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  • Blog, Telecommunications - Written by on Thursday, April 24, 2014 14:00 - 19 Comments

    iiNet to splurge $350m on content, media


    blog Over-the-top plays have not always gone well for Australia’s telcos and Internet service providers. While the sector’s big players — Telstra, Optus, TPG, iiNet and Vodafone — have proved themselves able at selling telecommunications services, in most cases they have also found it hard to make money from content or services sold over the top of their telco packages. A notable exception would be Telstra’s joint venture relationship with Foxtel, which has proven quite lucrative for the pair. But this doesn’t appear to daunt iiNet, which tells the Financial Review this week that it has a war chest for just this purpose. The newspaper reports (we recommend you click here for the full article):

    “iiNet chairman Michael Smith says the Perth company will use a $350 million war chest to make media and internet acquisitions as part of an “aggressive” campaign to avoid becoming a so-called “dumb-pipe” broadband provider.”

    I’ve written a great deal about this issue previously, most of it negative. For example, in May 2012, as Telstra, Optus and iiNet were gearing up to conduct further content plays, I wrote a piece entitled Reality check: ISPs do not understand content. Some sample paragraphs from the piece:

    “Over the past few weeks, an old dream has begun to resurface strongly in the ongoing conversation around the future of Australia’s telecommunications industry. In this dream, ISPs and telcos are able to diversity beyond their roots providing telecommunications services such as broadband and telephony to customers. Under this so-called ‘triple-play’ vision, ISPs would add services further up the networking stack, providing video services such as films and television episodes on top of their network infrastructure.

    But providing content isn’t about getting a network right and bundling content onto it. It’s about making that content available wherever a customer wants it, in whatever format they want it; no matter what underlying network may deliver that content. The birth of the Internet has ensured that content has become disaggregated from the network layer that delivers it; and very few customers want to go back to the bad old days where the two are tied irrevocably together, as they are with Foxtel.

    Now, I don’t want to argue that the content industry is getting this right either. It has been exhaustively documented right now that Australians are getting a rough deal when it comes to obtaining TV and film content on-line, on-demand and in a timely and affordable manner. But the answer to that problem is not going to come from Australia’s ISP industry.

    As the US and UK have also exhaustively demonstrated with companies like Netflix, Apple and Amazon, the solution to that problem will come from a new category of companies which sit in the middle between content owners and consumers, with their service to be provided on top of telecommunications networks, but with no need for an explicit relationship with the providers of those networks”

    The bottom line is that ISPs such as iiNet have come to prominence by focusing on what they do best — providing better broadband access — and that taking any steps beyond that nice little revenue stream is risky for them, due to the basic technological nature of the Internet as a platform which disaggregates content from carriage. Could iiNet succeed at its new strategy? Of course it could. But personally I am not confident about that just yet — not confident at all.

    Image credit: Dr Stephen Dann, Creative Commons

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    1. GongGav
      Posted 24/04/2014 at 2:15 pm | Permalink | Reply

      If you bundle packages to your monthly ISP bill, it can work. Bundle HBO, Hulu, Netflix, and the content alone would drive enough interest to make it viable.

      Bundle isolated stuff that nobody seriously considers (ie, most IPTV, specific language channels) and its too specific to be of benefit.

      Hopefully, what iiNet is wanting to do is the first option, and become a competitor somewhat to Foxtel.

      Even if they just mimic Foxtel’s packages themselves it wouldnt be a bad thing – stream Showcase for a tenner a month, or the sports package, Discovery channels, music channels, or kids channels. Give an avenue separate of the $50 for basic plus extras mentality of Foxtel, and you start to build coverage that people want.

      I know I’d consider their $90/month (or whatever it is) plus $10 per package and I’m sure Foxtel would be happy to come to some sort of arrangement….

    2. Brad Cann
      Posted 24/04/2014 at 3:06 pm | Permalink | Reply

      iinet and other “Content” if you can call it that need to stream “Content” that people want at a price point they are willing to pay. I now subscribe to the Big 2 in America Via DNS relocation and IINET would need to come close to matching not only their price but their content, otherwise it will fail just as bad as FetchTV has.

      I’m sure there will be some that say FetchTV hasn’t failed, but I bet there are more on hulu and Netflix then there are on fetchtv in Australia.

    3. Brad Cann
      Posted 24/04/2014 at 3:14 pm | Permalink | Reply

      my previous spend with Foxtel was $102 per month for 1 * hd box and one SD box and a few options. Now I pay $23 per month and can stream anywhere on any device in my house and assuming my DSL connection (~17Mbit) can stand it 3 channels at a time.

    4. Morrissey
      Posted 24/04/2014 at 3:51 pm | Permalink | Reply

      In the long run if everyone changes to IPTV, and only ISPs are able to use multicast then perhaps they have a role in streaming live events, otherwise if everyone is streaming a 8K grand final, this would put a lot of strain on the network.

      • Posted 24/04/2014 at 4:31 pm | Permalink | Reply

        Well, if FTTN wins out, nobody will have the speeds to be streaming 4k or 8k streams anyway…. So it likely wont matter.

        • Morrissey
          Posted 24/04/2014 at 6:36 pm | Permalink | Reply

          Depends on the bitrate, Netflix and YouTubes 4K streams are around 20Mbps, which would be possible with almost everyone on FTTN. As for 8K I have not seen any example of companies streaming it yet.

          But really that is not the point, whatever the end user speed there is always statistical multiplexing across residential backhaul, so whatever the final speed is a majority of people using a large fraction of their bandwidth can cause network problems, problems that can largely be alleviated with multicast if they are all streaming a live event.

          • Joey
            Posted 24/04/2014 at 7:43 pm | Permalink | Reply

            Considering at the moment they cannot even guarantee speeds of 25Mbps via FTTN by using terms such as “25Mbps capable” rather than a “minimum”, 20Mbps itself seems like a stretch. And I do not see how they plan to improve that 25Mbps capability to a guaranteed 50Mbps by 2019 on the exact same copper that is limiting it now.

            I wonder if congestion that is why foxtel have high demand content such as Game of Thrones as 720p.

            Now there’s food for thought.

            • Morrissey
              Posted 24/04/2014 at 10:54 pm | Permalink | Reply

              I was hoping to avoid an NBN discussion. But I highly doubt 20Mbps will be a stretch for most FTTN customers. I am quite confident that 80%+ of FTTN customers will have 20Mbps+, given ADSL can already achieve this for most lines up to about 1km.

              Faster speeds can be achieved by deploying mini nodes closer to the home serviced by the main node. This is all entirely possible, the question is of course why do it when you could just do FTTP in the first place.

              “I wonder if congestion that is why foxtel have high demand content such as Game of Thrones as 720p.
              Now there’s food for thought.”

              I don’t think people are switching to Foxtel because of slow internet just yet. But if Foxtel Go becomes the norm not the exception then we could see serious congestion during major live events. However solutions already exist if you have deep access to the ISPs infrastructure. Everyone cries net neutrality but there is something to be said for allowing Foxtel and others to have special privileges.

              • John
                Posted 26/04/2014 at 6:47 am | Permalink | Reply

                Sure you can get 25mbps out of FTTN, heck you can get 100mbps, the question is how many nodes do you need and at what cost.

                Taking the Strategic Review figures at face value, $41bn for “up to” 25/1mbps for FTTN MTM (before even buying the Telstra CAN and HFC networks), whilst Scenario 2 FTTP is just $15bn more ($56bn) to make available 1000/400Mbps for all.

                The big questions is, how much will it cost to upgrade the former to the speeds of the latter? If you look at the VDSL speed/distance charts you will note that for 100mbps speeds you need to reduce loop lengths to sub 200m from 800m for 25mbps. Draw an 800m radius circle and now fill it with 200m radius circles. Notice the exponential increase in the number of nodes? Now think of the exponential increase in CAPEX and OPEX. What happens when you want to upgrade to GFast with sub 100m loops for gigabit speeds?

                FTTP was never about todays needs, it was about the next 50 years. $41bn for 10 years or $56bn for 50 years – pretty obvious choice.

                • Morrissey
                  Posted 26/04/2014 at 3:54 pm | Permalink | Reply

                  Sure, I don’t disagree.

          • thenk
            Posted 25/04/2014 at 1:32 am | Permalink | Reply

            Sure, 20mbps might be enough to do a 4k stream, but on copper speeds, getting 20mbps upstream is a stretch at best.

            • Morrissey
              Posted 25/04/2014 at 6:08 am | Permalink | Reply

              I don’t disagree, nor do I understand the relevance to my comment.

    5. Daniel
      Posted 24/04/2014 at 5:59 pm | Permalink | Reply

      When will these ISPs learn. Content IS NOT King. We don’t want to pay for your “triple play” we don’t care about your other services. We can get them far cheaper from the US. We just want the internet we pay you too much for.

      Forget trying to “upsell” us on a more expensive product, We don’t care about your bottom line, only our own!

    6. Adam Nelson
      Posted 25/04/2014 at 8:33 pm | Permalink | Reply

      How predictable!

      Someone should give me a job at IINET because seems too easy to predict what they will do next. Copy what others do rather then innovate the market!!

    7. dave
      Posted 27/04/2014 at 2:31 pm | Permalink | Reply

      If you can’t wrest top tier sport off Foxtel, then give up. If the NBN was going ahead instead of the CBN, I’d say give up regardless. People don’t want content from their ISP. That simple.

    8. 1984
      Posted 28/04/2014 at 12:14 pm | Permalink | Reply

      Why iiNet is held up as some sort of industry leader is beyond me.

      iiNet’s size has nothing to do with organic growth and everything to do with its ability to buy fairly cheaply (though not in every case) various competitors.

      The problem now for iiNet is apart from M2 and Exetel there really ain’t anyone else in the market to buy. Plus they wouldn’t want to touch M2’s customers (i.e. Dodo) with a ten foot pole consider the APRU for those customers is no where near that of their current customer base and, and the biggest issue of all, the contention ratio for the Dodo customers is so ridicilious that buying them and matching their contention to iiNet’s standard (which ain’t great either) would instantly destroy any margin those customers make.

      The same problem applies to TPG and their unlimited deals. Imagine trying to intergrate 200,000 unlimited voice & data customers, with much bigger quota’s, but conversely contention ratio’s that would make you laugh.

      The idea that iiNet innovates is a joke. About 14 years ago when iiNet moved from the west coast to the East cost and started offering services there was a big movement in the “techy” world.

      The reason was because their contention ratios were far smaller. Their backhaul was under utilised and those technically inclined knew. Apart from that they were inoffensive and cleverly had a program that provided discounts for every sign up you bought them.

      So as a techie it wasn’t a big deal to sign up my friends and family to iiNet in return for some discount on my bill.

      Plus and probably the most innovative thing they ever did, was they pre-setup their modems with the customers user/pass.

      This meant that it was plug and play, something most people could do (Grandma aside).

      iiNet will be swallowed. If the best they can come up with is $350m to defend themselves from a hostile takeover by TPG then they’re dreamin.

      With TPG controlling a significant wholesale entity, AAPT Wholesale, plus the gang of four voice peering arrangement TPG will dominate the market. The fact TPG is the only organically growing ISP out there (of note) should should be a big sign for buying their shares.

      Not to mention the massive amount of cash they’ll make selling their FTTB boondoggle to the NBN for 20x what it cost them.

      • GongGav
        Posted 29/04/2014 at 11:42 am | Permalink | Reply

        Interesting comments, and as things stand, I cant say I disagree. Not sure they apply to a post FttX world though, where contention to profit is going to be a pretty fixed ratio regardless of the customers history. Right now, yes they probably lose their profit margin if either buy M2 or Exetel, but thinking 5-10 years from now, probably not.

        And thats when they need to plan for. The ADSL issues that would impact their profits are going to disappear very soon, and if they dont plan for that and expand now, post FttX there wont be any benefit to selling for M2 and Exetel, as they will all be on the same margins, or near enough. Everyone will make their $10 per customer.

        Variation will come down to what extras are on offer, and what the companies think they can screw out of their customers. Not connection speed.

    9. Former Telstra Wholesale Employee
      Posted 29/04/2014 at 8:12 am | Permalink | Reply

      So my question to you all is this.

      Would you want cheaper plans and more quota from iiNet but with all their employees based from overseas callcentres or would you be willing to pay more and keep the jobs in Australia?

      When I was in TWS, our team were the ones who made it difficult for RSP’s like iiNet/TPG/Exetel/Internode to make a profit by making the wholesale price quite unreasonable; and despite what the ACMA says, that price has only ever decreased slightly. The retail margins for RSP’s on ULL/SSS/L2/PSTN/SHDSL services is next to nothing. How these RSP’s make money, I will never know but the major players here will always be Optus, Telstra and to an extent…TPG.

      They are the smart ones who use all offshore contractors instead of keeping jobs in Australia like iiNet does. How iiNet makes a profit with Australian based callcentres is beyond me.

      Content from Fox will never make it to any RSP. FetchTV is dying. There is next to no content and because it is based on your sync speeds, the uptake has been slow and non-profitable. Adding content for IPTV subscribers is just wasting further money when there are much better services like Netflix out there.

      The biggest problem we have now with these big three is that the offshore contractors are on-selling your account details to telemarketers.

      • 1984
        Posted 29/04/2014 at 8:13 pm | Permalink | Reply

        ULL is quite profitable. I’d disagree that you can’t make money on it. Sure on SSS and L2TP there isn’t anything in it especially because you have to use Telstra transit up and until the AGVC.

        With the collapse of wholesale bandwidth margins have improved. As far as I know its around $10-20 per mbps for gbps sized orders.

        Plus, and what is particularly disgusts is a large amount of traffic comes from Akamai peering which the carrier/ISP doesn’t pay anything but $2-3k a month for the port/interconnect. That thing is the source of a massive amount of traffic that they don’t pay anything for.

        RE Telstra though. I have to love, after everyone had plowed hundreds of millions of CAPEX into DSLAM roll outs, doing the painful software upgrades to ADSL2 that the day the market started selling ADSL2 Telstra all of a sudden turned on ADSL2 (after you guys had been saying it wasn’t avaliable) and basically destroying all of that investment in one hit.

        The outrage as the CEO’s of several ISPs whinged to the press was beautiful. Really this just about who makes a stupid amount of money. This was never about providing Australia with leading edge telecommunications.

        Re your comment about jobs, iiNet makes money in Australia by paying the call centre staff $34k and team managers $42k. I knew a centre manager on $55k. He had like 30-40 staff! It was a fricken joke.

        iiNet were hands down the worst employer I ever had – they even beat the guys who stole my super.

        They outright lied about site locations (some were outright dangerous). They lied about career paths (if your not in Perth you have no career) they loaded us up with work and when it ran out they refused to make us redundant. They claimed the work wasn’t in our contract description and that we had volunteered to do it!

        As they digest each of their acquisitions they screw staff who earn higher then the slaves in Perth. They force them out through an arsenal of methods. In my last six months of employment I watched several seasons of Top Gear. They didn’t care. They were just waiting for me to quit.

        The only way to get ahead was to move to the wastelands of Perth, for a pittance and then grovel to MM. MM’s ego was enormous and the cult he cultivated around him was sickening. The credit card on the bar, the tours through the offices. The leader!

        He couldn’t help himself, always was right, never wrong. I don’t think anyone had the balls to tell him the truth. I argued with him a few times about some customer work. It didn’t matter how right you were he had to show off his elite hacking skills coz you know he made Rumba (a piece of crap they should have replaced with hyperbaric or Kenan years ago – but their too cheap and nasty to do that).

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