blog One interesting view on iiNet’s likely acquisition of TransACT has come today from maverick (we normally describe him as ‘rogue) analyst Paul Budde, who says that not only does the sale make sense, but more such buyouts should take place. Budde told the ABC:
“One of the things is that absolutely more consolidation is needed in the market. Even this possibility of TransACT and iiNet merging will not be enough, we will see more.”
Budde doesn’t completely explain his comment in the ABC story, which is distinguished for his brevity. But I’m sure his argument would go that true competition emerges when ISPs get enough scale to challenge the incumbents in the sector — Telstra and Optus. It’s the same argument the ACCC used when it allowed the merger of Hutchison and 3 Mobile.
Personally, as I wrote earlier on today, I disagree strongly with Budde. A market with more players is a market with stronger competition. But everyone’s entitled to their view. What do you think of Budde’s?
Image credit: BuddeComm
I dont know that having lots of little ISPs is the way to go. These guys will typically only be regional, and dont challenge the bigger players, so provide very very little in the way of comepetitive pressure. There can be a good amount of competition when there are roughly 4 or more players in the market. I think this is about where the ISP sector will settle.
It should also be noted that other service providers, as opposed to Internet service providers which we have today, may enter the market and provide new competition. It has been rumoured for example that electricity companies may expand their offering on the NBN and bundle electricity with phone/internet.
Industry consolidation can really only be seen a a good thing, especially in the ISP market where there are plenty of providers who have become less and less interested developing new services and more interested in sitting back, letting the money roll in while waiting for an attractive exit strategy.
I agree with Paul Budde in principle that there should be more consolidation as it is healthy in the longer term. It’s basically a good ‘house cleaning’ which the industry desperately needs. Once the smaller providers are gobbled up, it then becomes more attractive longer term for new players to enter the market with new business models designed to take on the likes of iiNet, Optus, Telstra etc. This is where market niche’s are carved out and newer providers are able to build solid businesses based on modern world business models rather than operating in the same way ISP’s have been operating for the last decade+
Renai, I suggest you pull your head in and understand that in order to win in the ISP business you either need critical mass or you need to be a highly profitable smaller provider offering niche and specialized services offering the customer a solid value proposition above and beyond what the competition offers.
To suggest that Paul Budde is a maverick’ or ‘rouge’ analyst only highlights that fact that you really have no idea. Budde is probably one of the most respected telco analysts not only in Australia but globally with many more decades industry experience than yourself.
I agree with Budde here:
1 – Some of the REALLY small ISPs – (and I know of a number with less than 500 users) – simply aren’t going to be able to afford to move into the NBN world on their own. They’ll have to end up re-selling other ISPs with REALLY small margins, or just give up and sell their customers to a bigger provider. One ISP I have particularly in mind – (not going to name names either) – is so scared of spending ANY money on ANYTHING – (including buying second hand routers off eBay!) – that spending anything to deal with the NBN is going to make their heads explode. They have almost zero support – (why pay someone?) – and barely have the staff – (they cost money too) – to even admin and run the network on a day-to-day basis. If having the NBN eliminates these sorts cowboys, all well and good I say.
2 – The larger the “good” ISPs get, the easier it is for them to keep downward pressures on pricing, with generally better wholesale pricing available from upstream providers – (intercap, and international) – as your volumes go up, the ARPU tends to go up – and that helps their overall viability over the medium to long term. Can you imagine the economic damage if one of iiNet, Internode or Optus went belly up, while people scramble to reconnect with other providers?
I do agree with your assertion Renai, that in general, more players is “better” for competition and consumer outcomes, but sometimes some natural attrition can be just as positive for the market.
And that’s the key – in the end, the market will find the balance – and that’s what the NBN is designed to stimulate.
By definition, to be in a consolidating market, we are emerging from a market where there was a lot of smaller competitors. I didn’t see that helping competition much, did you? Telstra continued their heavy handed market dominace (though largely influenced on their unfair vertical integration). The point is that wishing for more smaller players is misguided.
Budde is about the only communications analyst in Australia that I have much respect for. The man is pretty much always right. This perception of him as being ‘rogue’ is ridiculous.
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