Will Telstra give iiNet one 4G ring to rule Optus?


opinion Like a cluster of ancient elves residing deep within the sheltered enclaves of evergreen forest glades, the worthy folk of SingTel subsidiary Optus have long focused their gaze to the far north, where the dark lords of mighty Telstra have ruled Australia’s telecommunications sector from their fiery thrones.

Within Optus, mentioning the name of the dreaded beast is normally avoided, or best spoken in a whisper if you must — lest its baleful glare fall upon you in the night and send its minions clad in coppery finery to fall upon you where you sleep and drag you to its court, where you will find its final judgment less than pleasant.

It’s easy to understand Optus’ fascination with its erstwhile master. Telstra’s deep shadow has long fallen across Australia’s telecommunications sector. Its cloying influence can be felt in every marketplace move, and its size and dominance of infrastructure is so entrenched that any weighty decision made by its rivals must consider its possible reaction. And despite the fact that Stephen Conroy has learnt the name of the beast and is attempting to bell it in its murky lair, Telstra still has claws; a fact which lesser ascendants such as Internode are continually learning, to their peril.

However, like those folk from another tale, it is possible that Optus has been looking to the north for so long that its gaze has become fixated on the heights of Mount Doom, only to find itself undercut by one of its own from the valley of Isengard.

In battle against the great evil, Optus has long partnered with its fellow strugglers; noble warriors such as AAPT, Macquarie Telecom, Primus Telecom, iiNet and even Vodafone have banded together with the SingTel subsidiary in a courageous effort to fight the big T. And of course, who could forget the noble efforts of Hackett, son of Hackett, who has risen from nameless obscurity in the wastes of the South to become one of the industry’s most valiant princes.

But now Optus is facing a powerful threat from one of those players with which it has long fought side by side. I speak of course of iiNet, whose leader Michael Malone has played a pivotal role in the future of the telecommunications sector from his fell fortress in the West.

As we’ve previously discussed, when it comes to fixed broadband, iiNet has been sticking it to Optus for some years now, recently claiming the title of the nation’s second-largest ADSL player and continuing to grow its customer base organically and via a series of ferocious acquisitions that have taken place with the swiftness of a Nazgul falling from the sky onto prey far below.

The release by the Malone juggernaut yesterday of its latest financial results (PDF) — in a year when Optus’ own fixed-line broadband performance has been relatively stagnant — did nothing to dispel the impression that iiNet is currently a ferocious competitor. Revenue up 48 percent to $699 million? Underlying earnings up 30 percent to $105 million? Operating cash flow up 54 percent to $96 million? These are the sort of percentage growths that Optus hasn’t been able to dream of for the best part fo a decade, despite constant investment in its networks and a steady revenue and profit march uphill.

And speaking yesterday, Don Malone gave a number of signs that more open warfare was in store for the SingTel subsidiary.

Currently, Malone told journalists in a teleconference, iiNet did a lot of customer swapping with Telstra, and to a certain extent other broadband providers — but not really with cut-rate ISPs like TPG. Optus did have a large market share in fixed broadband, the iiNet chief noted, but the SingTel subsidiary had been “pretty passive” in terms of competing in that arena — due, you writer believes, to its incessant focus on its more profitable mobile operations.

However, Malone noted, there were opportunities opening up to grab some of that Optus gold.

In October or November this year, he said, a process would be finalised which would allow iiNet to more easily transition customers off the Unbundled Local Loop-based services which Optus’ wholesale network uses, and onto iiNet’s own network.

Secondly, as the NBN is rolled out, many Optus customers who have for years clung to their HFC cable connections, bundling them with other Optus services, will for the first time be using fixed broadband infrastructure which is shared with competitive providers, making it significantly easier for them to churn to other companies. Will iiNet pick up quite a few Optus customers during that process? “We’d certainly hope so,” said Malone yesterday.

However, like an ancient ring of power long lost deep among the pebbles of a river, there is also a further prize which could allow iiNet to take on Optus more directly in Australia’s telecommunications sector.

Currently, traditional fixed-line telco players like Internode, iiNet and TPG primarily focus on the ADSL broadband market, due to the prohibitive (for companies of their size) cost of investing in mobile telecommunications around Australia. Where they do dabble in mobile — and for iiNet, this means some 7,000 customers at the moment, such companies have done so through gaining access to Optus’ 3G network through its wholesale division.

Like a jealous lover, Telstra has for its own part horded its ‘precious’ Next G network to itself since the network was constructed in 2005 and 2006, using the infrastructure to steal a next-generation march on its rivals. And that strategy is paying off in spades, with the company’s mobile growth over the past year easily eclipsing that of Optus and its subsidiary Virgin — not to mention Vodafone, which is actually going backward.

However, a recent article published by iTNews exposed the fact that Telstra may soon open up Next G for wholesale access. Mobile Virtual Network Operators using Next G were likely to emerge early in 2012, the article stated. Would iiNet like to resell services on Next G? “Yes, we would be very interested,” said Malone yesterday — noting that like Optus, iiNet’s main struggle now is to get its existing customers to buy more services, with the broadband market being largely saturated.

One of the key problems with Next G — which has fuelled the growth of Optus’ low-cost Virgin brand — is the price. Sure, you get a lot better coverage, reliability and speed if you sign up to buy 3G services from Telstra, but you also pay through the nose for it. Optus has solved this problem by hiving off low-cost customers onto Virgin, and keeping the more high-value customers for itself.

There remains no doubt that like Optus and Virgin, Qantas and Jetstar and Coles and Bi-Lo, Telstra would benefit hugely from having a low-cost brand to sell cut-rate, limited access to Next G through. And there is strong reason to suggest that iiNet could be that brand. iiNet already has all the systems set up to resell mobile services through Telstra the exact same way it already resells fixed broadband services.

In fact, at this stage, iiNet may be coming close to being Telstra’s largest fixed services reseller.

Such a move would obviously benefit Telstra in the short-term, provided there was sufficient differentiation between the services provided through iiNet and the services provided through its own retail division, and given the fact that Telstra is about to rapidly expand the amount of capacity it contains on its network courtesy of its pending LTE upgrade.

One last factor for consideration.

Questions have long swirled around the corporate future of iiNet, given its lack of strong majority investors on its share registry, its strong levels of growth and attractive customer base. With a decent mobile operation tacked on and with the National Broadband Network on the way to demolish any regulatory roadblocks in the way to Telstra further consolidating its power in Australia’s telecommunications landscape, could Telstra eventually see iiNet as a potential acquisition, perhaps in about five years’ time? An acquisition which could become a permanent subsidiary brand, one which would finally redeem Telstra’s awful reputation for woeful customer service?

It’s a long shot, but right now we have no doubt that Telstra’s playing the long game. Its chief executive David Thodey will be on deck for quite a few years more, and you can bet he’s used the eventual ability to start acquiring again in Australia as one benefit resulting from the NBN to sell the entire policy to Telstra’s board.

The hungry beasts of capitalism must be fed fresh meat, and often — or else they will grow stagnant from a lack of injection of new talent.

iiNet, for its own part, clearly knows it is an acquisition target and has been one for some time. With its share price languishing as a result of the mini-GFC which some commentators believe is on its way, this week it announced a largish share buyback which will take a great deal of its stock off the market, and no doubt result in its share price rising to levels which place a more realistic valuation on the company.

No matter the eventual outcome, for our own part we’d love to see iiNet get its hands on Next G. Who wouldn’t be attracted by an offer combining the seductive dark power of Telstra’s flagship mobile phone network with the bright customer service and decent pricing that iiNet’s white knight Michael Malone can deliver? And ultimately, of course, opening up its network would offer for Telstra something which could only be beneficial from the perspective of a dark lord sitting upon his distant throne; the sound of lesser rivals engaging in a vicious pricing fight to the death, far from his seat of power and without any real effort expended on his part.

Sometimes the only way to win the war, is to freely give your “precious” away. The only danger for those who choose to accept the gift, is how deeply in the dark their new master will bind them.

Image credit: iiNet, with a few subtle modifications


    • Hehe cheers — and iiNet leave themselves so open to it, by leaving photos of that actor lying around with transparent backgrounds! >:)

  1. iiNet don’t need to resell Telstra wireless do they? – I thought the ‘fairer’ NBN wholesale resell system should keep all ISP’s deliriously happy.

    • NBN Co will sell wholesale fixed wireless in a select few rural areas. This is completely different to the mobile wireless which Telstra, Optus and Voda sell — and which Telstra has not yet wholesaled.

      • That’s the dilemma Telstra faces, will reselling NBN wireless bolster their bottom line and take revenue away from Next G.

        • I don’t believe so. NBN wireless is for fixed broadband where it is too expensive to install fibre. Telstra’s NextG network is for mobile services that could be used for fixed broadband but the NBN wireless network will not be “mobile”.

          • It was a satirical comment on the state of play in the wireless BB market share in Australia, I should have added :)

  2. A Very Annoying read. sorry. I “get” the LOTR references (and hate the movies/books), but you should have stopped with the LOTR references after the first paragraph, and maybe wrapped it up with another LOTR reference in the final paragragh.

      • The article has a good premise – I think once LTE launches you will see Next G wholesaled quite widely while LTE remains the premium retail only product. Just restrain yourself a little :)

        • Ah yes — it is quite possible that you are right about LTE being the premium and Next G being wholesaled. And I’ll try and drink less coffee when writing from now on :) Unless I’m going for a Hunter S. Thompson-style piece, in which case I’ll drink more …

  3. *An acquisition which could become a permanent subsidiary brand, one which would finally redeem Telstra’s awful reputation for woeful customer service?*


    i see…. Telstra is ranked #1 with corporate brand value of A$9.7bln… and iiNet is nowhere in sight…

    *Who wouldn’t be attracted by an offer combining the seductive dark power of Telstra’s flagship mobile phone network with the bright customer service and decent pricing that iiNet’s white knight Michael Malone can deliver?*

    what’s so “dark” and “evil” about Telstra’s 3G network? it’s all built with shareholders’ capital. in fact, it subsidises the below-cost $16/mth ULLs that parasitic ISPs like iiNet enjoy. what “decent pricing” will iiNet offer relative to Bigpond once the cost advantage of “unbundled access” is eradicated under the NBN?

    *could Telstra eventually see iiNet as a potential acquisition, perhaps in about five years’ time?*

    why bother? just churn ’em over. in five years’ time? in five years’ time, the China commodities and Aussie property twin bubbles will have gone *POP*…. (NBNco will have long ceased to exist).. and the last thing on politicians and voters’ minds will be “fast internet”.

    • >impying he was talking about brand value and not customer service. Which is terrible, hence the investigation into telco’s by the watch dog.

      >implying the NBN is bad. You must be a Liberal. Im surprised you worked out how to get on the internet, good sir.

      • *impying he was talking about brand value*

        which he was: “An acquisition which could become a permanent subsidiary brand”

        *hence the investigation into telco’s by the watch dog.*

        and other ISPs have no TIO customer complaints? LOL

        *Im surprised you worked out how to get on the internet, good sir.*

        i’m suprised you worked out how to turn on your computer.

        see how easy it is to troll?

  4. If you’re going to post something that long and shit at least make it informative. Which fucking “North” are you referring to? Could be Christmas Island for all we know.

  5. Maybe iiNet are that secret partner that another another Perth-based ISP are using to roll out a national TD-LTE 100mbps wireless network?

  6. Interesting, but if Telstra were to acquire iiNet, they could hardly position iiNet as the premium brand without diminishing the Telstra brand which is very tarnished especially from a customer service view point.

  7. There two major flaws with this article:
    1) There is no way Telstra would be allow to buy iiNet, short of Telstra losing massive market share of the fixed line internet or phone services when the NBN Co rollout progresses. Telstra has over 50% retail market share of the fixed line internet services and would not be allowed to buy the number 3 (iiNet).
    2) Telstra has no need to resell its mobile phone network. At the moment it cannot build out the infrastructure fast enough to meet the current demand. I can’t see that situation changing even with LTE. If Telstra improves their mobile network further it will only attract more customers from Optus and Vodafone networks which are struggling even more under their loads at the moment. If Telstra does end up with excess capacity all they need to do is lower their prices slightly and the excess capacity will be gone in no time. Why would they let go any of their most profitable and strongest services?

    • Mind you in terms of technology, LTE rapes 3G in regards to congestion management on wireless networks

      Whether it will make enough of a difference, and whether enough people will actually buy new handsets with 4G to use the LTE, is another story altogether

  8. IINET would be the perfect acquisition for Telstra. Their service is about as bad. Being in the industry in WA I deal with all the ISPs at some point. Westnet has dropped in service quality since being acquired by IINET and interestingly Amnet (division of Amcom) has risen dramatically in the service rankings from this engineer’s point of view.

      • True. I may have been a bit harsh, but it is a long way down from just OK. It seems that they are at a size now where the service staff to client ratio is impossible to maintain to achieve truly good support. When this happens, money gets invested into marketing to try to paint a glossy coat of the rot beneath. The old “nobody else has this problem”, or “we are sorry we cut off your business critical system because of our administrative error, but it will be 24 hours before we can restore your service” becomes rife. The company gets to a critical mass and it becomes cheaper to use deals and marketing hype to get new customers in to replace the ones exiting than it does to keep the loyal customers.

        This happens with Telstra, and a lot of the private health funds. Instead of rewarding loyalty, they induce people to leave their competitors with big introductory offers. The service sucks, but people love a bargain. Unfortunately the people who just want a fair deal and reward for loyalty are forgotten.

        The problem with Telstra buying the new “number 2” is that yet another large competitor disappears, which takes away another chunk of cooperative bargaining power and this can only be bad for service.

        End of rant. :)

        • Hmm perhaps, but I have only had good experiences with iiNet’s customer service. I agree with your overall comments about how companies tend to trend tho, and I agree it would be bad if a competitor such as iiNet disappeared from the market.

        • Hmm perhaps, but I have only had good experiences with iiNet’s customer service. I agree with your overall comments about how companies tend to trend tho, and I agree it would be bad if a competitor such as iiNet disappeared from the market.

        • Hmm perhaps, but I have only had good experiences with iiNet’s customer service. I agree with your overall comments about how companies tend to trend tho, and I agree it would be bad if a competitor such as iiNet disappeared from the market.

  9. What an unreadable load of bilge. Renai needs to learn how to write to keep an audience interested. Either that or get a decent editor in there

  10. I don’t think telstra should wholesale there network there network would end up being another optus and vodafone call dropouts and data dropouts less then every five minutes like with my experience with optus

  11. Telstra shouldn’t get iinet it would be like optus all over again and Telstra should switch off gsm and use the 900 mhz for umts to help the 850 mhz in busy times when vodafone takes over the 2.1 ghz umts and Australia doesn’t need gsm in majer cities because it isn’t used anymore with everyone using smart phones and these little phone shops that don’t connect phones should stop selling gsm phones and the government should do with gsm like they did with analogue network with a date to switch off gsm on all networks and get full use of the 900 mhz for umts and i have spoken about this before about gsm in australia and if Japan did it Australia can as well. and LTE should start getting 2.6 ghz with 1.8 ghz then when analog tv gets switched off in the 700 mhz Australia should start getting some very good LTE networks

Comments are closed.