news Telstra’s controversial move to acquire South Australian ISP Adam Internet would actually increase competition in the state, iiNet chief executive Michael Malone and Internode founder Simon Hackett said yesterday, despite concerns from Adam Internet customers about the deal.

Telstra’s dominant position in Australia’s broadband market, owing to its historical nature as a vertically integrated telecommunications monopoly, has largely prevented it over the past decade from acquiring smaller players in the sector. However, yesterday the telco announced plans to acquire one of the few smaller players left in the Australian market, South Australia’s Adam Internet. The move will effectively consolidate the state’s broadband market into just three players; Telstra, iiNet (which also owns Internode, which had a strong base in the state) and Optus, which has a strong national presence. It’s not clear to what extent Australia’s fourth major player, TPG, has a presence in the state.

However, according to Malone and Hackett, the move shouldn’t be blocked by authorities such as the Australian Competition & Consumer Commission, which does have the power to query the transaction on competition grounds. “I don’t believe it should be blocked. To the contrary, I think this will be great for competition in South Australia,” Malone said in response to an emailed query. And Hackett added: “We wouldn’t seek to block the transaction (even if we were asked, and I don’t especially expect that we will be).”

Hackett said Adam, with its estimated 90,000 broadband customers, didn’t add a great deal of size to “the Telstra empire” in the larger scheme of things (Telstra is estimated to have about 2.6 million ADSL broadband customers). “But I do believe it’ll polarise competition in SA in a good way, because now there is new and clear point of difference between the traditional rivals in South Australia: Internode and Adam,” the Internode founder, who now sits on iiNet’s board, added.

“That new difference is simply that one of them has now gone over to the Empire, and the other is already a strong and active member of the Rebel Alliance :) I’ve always preferred being a rebel – and I’m sure a number of Adam customers are likely to feel the same way at this point! Then again, Telstra obviously haven’t bought Adam in order to leave it alone – I’m sure it’ll change in terms of the nature of its offerings to the market over time as well. Hence there will be a substantial rise in competitive options, and opportunities, in the SA market, and consumers will win.”

As one example of the claimed competition boost, Hackett gave the example of a new broadband offer which Internode released yesterday, which appears to be targeted Adam customers. The “centrepiece” of the deal is the waiving of setup/churn costs and the first three months of broadband charges free on Internode’s $49.95 Easy Broadband Plan (which comes with 200GB of monthly data) on a 24 month contract.

In a separate post on Whirlpool, Hackett also appeared to take a swing at Adam Internet executive Scott Hicks, who, Hackett said, had vowed that the company would not be sold. “I guess the times, they are a-changing …!” wrote Hackett.

“I’ve always seen Internode as being a bit of a Rebel (and in joining forces with iiNet, I’d definitely call us ‘The Rebel Alliance’. We love doing innovative things that contrast us with bigger, and more boring, incumbent players. I think the sale of Adam to Telstra represents a pretty substantial shift in the orientation of Adam. To continue the analogy, its easy to see that change as representing their acquisition by ‘The Empire’ … the very empire that Adam (and Internode) have spent two decades competing against vigorously in the retail market, and differentiating against with great services and pricing.”

In terms of Adam Internet’s customer base, it does not appear from forum postings that the ISP’s customers are planning a mass exodus to other providers, but there is a general suspicion from a number of customers that the ISP’s service levels or general approach may decline under the new Telstra ownership.

“Let’s face it, this (Telstra) is a company that until recent times had a total monopoly on the telecommunications industry in this country and I don’t think they got over losing that monopoly,” wrote one poster on broadband forum Whirlpool. “They won’t be happy until they have gotten rid of all their competitors, so I find the announcement lacks integrity. I will now consider to dump Adam, this is my choice as was their choice to sell to Tel$tra.” Wrote another: “Telstra is evil and Adam has sold outright. It is a real shock actually. Goodbye Adam!”

The assertion by Hackett and Malone that the buyout will increase competition in the South Australian broadband market and drive outcomes for consumers does not appear to be borne out by the past few years of history in Australia’s broadband market.

For example, an extensive analysis of iiNet’s own acquisitions (including OzEmail, Westnet, Netspace, AAPT, TransACT and Internode) published by Delimiter in April this year found broadly that each specific buyout had had at best a mildly negative impact on real-world competition in Australia’s telecommunication sector, while at worst they have removed a strong competitor from the market and removed a solid option from the list of choices of ISP which consumers have enjoyed.

Delimiter’s article at the time stated: “In 2012, why bother buying telecommunications services from companies like Westnet or Netspace? They offer the same plans as iiNet does — if you want real choice, you need to look elsewhere — Telstra, Optus or TPG. And it is far from clear whether major players like TransACT and Internode will go the same way over the mid-term period or not. Certainly a number of Internode customers are currently fearful that the company’s products will be harmonised with those of iiNet eventually. And, given iiNet’s past history with most of its acquisitions, it’s a valid fear.”

“As Australia moves into the world of the National Broadband Network, we can thank iiNet for the fact that only a handful of major players will be providing services over the NBN. If iiNet had not bought the number of ISPs which it has, Australia would have a handful more of nimble, innovative players to provide services over the NBN — companies such as Netspace, Westnet, TransACT and Internode, all of which innovated strongly in the local broadband market before being acquired by iiNet. These companies provided consumers with strong alternatives to iiNet and other ISPs in Australia but have now been consolidated under the one umbrella, reducing real choice for consumers in the market.”

The mitigating factor, according to Delimiter’s analysis, is that iiNet has acted as a very strong competitor towards larger, dominant rivals such as Telstra and Optus. However, this factor does not apply to the Telstra acquisition of Adam Internet.

opinion/analysis
To be honest, I’m not sure why Michael Malone and Simon Hackett wouldn’t want to attempt to block the Telstra acquisition of Adam Internet. It seems like it would be in their best interest to do so; why, after all, would anyone want Telstra to get an even more dominant grasp over Australia’s telecommunications industry at this point? Why wouldn’t every Australian want to keep nimble players like Adam Internet in business, so that they can provide competition and innovation against the market incumbents? Personally, I just don’t get it.

But one thing I do know is that the level of real competition in Australia’s telecommunications sector is diminishing every day at the moment, and that is a bad thing for Australia’s consumers. Adam Internet, as Hackett said yesterday, has been one of the companies keeping Telstra and Optus honest in the South Australian broadband market for the past decade. But now that role is ended – and one more bar to Telstra getting its way whenever it wants to has been removed.

Image credit: Internode, iiNet

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1. Brendan
   Posted 25/10/2012 at 1:19 pm | Permalink | Reply

   “But one thing I do know is that the level of real competition in Australia’s telecommunications sector is diminishing every day at the moment, and that is a bad thing for Australia’s consumers. “

   The cost of the NBNco rollout, is that smaller players have to think long-term survival. That’s the same in pretty much any sector. Telstra is doing what it does best at present; soak up users so they see a financial payoff.

   Telstra also no-longer has it’s monopolistic infrastructure to rely on going forward. So they diversify. It’s not the same company Sol left; Telstra has seen a lot of changes as they wrestle how to become an enterprise post-monopoly.

   And that’s why, perhaps, if I follow Simon’s thinking here, the competition aspect is different. NBNco levels the field considerably; Telstra will always be a dominante player, but if this increases the diversity of service, then that is a good thing, right?

   I have always maintained “choice is good”. More choice, means more options. Which means broader competition.

   I don’t doubt Adam will change; how can it not? But it represents a different market and concept for Telstra, so it will be interesting to see how it plays out.

   The key thing for the NBN to be a good outcome, given it will force consolidation, is a diverse range of options and price points. One hopes this sale effectively is a step towards that.

   • Master_T
     Posted 26/10/2012 at 12:25 pm | Permalink | Reply

     +1. Theres no benefits to be seen here other than Telstra’s NBNCo Payout figure.

2. Douglas
   Posted 25/10/2012 at 1:25 pm | Permalink | Reply

   People are with guys like Adam and Internode because they see the value of being with these types of infrastructure players over Telstra.
   When Telstra take over Adam and screw it up (like they did with Hypermax – maybe they can reuse the old ads with the prawn’s head being chopped off “Only pay for what you need!”), then that’s 90,000 disgruntled users that Internode/iinet can target.
   That’s why Internode/iinet won’t try to block. They will be rubbing their hands with glee!!!
   To see into the future, look no further than the past.

3. mash
   Posted 25/10/2012 at 1:43 pm | Permalink | Reply

   iiNet know that:
   1. Adam customers will hate being migrated to Telstra plans or dealing with Telstra full stop.
   2. They will then all come to iiNet/Internode (and TPG)
   So iiNet will get a ton of new customers for $0 outlay.

   • Karl
     Posted 25/10/2012 at 4:46 pm | Permalink | Reply

     They also don’t want to be seen as hypocritical, given they made a similar acquisition not so long ago.

4. Michael
   Posted 25/10/2012 at 2:36 pm | Permalink | Reply

   At-least SA customers still have good old small ISP NuSkope to offer services !

   We are now the only Adelaide Owned ISP left standing.

   • Stavros Patiniotis
     Posted 26/10/2012 at 12:12 pm | Permalink | Reply

     I beg to differ on that point MIchael. EscapeNet has been providing services out of Adelaide for 17 odd years!

5. NBNChoice
   Posted 25/10/2012 at 3:15 pm | Permalink | Reply

   “I’m not sure why Michael Malone and Simon Hackett wouldn’t want to attempt to block the Telstra acquisition of Adam Internet. ”

   Self Interest. The expectation that Adam is now part of the incumbant, and therefore should be easy to pick away at. Why spend $60mill on a customer base, when you can just let someone else “destory the brand and send the customers packing”.

6. Sam
   Posted 25/10/2012 at 3:51 pm | Permalink | Reply

   I suspect the real reason is that iiNet / Internode haven’t been able to shift users from Adam in the past, so resorting to a kind of scare tactic is being tried:

   “Ooh noo! Don’t sign/stay with Adam JUST IN CASE SOMETHING ACTUALLY CHANGES FOR THE WORSE”

7. martino
   Posted 25/10/2012 at 4:13 pm | Permalink | Reply

   You really need to retire that photo of Simon standing in his back yard gazing off into the distance (towards Perth?).

   Simon also really needs to retire that tie.

8. Jason
   Posted 25/10/2012 at 4:15 pm | Permalink | Reply

   I would have thought that TPG is already larger than Optus, but could be wrong.

   I have met a lot of people that use TPG here in SA (including me).

   Plus TPG are in 32 exchanges in SA, with Optus in 27. TPG have access to more cusotmers here at least.
   (those numbers come from http://www.adsl2exchanges.com.au/viewexchanges.php?Location=SA by manually adding up TPG & Optus exchanges)

9. Michael
   Posted 25/10/2012 at 4:31 pm | Permalink | Reply

   This is just a PR stunt.

   I think the star wars metaphor is interesting though, to be honest i would consider a company whose strategy is buying out and assimilating competition in the australian broadband market (iinet) is pretty close to the galactic empire also!

   Also have to laugh at the normal node fanboys going on about how awesome Internode is above its competition. Iinet is in the business of making isp’s more efficient, they would have never bought out internode if they didn’t think they had the chance to change the company for the better. It’ll be interesting to see how long before internode plans are completely in line with iinet.

   • Michael
     Posted 25/10/2012 at 4:51 pm | Permalink | Reply

     assimilating – A little bit Borg…. (Star Trek)

   • Dave
     Posted 25/10/2012 at 5:45 pm | Permalink | Reply

     Agree with you 110% in relation to the ‘empire” analogy. iiNet are doing the exact same thing and have been for how many years now? Look at the actual tactics being played out and not the numbers involved.
     Why Simon H would make a comparison like that is beyond me. Maybe his mindset is, if you can’t beat’em …join’em…..

   • Austcc
     Posted 25/10/2012 at 6:48 pm | Permalink | Reply

     “they [iiNet] would have never bought out internode if they didn’t think they had the chance to change the company for the better.”

     Actually not necessarily true for the following reasons:
     1. iiNet was weak in SA. They may have purchased Internode to get a larger part of the SA market, both residential and commercial.
     2. Looking at it objectively, it looks more like a merger than an acquisition, albeit a merger of unequal sizes.
     3. So far all the visible changes has been happening on the iiNet side aligning itself to Internode’s practices. Offhand I can think of the abolishing of off-peak and the control of links out of Australia.

     disclaimer – not affiliated with Internote/iiNet other than a residentail customer (and owner of NodePony :))

10. Dave
    Posted 25/10/2012 at 9:08 pm | Permalink | Reply

    Hackett’s opinion is right there with his taste in glasses, delusional. More pertinently it’s self serving. We’ve all been flogged by service providers of any kind to buy into this bilge anymore.

11. Dave
    Posted 25/10/2012 at 9:12 pm | Permalink | Reply

    Dave(me) of 9:08pm is not Dave (bless him too) of 5:45pm. Cheers.

12. djos
    Posted 29/10/2012 at 2:02 pm | Permalink | Reply

    Telstra’s controversial move to acquire South Australian ISP Adam Internet would actually increase competition in the state, iiNet chief executive Michael Malone and Internode founder Simon Hackett said yesterday

    As an Adam customer and former employee I totally agree with this – Adam will now have the financial muscle behind it to go national (already in other states but for Biz customers only) as Telstra’s “Value” Brand (it wont ever be a discount brand like Dodo/TPG imo) and this can only be a good thing for folks outside of SA.

    Interestingly Adam already have the Technical capability to start this expansion as the design of their core network is 1st class with 4 of Cisco’s amazing ASR9000′s at its core with an all-round excellent supporting cast of Cisco network equipment across both of Adam’s DC’s and plenty of dedicated fibre hooking it all together!

    :-)

    • mash
      Posted 29/10/2012 at 3:26 pm | Permalink | Reply

      I don’t want to be disrespectful, but you have to be kidding me. Telstra’s value brand is “Telstra”, supported by one of the largest networks in the country. Why would they spend $ to duplicate a network they already have?
      Telstra purchased Adam to (try) get their customer base. Unfortunately clinical business reality says that any scenario in which Adam is not eventually dismantled is just sad fantasy.

      • djos
        Posted 29/10/2012 at 3:32 pm | Permalink | Reply

        Telstra / BigPond consider themselves to be a premium brand and always have – look it up, they’ve never made a secret of this.

      • djos
        Posted 29/10/2012 at 3:34 pm | Permalink | Reply

        PS, your comments show how little you know about the two companies!

        • mash
          Posted 30/10/2012 at 9:16 am | Permalink | Reply

          Sorry, by value brand, I thought you meant premium brand. Nothing changes, Telstra don’t do other brands full stop. And if they did they sure as hell wont wear the enormous costs of running a second network.

          • djos
            Posted 30/10/2012 at 9:28 am | Permalink | Reply

            They dont need to build a second network, Adams network is only in SA metro and they will use Telstra’s network to reach the rest of the country.

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