news Exetel chief executive John Linton has labelled as “the sheerest nonsense” the claim by Internode chief Simon Hackett that ISPs will need to gain scale to compete when the National Broadband Network is rolled out around Australia.
In the days before Christmas, Hackett said Internode’s inability to gain sufficient scale to compete in an NBN world was a core reason why he decided to sell the company to rival ISP iiNet. 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. By merging with iiNet, Hackett said, Internode would avoid the NBN precipice.
However, in a blog post published several days later (paywalled), Linton — whose company Exetel is smaller than Internode and is one of a handful of second-tier ISPs left in Australia — criticised Hackett’s claim. “The other nonsense talked about the “NBN making it imperative to be very large to compete in the future” is equally the sheerest nonsense,” he wrote. Linton pointed out the NBN had not been built, and it was “anyone’s guess” as to how many years it would take before the network was rolled out, and what industry changes would take place, “when/if there is one”.
Linton’s words echo comments by fellow second-tier ISP Adam Internet, which issued a statement in the wake of the Internode buyout stating that it was confident about its future in the NBN environment, despite Hackett’s claims. A number of mid-tier telcos are planning to offer aggregated NBN services to allow smaller ISPs to offer a national presence in the NBN environment, although the pricing of such options has not yet become clear.
Asked via email before Christmas to comment on the idea that the need to achieve scale under the NBN was a premature concept, given the fact that the Coalition might cancel or substantially modify the policy if it won the next Federal Election, Hackett emphasised the fact that the need to scale up for the NBN was “only one motivating factor” in his company’s buyout. “The industry is consolidating regardless of the NBN, and the deal makes enormous sense for all concerned whether the NBN proceeds, changes form, or even stops. In all those futures, this company group has a bright future.”
In his blog post, Linton wrote that he very much doubted that Internode selling to iiNet was for the reasons publicly stated. “It was simply money, as always; that and the slight fear for the future of residential services and the sheer burden of running an ISP these days … after 18 years of easy times with the last three being an increasing pressure,” he wrote.
Internode and iiNet representatives — using forums such as Whirlpool — have consistently emphasised since the buyout was announced before Christmas that things would be business as usual with the company, with no immediate plans to change Internode’s service offerings or re-align then along the lines of similar acquisitions by iiNet of companies like Netspace and Westnet.
However, Linton wrote that he believed it “went beyond naivete” to suggest that Internode could continue to operate as a separate entity and that no changes would be made at the company. “To more than naively suggest that “look at Westnet” — still operating independently after almost 4 years” is just a laughable lie — as any Westnet employee or customer would attest to,” he added.
“Not that it matters — no-one shells out money to pay for something they don’t intend to change and there is no need to say such a thing.”
In a broader sense, Linton noted that he didn’t see anything changing in Australia’s telecommunications industry as a result of the buyout. “The reality is that Internode was/is a high priced residential ADSL provider with perhaps 3 percent of the residential marketplace being bought by another high-priced supplier with perhaps 10 percent of of the residential marketplace,” he wrote. “What changes? Nothing at all.”
Linton also discounted the possibility that the Internode buyout would affect any possible interest in acquiring iiNet that rival ISP TPG might have. The company recently bought around 7.24 percent of iiNet, but has stated it has no specific intention regarding the company, other than to own the shares as a strategic investment.
“The mumblings about “protecting iiNet from being taken over by TPG” are nonsensical – it can’t possibly affect such a scenario if in fact it exists,” wrote Linton. “Why TPG is buying up iiNet shares suggests that TPG is interested in acquiring iinet but that scenario, if it is correct, has a long way to go and would be of no interest to anyone other than the iiNet directors/senior management who would lose their toys and have to find new jobs.”
With respect to a possible TPG buyout of iiNet, Linton noted in another blog post that he did expect such a transaction to take place before the end of 2012. In his conversation with another party — who has expressed interest in buying Exetel in the past — Linton said: “we both agreed that there was simply no ‘room’ in the Australian marketplace for iiNet as either a standalone entity and that if TPG did take it over it would probably also see TPG’s demise trying to assimilate the over charging/over staffed iiNet in to it’s strangely arranged company.” It appeared that Linton primarily viewed Australia’s telecommunications marketplace in future as continuing to be dominated by existing giants Telstra and Optus — possibly with Foxtel playing a major role as a content player.
And as for his own company? “If I had any ambitions relating to money then now would be a good time to look for a buyer for our small company,” wrote Linton. “But I don’t. I also have no ambitions for ‘Australian market domination’ that, apparently, are at least part of the rationale for some people; those with no understanding of commercial or any other history.”
opinion/analysis
He tends to exaggerate and you can’t always take what he says at face value, but you can always trust John Linton to loudly say what many others in Australia’s telecommunications sector are thinking. And in his blog posts over the past few weeks he has done just that.
I, like Linton, don’t entirely believe the public rhetoric which both iiNet and Internode have been bandying around as the rationale for the Internode buyout, and like Linton I also suspect that it will become clear over the next year or so that Australia’s telecommunications market will continue to be dominated by Telstra and its little brother Optus for the foreseeable future. The clearest sign of this is the mega-deals which NBN Co has already signed with both. I disagree, however, with Linton — as I will further explore in other articles this week — that the acquisition of Internode will have no impact on the sector as a whole. Clearly, it will have a large impact; and I believe one that will be largely negative.
In addition, as Linton noted, the threat that TPG will buy iiNet hangs over the entire sector at the moment. It’s something which iiNet hates talking about. But it’s the biggest issue in our sector at the moment. With iiNet’s recent acquisitions, a TPG buyout of iiNet would likely destroy much of the competition in the sector and cause TPG itself a mega-integration headache.
In short, if you set aside some of the bluster, it’s hard to disagree with much of what Linton is saying here, although I am not quite as cynical as he is about the future of this market.
Image credit: Delimiter
Happy New Year, John…
Agreeing with anything Lintpon says damages your credibility, terribly.
So does commenting anonymously :)
Lulz…
He needs to post anonymously to protect himself from the oppressive regime that exists in this country.
Fight the Power, brother!
Is LintPON the next generation of GPON then? [The Exetel proprietary technology, perhaps?] ;)
LintPON is like GPON except it works like the old party line system, so like GPON everyones the same fibre, but here only one person can be on the internet at a time
And misspelling the guy’s name
Time will tell who was correct in this prediction, and I suspect the winner may be Simon Hackett. On such a large network that the NBN will be, it was necessary that a substantial push from Federal Government coffers was required to build it from scratch in the beginning and I would challenge any one backing the Coalition Policy as to who in the private sector would be prepared to come forward and build it in the first place. Certainly not Telstra. It is reasonable to consider that economies of scale would be required by smaller ISPs’s to add on their own infrastructure and operate it in parallel to their existing adsl network until their last customers had access to the NBN and could be migrated off adsl and that network closed down. Of course, new ISPs would not have that issue as they would be building their customer base from scratch.
Renai has no idea about running an ISP, let alone the inner machinations of iiNet or Internode. Linton is a nobody. It makes me laugh to think that anyone can take either of their thoughts seriously.
Ah, now here’s the real authority. Some anonymous commenter on the internet!
Thanks you for that constructive piece of discussion, Fred!
Feel free to return to insightful News Corp. publications if you don’t want to listen to people who can think for themselves.
None of what’s written in the story or other “guess” comments are contstructive – that’s my point – it’s chinese whispers and mere speculation. People read this crap and may believe it – that’d be sad. None of it’s based on fact. I don’t need your authority to state the obvious – just like you don’t need mine in trying to be one. Keep it rolling policeman.
I agree with Fred
No one cares what John wants. He single handily attempts to destroy his suppliers and is one of the biggest whingers in the industry.
Him, his psychopath/sycophant “Larry” (the worst person I’ve ever had to deal with in my 15 years in Telco) are indicative an internal culture that pushes aggressive, disgusting and rude behaviour.
However lets look past niceties like attitude and instead focus on Johns stellar record:
Osbourne – This was before my time but there is a wealth of information about his crimes against humanity re Osbourne.
OneTel – collapsed. Oh that’s right John’s CLEC sales group sold under cost. I remember seeing John’s “signing bonus” credits, six and seven figure amounts being applied to the sales that he brought on, further entrenching the losses the One-Tel group took on. I wouldn’t say John single handily collapsed OneTel but his behaviour and reckless business decisions were certainly partly responsible. Of course he was given carte blanch because he brought CBA over to One-Tel didn’t he. Google Linton and Industrial Relations and giggle about how he used to invite workers and their families to BBQ where he would publicly (with that classic linton aggression) berate his employees for missing their targets.
Swiftel. – enuff said. WP that gem of business management.
iGreen (aka Apple) – again google. The inside story that never got published though was the Asian bosses had given Linton a bonus scheme based on subscriptions. Of course John took em for they were worth and sold a pure unlimited dial product for $30 or so bucks. Flowcom picked up that mess, which took months to unravel.
John is hardly a visionary or a strategist. I don’t believe he gives a shit about the internet. As far as I can tell he is ruthless business creature. Using Linton to underpin any argument about NBN or the future is pointless in my view. He’ll ride whatever wave that gives him an advantage and will change his opinion whenever it suits him. However the one thing you can be sure that whatever his saying is designed to give himself an advantage in whatever Machiavellian plot he has going.
Completely agree.
In my dealings over the years, he has proven time and time again that he has no capacity for more than a baisc understanding of what is right, and even then he completely ignores it.
Somehow though, he stil seems to be working. Why do people take this guy seriously?
(and yes, I’ve worked in the industry for some time at many levels, and the carry-on from Linton beggers belief. I’m just lucky I’ve never worked for him, just with his various failed endeavours)
I know who I am backing in the changing broadband environment that is the NBN.
In fact this has me rather excited, watching what iiNet and Internode do, I think the NBN is a bit of a warm reboot for the industry. There is opportunity for the courageous to disrupt the industry. I hope this acquisition/merger signals the beginning of that.
internode would never have made it as a first tier rsp in an nbn world, which is what it was hoping to do, and that inability is one of the reasons it was sold.
linton, while pointing out correctly that second tier rsps, like exetel, will still exist under the nbn, entirely misses the context that internode didnt want to be just another second tier nbn rsp, and that scale is required to be a viable first tier nbn rsp.
just because exetel is happy to limit its business model to reselling, doesnt mean that every other isp is also willing to do that.
Oh, I know who is the source of ‘sheerest nonsense’ here, and it isn’t me.
Linton trolls about Internode as a form of marketing.
I don’t retaliate in kind but he just keeps doing it.
The only real issue here is the ‘garbage in, garbage out’ problem that occurs when his trolling gets drawn out from behind his paywall and into the public domain like this.
Thats all I’ll say about it, as it doesn’t dignify further response.
Keep up the good work Hackett,
Very happy internode / iinet / iiwhateverweare customer now :)
Stick it to that stupid Linton guy
That’s pretty rich coming from the guy that wrote the book for the AU ISP industry on trolling the internet for your own political and commercial objectives.
Maybe you don’t retaliate cos it’s true, and you run with the cliched “won’t dignify with a response” line because it’s the mating call of someone who’s been called for exactly what they are.
If you read Simon Hackett’s Internode Blog, he has been commenting on the problems with the NBN for the last 12 months, and been proved accurate with his statements to the point where NBNCo offered concessions during the start-up phase at each POI
.
Hackett seems to be on the right track but Linton goes with the attack mode Linton makes Hannibal Lecter seem charming to be around.
similar to the way, internode troll in copying bigpond with been everywhere van marketing
Oh please all ISP’s have been trolling Bigpond and Telstra its called compeitions Internode decided to have a bit of fun about it…….
Linton is just a pommy bastard who hates Australia and Australians. Do us a favour Linton and bugger off back to that place. If you don’t like the market conditions here you know where the airport is. You whinging pommy bastard.
Headline – Linton disagrees.
Did anything more need to be said? He’s the Tony Abbott of the ISP world…
Could the real reason be that Simon Hackett saw this ultimately as an early retirement ticket?
Yes, he will supposedly remain sort of in charge – everyone knows that bullocks, the board will drive the decisions from this point on
Time and time again people in companies they have built up bail out when a large offer is put in front of them – why wouldn’t you? You can either keep working for another 20+ years or take the money and enjoy it now
iiNet has never allowed any company it has purchased to remain totally isolated and operating on it’s own. I’m with westnet and we have seen a gradual decline in service reliability over the years and the two companies are only distinguishable by name only
Nothing wrong with Simon Hackett’s decision – I’d have taken the money and run as well – all I hope for is that he still stands up and is the voice of reason – but I think even that will eventually fade because unless your on the coalface you quickly loose the ability to stand up for righting the stupid wrongs our government pushes on us
Perhaps the real reason is the one Simon actually stated publicly. Qed.
I suspect that the gentlemen’s agreement between Pat Tapper, John Lindsay and Simon Hackett came in to effect. The one where they agreed, that should Simon and one other reach consensus at the same time to sell out, they would.
Internode are still making money, but not as fast as their competitors. Throw in the NBN and they stand to lose their lucrative government and business contracts as the NBN takes away the advantage of their national network. At least they got that part correct.
If it was floated, or (as promised) allowed staff to buy in to raise capital they’d have a war chest big enough to buffer the NBN transition. But no, Simon would not relinquish control and made the patronising decision that the tax implications for his staff would not warrant a staff share plan.
If it was sold two years ago, he would have gotten a lot more for it. He would have also not burnt through prized staff with his inability to manage or maintain priorities nor chewed through two CIOs who told it like it was. This is a fire sale, pure and simple. Simon’s backed himself into a corner and is now pulling off the second biggest spin job of his life.
Worried, your suspicions and unfounded speculations are just that. Completely wrong, speculative and malicious. I don’t know what fantasy world you live in, and what your information sources are, but they are really, really off.
Perhaps, Anna, you should disclose your stake in Internode?
It’s 50% you know.
Sorry?
Linton makes a claim, everyone immediately believes his outside commentary implicitly, yet assumes Hackett is suspicious? Further, the reason for a lack of scale? NBN won’t happen so it’s irrelevant and what’s wrong with being a reseller anyway.
If you don’t believe Linton has an angle, you’re an idiot. He is playing the “it won’t happen” ball. The assumption being the NBN will die. And his reseller gig will be perfectly safe. Maybe it will.
The NBN is on a lot less shaky ground that as little as 12 months ago.
The amount of vitriol and anger in this choice, driven by a bunch of factors, regarding a buy-out (that I think most people have expected for at least 2-3 years now) followed by unsubstantiated claims is hilarious.
I didn’t think the “whirlpool” effect extended this far out. What happened to delimiter, Renai?
This reminds me of the climate change debate.
Linton. BWAHAHAHAHAHAHAHA……………………………..
“Linton’s words echo comments by fellow second-tier ISP Adam Internet, which issued a statement in the wake of the Internode buyout stating that it was confident about its future in the NBN environment, despite Hackett’s claims.”
Simon Hackett’s claims were always about national ISPs – he has always said that regional ISPs would be able to survive, they just wouldn’t be able to make the leap from regional to national as easily as in the past.
Adam is regional (and reputable) – Exetel is national, so no matter how much weight you give Linton’s claims they are clearly unrelated to Adam’s comments.
Adam’s future is assured and safe *precisely* because they have a one state footprint. Simon’s discussion and concern is about National players, and not State based players.
Yep, that was what I meant – rereading my post, I can see that it wasn’t particularly clear :-)
Linton ? oh him I wonder if he refers to his other name? Basil!
Oh yeah at least Internode, iinet and a few others had the guts to roll out their own DSLAMS what about you Exetel?
Nope none to be seen.
Bear in mind Internode have the majority of Agile DSLAMS in S.A. The S.A. govt I believe have helped Node (in the early days anyway. and probably still did to this day) financially rollout their own equipment and links in around S.A.
I guess when your private and you get a boost financially from your local govt to some degree then it does help you then rollout DSLAMs in other states.
Just look at the number of DSLAMS Node have in S.A. and they aren’t doing too bad for a private company ;)
As someone who currently works in the ISP space (for one of the above mentioned still independent ISP’s), it’s common knowledge that Simon sold out Internode simply because it was too heavily in debt – estimates are to the tune of aprox 80 million dollars and this is why Simon “only” got 105 million for Node.
John Linton is absolutely correct, Simon’s “we’re almost too small to compete on the NBN” was simply a smoke-screen and nothing else!
The facts are it’s cheaper to do business on the NBN than it is to setup in the current environment. Most ISP’s already use companies like NextGen, Amcom or Pipe to connect to Telstra exchanges – this cost wont change much at all. Where it gets much cheaper for ISP’s to setup on the NBN POI’s is the Equipment – if they are using eg NextGen’s aggregation service they dont even have to install their own switch at each POI if they dont want too.
Compare this to setting up ADSL Services in an exchange, you need to install the backhaul plus at least 1 rack and the typical minimum DSLAM install includes about 860 ADSL ports + all the data cabling into the Telstra PSTN Infrastructure – all this will cost an average of $100,000 per exchange!!!!
Honey, just because you’re a janitor at Internode, that does not make you a know-all about Internode’s financial state. Your common knowledge is in the fantasy land and utter crap.
Wow, clearly you failed reading comprehension at school!
“… heavily in debt – estimates are to the tune of approx 80 million dollars …”
$80m??? I have my sceptical face on. Delimiter did a run-down of Internode’s finances in this piece:
http://delimiter.com.au/2011/09/05/internode-up-shit-creek-bullcrap-heres-why/
Total current liabilities, 2010: $15m
Your forgetting Agile, Internodes “network company”, this is where most of the debt is according to my sources.
“Your forgetting Agile, Internodes “network company”, this is where most of the debt is according to my sources.”
Well that changes everything, as we all now comments from “a friend of a friend of a mate who works at a competitor” will, of course, be totally unbiased in every respect.
Please.
I also work for one of the named ISPs. Internode’s debt is less than its assets. And yes, that includes Agile. All debts must be settled prior to completion. The shareholders of Imternode get $105m.
Don’t get me wrong, I’m not a Node hater and I’m not saying that Node was in any financial strife, all I’m saying is don’t believe the propaganda from Simon that he wasn’t big enough to compete on the NBN as setting up at a POI is orders of magnitude cheaper than setting up dslam’s in an exchange.
Setting up POI’s is terribly more expensive than running DSLAM’s. It’s $20M to enter the game and cover the country – before you connect one customer. Internode don’t have that sort of money, nor take that sort of risk. People say that they could have raised it in an IPO. The last two years have been a terrible time in the market. Also, there have been comments about raising equity. That’s very expensive, and hands over control to a large extent to a PE firm who want a 25% IIR after three to five years when they exit.
What twaddle! The nbn is a 10 year build, you connect as the POI’s come online and spread the cost out over many years!
It’s still $20M, and you think this is easy when you might be tight for cash and have small numbers of customers on NBN. When to do get your investment back? You also have sovereign risk to deal with as well. Yeah that’s an easy decision to make (not). DSLAM’s are still running – cost about $100k each and everyone, including Internode, iiNet, Telstra and Optus are making good money from them. In fact, they all would have seen major returns on most of the infrastructure they’ve installed. If they all got replaced tomorrow with POI’s none of these telco’s could be really sad about the money they made from them. Hopefully you’ll get this, otherwise I won’t bother arguing the economics of telco infrastructure.
Derek, a simple and direct question.
When do you think the 121st PoI will serve its first NBN customers on the NBN given the 10 year build?
Cameron, probably about 5 years in to the overall build.
Fred, a dslam install is about $100k for only the first 860 odd ports, it’s about 20k per every 1,000 ports after that. A POI Install is a few grand assuming you are installing your own switch and using an agregation service like NextGen’s. From that moment onwards you are only paying to deliver data to your customers on those POI’s, you never have to add any extra physical ports to service extra customers like you would with dslam technology. In the long run it is cheaper and requires minimal infrastructure at each POI.
Oh and one more thing, DSLAM’s don’t last forever, their life expectancy for most of the electronics is between 5 & 7 years and while hey are modular and fairly say to replace I’d rather have to replace a switch or two at a POI than say $30k worth of dslam modules every 7 years in an exchange!
Derek, two things. You’re right on the costs of the DSLAM’s. Some of Internode and iiNet’s have been in operation for more than seven years. 5-7 years is theoretical. Real O&M costs are minimal each year. I also agree that the equipment at a POI is relatively not expensive. However, getting to POI’s via an aggregator or otherwise is where the real costs are.
I’ll go back to my first point – NBN – lots of money, little direct return, high risk. Easier for Telstra, Optus and iiNet – not for Internode.
Fred, Sorry mate but I used to work for Adam Internet as the Customer Delivery manager and I know for a fact the costs of getting 1Gps Backhaul to a POI are comparable with getting 1Gps Backhaul to an exchange via NextGen (and they arent expensive, on par with Pipe & Amcom) – yes the costs from the NBN are different from what most ISP’s are used to in DSLAM land but still not the deal breaker Simon would have you believe.
After NBN Co made changes giving RSP’s their first 150Mbps per month CVC at each point of interconnect until that particular PoI had passed 30,000 premises, (Each of the 121 PoIs will service between 50,000 and 162,000 premises), this made things even more affordable – how many exchanges do you know of that give ISP’s access to between 50,000-160,000 potential customers? Even if it were possible, to service 50,000 customers on a single exchange, it would cost millions in hardware alone and all duplicated by multiple ISP’s!
Btw, Node is already setup in 201 exchanges, it’s likely that most of those will be POI’s:
http://www.adsl2exchanges.com.au/providerstats.php
Telstra ADSL2+ 2047
Chime (Iinet) 400
TPG 397
Optus 357
Primus 241
Agile (Internode) 201
EFTel 68
Netspace 48
Amcom 37
AdamDirect 34
Aussie Broadband 34
MySoul 27
OnTheNet 8
Derek, do your research.
http://www.accc.gov.au/content/item.phtml?itemId=982823&nodeId=ec02e2c8dd32946494c1249d5193a61d&fn=List%20of%20revised%20initial%20POIs%20to%20the%20NBN%20-%203%20May%202011.pdf
A lot of POI’s will be covered already, and a lot won’t be. The ones that aren’t will be very expensive to get to. Nextgen aren’t even in some of these areas either. Backhaul costs in these areas will be huge.
Nothing more here for me to say – I am not going to debate with you. Ask anyone in the industry what they think it will cost to play in NBN across 121 POI’s. Adam will have it easy if they only service S.A. There’s only about 10 POI’s to.
Fred, NextGen has already built most of the backhaul needed across Aus and are already providing access via their NBN agregation service! Adam use this to connect to Wilunga right now!
http://www.zdnet.com.au/nextgen-finishes-250m-backhaul-roll-out-339328345.htm
Derek – check your story against the list I posted. There’s a lot more POI’s to go.
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