may have implied that OTC was spun out of the PMG. Thanks to correspondent David Havyatt we have clarified this misconception.

iiNet itself, of course, has been a very visible driving force in that consolidation, with the TransACT buy coming on the back of other major recent acquisitions including Netspace and AAPT’s consumer division. But Malone told CommsDay that the trend was far broader, and had been set in motion a long time previously.

“I know a lot of people keep on saying it’s because of the NBN… but the consolidation was happening for years before the NBN was even mentioned. This is now getting to be a scale game, and it’s happening all over the world,” he said. “As you get to the point where the market’s saturating, the things that matter right now [like] service, brand and product require you to have scale. Our ability to do things like manufacture the BOB in-house come from the simple fact that we’ve now got sufficient sales, we’re turning over enough new customers to do that. We couldn’t have done that if we were half the size. [Similarly,] being able to do the content deals that we are comes from scale.”

“I’m delighted about the NBN, because it provides customers with a faster, more reliable product for similar prices, and iiNet’s not funding the Capex for that – the taxpayer is! And it’s a level playing field for everyone else. But that’s not what’s driving consolidation. If you told me the NBN was being switched off tomorrow, and it was never going ahead, consolidation in this sector would still continue apace,” he continued. “Even today… Optus, iiNet, TPG, we’re all in roughly the same 400 exchanges, with the same regulated input costs and the same fibre going to all those exchanges. We’re all operating today already on a ubiquitous, commoditised cost base at home. A lot of people focus on the NBN and get overly worried about where it’s going – but whether it happens or not, the game’s still the same, you’ve got to win your customers, and you’ve got to hang onto the customers you’ve got. So the things we lie awake worrying about are growth, ARPUs, and additional products for the customer. We don’t even worry about the NBN.”

But while consolidation may stay on the cards, Malone still sees opportunities for smaller players to carve out specific geographic or vertical footholds in the market. “I think you’ll end up with two types of players: the big national players, who’ve got scale, and the niche players, who focus on either a geography or a segment,” he said.” “If small player that has A$100 million worth of revenue… wants to be a national player, they’re going to struggle, because the overheads for running a national network are high.”

Meanwhile, at the top end of town, the iiNet CEO anticipated some new competition entering the market via the NBN – in particular, large and well established brands keen to launch a fixed broadband offering. “You’re going to see new players like Vodafone entering; NBN’s the obvious entry [route] for Vodafone. They’ve already got the national network, so connecting to NBN, for them, is a relatively small incremental cost,” he said. “And Optus and AAPT have already said they’re going to have a white label wholesale product; so I wouldn’t be surprised to see companies like the Woolies and the Westpacs enter into the space if it made sense to them.”

TRANSACT DETAILS: iiNet has forged a binding agreement to acquire TransACT, with the deal expected to close at the end of this month subject to a number of procedural conditions. In return for iiNet’s A$60 million outlay, to be funded completely through existing cash and debt facilities, the Perth-based ISP will snap up TransACT’s 4,500km network, 40,000-strong subscriber base and growing corporate and government client roster – with Malone highlighting that last as the main draw of the deal.

“The infrastructure, for us, is a bonus; as always, what we’re buying here is a retail business,” said the iiNet CEO. “They have 40,000 customers; that’s wonderful, in profile those customers are very similar to iiNet’s. But in this case, as well, they’ve got a very strong corporate and government focus – and that’s something iiNet’s traditionally been weak on.”

“iiNet did A$57 million last year in business and government… out of A$700 million in total. I think of myself as a retail guy… but that’s as large as many of our direct B2B competitors. It’s something I think we haven’t paid enough attention to, and that we need to get a lot more serious about… we’re pretty good at the small business end of things, but TransACT brings in a bit more strength at the corporate and government level.”

With very little duplication of client base in key TransACT areas of operation like the ACT, regional Victoria and Queanbeyan, the firm’s brand will be retained in much the same way as was the case in iiNet’s earlier acquisition of WestNet. No redundancies are currently anticipated, and TransACT CEO Ivan Slavich will retain his role; iiNet is expecting most of the cost savings associated with the acquisition to come from bringing currently outsourced head office and IT systems in-house.

Malone was reasonably sanguine that the NBN rollout would not interfere with TransACT’s FTTP and VDSL networks. “The three options are that NBN overbuilds, which I think is fairly unlikely and inefficient; NBN buys the TransACT network, which to be honest would be fine at the right price but which I don’t see as likely; or more likely, they’ll regard the places that have been covered by TransACT as sufficiently [connected],” he said. “When you think about it politically, when a cable has already got fibre or HFC to the lounge room, where is the political benefit of putting in another fibre?”

The iiNet CEO also made it clear that TransACT would not be his last acquisition – though CFO David Buckingham noted that there were not any large purchases on the radar in the short term. That said, asked which areas of Australia he believed iiNet could still profitably explore, Malone responded “Adelaide we’re weak in, and there’s two strong locals in Adelaide… Internode and Adam Internet.”

“Obviously, I admire both businesses; if the time came where they were available at the right price we’d be very interested.”

Petroc Wilton