blog Many telecoms market watchers, concerned that the NBN’s cost dynamics will make being a small retail service provider (RSP) untenable and kill diversity in Australia’s Internet market, have let out sighs of consternation as steady consolidation in the RSP market took hold. According to a report in today’s Australian Financial Review, (get the full story here), Australia’s market recently dodged a potential merger that would have created an NBN-era telecommunications behemoth.
Under mooted ‘merger of equals’ arrangements considered in late 2012, M2 Telecommunications – whose recent acquisitions include $192.4m spent on Primus Telecom, and $230m on Eftel and Dodo this year – would join top-tier ISP iiNet, which spent $105m to snatch up popular ISP Internode in 2011. Combining the two successful companies would have created a new RSP with around 1.5m customers – but, as the Fin explains, the deal never panned out:
A combination of the two companies would benefit from increased scale and would carry strategic rationale: iiNet has historically focused mainly on the consumer market, while M2’s domain has traditionally been among SMEs. Sources said that a lack of obvious synergies was one reason why the talks were abandoned. However, they said strategic discussions could be revisited if M2 shows progress on the integration of its recent acquisitions…
Even though the deal didn’t eventuate, the fact that it was discussed at all confirms what consolidation-haters have innately sensed for some time: the NBN environment has telcos thinking that size most definitely is important, and that they’ll need to bulk up their product offerings and service capabilities to effectively take advantage of the NBN’s opportunities. Whether this is good for the market – and for customers – remains to be seen, but the way things are going, it’s most likely a harbinger of things to come.
Image credits: Coccorella atrata, public domain; Artinge, CC BY-SA 3.0
They need business services
Business services = Profit
Having domestic services is bonus but doesn’t make as much as business level service would
I could speculate this one of the reason why Internode was attractive fish because well known to have alot business, corporate and government client list.
Simon Hackett first highlighted this issue back in December 2010 stating that:
“This large number of points of interconnect will, therefore, drive the industry toward having a smaller number of bigger players, rather than a larger number of smaller players, as the overheads of operating (and ramping up to survive all the way to that terminal size) in 120 POI’s may be too much for very small players to afford.
Internode is large enough to do this, but I am a bit concerned for anyone who is much smaller than we are.”
http://blog.internode.on.net/2010/12/19/nbn-points-of-interconnect-and-the-future-of-competition/
Turns out that Internode were not large enough. Based on Simon’s estimate we will continue to see consolidation towards ~5 RSPs who are directly connected to the NBN, plus some other RSPs who resell access.
The ACCC caving in to the likes of Pipe networks has really done a lot of damage. It stops ISPs agregating CVC over larger customer volumes and will also see things like multicat TV cost more. Some times bean counters should just leave tech the f*** alone. I have seen so many projects screwed because of them over the years.
It’s the death of the corner milk bar all over again, really. Commercial reality vs idealistic reality.
The logical follow-up to this is: is this a bad thing, a good thing, or just an inevitable thing – like death, taxes, and yet another season of Keeping Up With the Kardashians?
is this a bad thing, a good thing, or just an inevitable thing
at the moment, i would say that it is just a thing.
time will tell if it’s good or bad.
i can still see a place in the market for the smaller players.
local RSP’s servicing local customers.
if you get enough of the smaller players you could even end up with a nationwide co-op or even a franchise system.
While tempting, it’s hard to really pin consolidation on the NBN. The industry has gone from 1,000s of dialup ISPs to 100s of DSL ISPs to may 10 NBN ISPs. Much of the consolidation occurring before the announcement of the NBN.
All emergent industries – particularly capital intensive ones – go thru this sort of consolidation. Just ask automobile companies and airplan manufacturers and Telcos (there were 100s in the very early days). Why does anyone think the ISP industry might be different?
In particular note that the same ISP consolidation has occurred in the US and that market certainly lacks any government intervention of consequence.
All you can say about the NBN is that it might have accelerated consolidation, but saying it is the primary cause ignores too much history.
I dispute the fact that we must deflate the pool of ISP to something which makes them more manageable and profitable
What will happen is you have two services from one company.
Ones a Telstra. Best and Quality ISP
Second type is your Dodo’s. ISP run by low costs and profits
Similar tier package to how your airlines operate and slowly the industry will shape in this way.
However a problem does exist today where companies are more focusing on being profitable rather than investigating ways to reinvent how products and services are delivered and presented, which could truly disrupt the ISP market
My first ISP came to the door each month to collect my subscription. Times have changed.
I paid a one off fee for my first “ISP” Zikzak. A four line BBS with a 9600 baud modem connected to the owners uni.
LOL, Zikzak still has a home page: http://www.zikzak.net/
He stopped once he got too busy with his PHD and it says access was $30 a half year. I can only ever remember paying once. After that I just used my Playnet account. I was an admin on playnet so could log in slip and access the internet by then.
The choice to increase the POI effectively sounded the death knoll for broader ISP competition; by doing so large operators such as Telstra, PIPE, etc have a natural advantage.
There was always, I suspect, and expectation that scale would be a deciding factor, but the above ruling by ACCC effectively ensured this outcome.
Turnbull appears to be courting NBNco (despite showing a particularly vulgar joy in wanting Quigley’s head on a pike) which will only reinforce the above outcome.
ISPs will scale in order to compete against juggernauts such as Telstra, or become RSPs of.
It’s interesting to see Turnbull’s reaction to people who disagree with him, he is at them sometimes before they can get two words out of their mouth. His reaction to Quigley seems similar. Turnbull seems like a petulant child and cannot take criticism.
We have the ACCC to blame for the number of POI’s. NBNCo and the government never planned 120, they were expecting far far less.
But the ACCC pushed its weight and basically said, no, we want 120.
ACCC chose to back requests from Telstra (and PIPE networks?) to not have their investments “stranded”; it did this with, apparently, the full understanding (there were quite a few submissions over this, if I recall) that it would induce a scale requirement to cover the (I beleive?) 120 POI.
It had two options to balance; either reduce POI and have a battle with Telstra, et-all or allow them to remain and induce a market consolidation as a flow on. It was never going to win, either way.
If you force scale, the inevitable outcome is the market will respond. It has to.
Really, if ACCC end up getting bent out of shape if competition is reduced to ~3-4 ISPs (with the rest being RSPs) it can only look at it’s own regulatory and competition related decisions.
Turnbull braying at the loss of competition, would be well advised to remember his solution will end up doing the EXACT same thing. Those POIs won’t magically go away with Copper, given it’s a last mile change.
Funny how he’s suddenly stopped that particular rhetoric. Indeed this is why the (ridiculously miscalculated) cost of fibre is his only card left to play, pretty much everything else (delays, costs, etc) are a give-in for NBN 2.0, The Coppering.
NBN 2.0, The Coppering
NBN 2.0: Copper Harder?
It also really isn’t that different to what we have now with a couple of large ISP buying last mile access(or already have it) and the rest using aggregation provider in most cases Telstra. The big difference is the large ISP will stop having to buy their last mile access from one of their competitors.
> It also really isn’t that different to what we have now with a couple of large ISP buying last mile access(or already have it) and the rest using aggregation provider in most cases Telstra. The big difference is the large ISP will stop having to buy their last mile access from one of their competitors.
The biggest change in the ISP market in the past decade was Internode (followed by others) installing DSLAMs in exchanges and providing residential broadband plans with uncapped ADSL2+ speeds. Without being able to directly connect to the copper, Internode would have been unable to do this and we would likely still be under a very similar model to that proposed for NBNCo where a single company controls all the access.
Noting that, of course, NBNco is a wholesale-only service supplier. It’s a key difference.
The situation after all is said and done really won’t be much different to what it is now.
That is – there will be a relatively small number of ISPs (RSPs) who buy all of their tails from NBNCo directly at the 120 POIs.
There will be a larger number of ISPs who buy some tails off the NBNCo directly at a profitable subset of the POIs, and some off an aggregator for the rest of the POIs.
There will be an even larger number who buy all their tails off an aggregator covering all 120 POIs.
This is what happens now with buying L2IG tails off Telstra Wholesale, versus buying them off an aggregator. Yes, there might be hundreds of ISPs right now, but don’t fool yourself that they are all buying direct from the last mile provider (TW).
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