NBN policy spurred Internode buyout, says Hackett


news Internode’s inability to gain sufficient scale to compete in a National Broadband Network world was a core reason why he decided to sell the company to rival Internet service provider iiNet, Internode supremo Simon Hackett said this afternoon.

In a media conference held after the $105 million deal was unexpectedly announced this afternoon, Hackett responded to questions about his decision to sell the company by pointing out that he had made a number of public presentations over the past year or so about the difficulty of mid-level ISPs such as Internode competing as Labor’s National Broadband Network was rolled out nationally.

In a landmark speech in March this year, Hackett described the NBN’s pricing model as “insane” for small internet service providers, warning that none will survive their walk through the “valley of death” transition from the current copper network to the fibre future envisioned by the Federal Government.

According to Hackett, the NBN’s pricing model will only be feasible for ISPs with larger than 250,000 customers – which only five retail ISPs in Australia can boast – Telstra, Optus, TPG, iiNet and Internode itself, which will just reach the cut-off mark. At the heart of the problem as Hackett sees it is the number of points of interconnect which the NBN will support — too many for small and medium-sized ISPs to connect to nationally, as well as the cost of trafficking data to each region.

Today, Hackett said Internode, with some 260,000 active services, was “right at the bottom edge” of viability to be a player in an NBN world. “It would be a dangerous thing for us to enter the next era being not quite big enough,” he said.

As part of the larger iiNet group, however, the Internode chief said his company would wind up with a scale three or four times larger than previously. With the Internode acquisition, iiNet will take a clear third position in Australia’s broadband market with some 900,000 services — just behind Optus, which has about a million, and far ahead of the next largest player, TPG.

iiNet chief executive Michael Malone agreed with Hackett that the NBN policy had contributed to the decision. “Scale does matter in that respect,” he said.

Hackett’s comments will also call into question the future of a number of other ISPs still existing in the sector which have smaller customer bases even that it has, with the major ones being Adam Internet, Dodo, Primus and Exetel.

Asked whether he believed those ISPs believed his argument about their inability to compete in an NBN world, Hackett said he believed they all do, “because it’s based on year 12-level mathematics.” The smaller ISPs, he said, would all end up working through telcos producing a service aggregating access to the NBN.

“Bigger is better here,” he said. “The point is that you can stay in the market if you’re smaller, but you’ll be doing it through a mid-tier wholesale aggregator.”

The Internode acquisition is just the latest that iiNet has landed over the past several years. The company has also recently snapped up most of the other mid-tier ISPs in Australia’s broadband market, with names like Netspace, AAPT, TransACT and previously, OzEmail and others having fallen to the company. The steep pace of consolidation in the sector has led to questions about how many ISPs will actually act as retail providers on the NBN infrastructure.

NBN Co has previously addressed Hackett’s criticism of its pricing model several ways. Firstly, the fledgling broadband monopoly has offered its ISP customers a rebate on pricing for the ‘Connectivity Virtual Circuit’ pricing which they buy from it. In August, the company said it planned to “rebate” its charges for the first 150Mbps per month served to ISPs through the CVC connection until there were 30,000 premises passed in what it described as “a connectivity serving area” — which connects to one of its planned 121 points of interconnect.

NBN Co has also made a number of public attempts to further explain its pricing model, going into great detail about why it had chosen the specific mix, as well as publishing an online calculator that allows users to calculate projected wholesale costs for providing services to its planned network. It has also discussed the issue directly with Hackett.

Image credit: NBN Co


  1. “the major ones being Adam Internet, Primus and Adam Internet.” The major non iiBorg ISPs reduced while you were trying to finish that sentence? ;)

  2. Copying and pasting from the other thread:

    The NBN opens out the aggregation market.

    Nextgen Networks for example are ready – (and have announced) – access to all 121 POIs through a single connection to their network – their “NBN Connect” offering.

    So for a small player, instead of the cost of backhaul to dozens – (or all) – of the POIs, they may only require a small number connections – (mainly for redundancy) – to access as many POIs as required.

    Expect similar offerings from the Telstras and Optuses of the world.

    This idea that small players can’t do it is rubbish.


    ISPs who want to control their own destiny with their OWN network – as Simon is quite right about – will need decent cost versus scale ratios to do it properly and nationally.

    • In a landmark speech in March this year, Hackett described the NBN’s pricing model as “insane” for small internet service providers, warning that none will survive their walk through the “valley of death” transition from the current copper network to the fibre future envisioned by the Federal Governmen


      the idea you cant do it is rubbish

      – well that depends how much control you want of the network pushing your bits. Simon has been someone who i see as wanting the most control he can conceivably have over bits – i.e. if it can be pushed over an internode pipe that is the preferred solution, the ability to do Annex- M and so on. using an aggregator is certainly possible for Internode to have done; it would be interesting what the costs-benefit sheet said on doing that.

      but that would have meant divesting network control to a third entity and that isnt just something that Simon seems to prefer – im sure were i in the same shoes id view that as pretty low on the choice list too.

      so for small isps using an aggregator, sure, the idea ‘you cant use one’ is rubbish. for an outfit the size and quality of Internode, the acceptability of such a solution is extremely suspect. horses for courses and all that, and that course does not suit; so a much more palatable merger with iinet solves size issues, and the two are similar enough in views on network standards that the shortcomings of an aggregator are not felt by internode under iinets wing. in a way it really is win win – both get what they want.

  3. “The point is that you can stay in the market if you’re smaller, but you’ll be doing it through a mid-tier wholesale aggregator.”

    how is this any different to the small isp’s in the market currently operating via telstra’s equipment in the exchanges?

    • Think about this:

      If you wanted 100% Australia-wide coverage now, you’d need backhaul – (either your own or aggregated) – to about 5000 exchange locations.

      In NBN land, you need 121 locations – not so bad.

      • Another thing to remember is that NBN wanted a 14 PoI model, it was the ACCC that changed to 121

        • good point peter. One would think that Simon knows this stuff. it was the industry that jumped up and down about it. it appears that only thing that makes simon happy is to do it his way or not do it at all. wonder what he will do if FTTN becomes a reality after the next election and we have a ‘dogs breakfast’ broadband policy.

        • I’d love to see less POIs – but the ACCC is the arbiter, and the arbiter has spoken. 121 is better than approximately 5000 – (the situation now) – and 14 *might* be better again.

          I think the “correct” number is 66 – to match the number of CCAs – (call collection areas) – in the current copper network, and therefore matching much of the existing infrastructure.

          The umpire has made the ruling – we just have to get on with what we’ve got.

  4. In changing the number of POI’s to 121, the ACCC conceded to the influence of the backhaul providers at the expense of some of the RSPs. End of story. Internode is assimilated into the borg. What RSP substitutes will take it’s place?

  5. A few points

    1. where did the shares come from to pay hacket out? not out of malones pot. Perhaps this move is also about blocking TPG hunt for shares. The shares came from somewhere and now Malone has a ally on the board.
    2. all this POI talk is confusing. Most of my customers (from the small to the very large) always did their POA’s state based. So for example ISP X would depend on the layer 2 port and transmission provider to transport their data to their POA, usually at the carriers megapop in that state.

    I still don’t understand why this is any different in the NBN world. the major carriers i.e. AAPT, Telstra, Optus will still aggregrator data from the 121 POI back to geographically logical POAs.

    cost wise I doubt its going to be any more expensive (and its probably going to be cheaper). Like always it comes down to wholesale IP and what the cost will be.

    i’m no longer in the game but last I knew for an unprotected route you’d be up for $100 to $70 a mbps. gotta have dropped by now

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