Telstra abandons Adam Internet buyout



news The nation’s largest telco Telstra has abandoned its plans to buy South Australian Internet service provider Adam Internet, with delays caused by the competition regulator’s concerns about the deal having caused its timeframe to have blown out.

Telstra first announced plans to buy Adam in October last year. However, even at that stage Telstra noted that the deal would be subject to approval by the Australian Competition and Consumer Commission, due to Telstra’s already strong position in the fixed-line broadband market, which the Adam Internet acquisition would further boost.

In a joint media release issued this morning, Telstra and Adam Internet confirmed the deal would not go ahead, as it had a contractual end date of 30 June this year.

Telstra Chief Customer Officer Gordon Ballantyne said the ACCC had raised a number of concerns with the acquisition, which Telstra had attempted to address, but in the end had not been able to secure approval from the ACCC by the contractual end date. “We are very disappointed by this outcome. We believe this transaction would have provided real benefit to Australian consumers and would have added new competition into the broadband market,” Ballantyne said.

Executive Chairman of Adam Internet Greg Hicks said it was unfortunate the time frame could not be met. “Adam Internet is disappointed this important condition precedent could not be achieved in a commercially acceptable time frame, and therefore we will no longer be proceeding,” Mr Hicks said.

It had appeared that Telstra was planning to use the Adam Interet acquisition to introduce a new low-cost ISP brand into the Australian broadband market, similar to how Qantas operates its Jetstar brand. However, the plans had caused consternation amongst Telstra’s existng rivals.

iiNet regulatory chief Steve Dalby said last year that Telstra’s rivals needed to be comfortable that Adam wasn’t set up as a marketing vehicle for Telstra which wouldn’t bear the actual costs of competing in the broadband market – especially outside metropolitan areas, where Telstra still has an overwhelming market share in some areas.

And business-focused telco Macquarie Telecom filed a submission with the competition regulator calling for it to block Telstra’s acquisition of Adam Internet on the grounds that it would “further weaken” the already “fragile” state of competition in the nation’s telecommunications market.

When Telstra first announced plans to buy Adam Internet, I wrote the following:

“I am quite surprised that Telstra has put its hat in the ring to pick up Adam Internet. The telco must surely be aware that the ACCC will be looking very carefully at this acquisition to vet it for competition concerns. Most industry onlookers have ruled out new acquisitions by Telstra in Australia’s telco sector for years, because of the big T’s already dominant position.

Telecommunications policy is supposed to enhance competition; not facilitate Telstra to crush it.
In this sense, it is possible that Telstra views this acquisition as a test case. If the ACCC cracks down on this one with a vengeance, it will mean that Telstra will find it hard to expand further along similar lines in future. But if the ACCC allows it, it may mean that Telstra’s tacit ban on acquisitions may not be quite as firm as previously believed.”

I’m not surprised that Telstra has abandoned the deal. It was always clear right from the start that the ACCC and Telstra’s rivals would have issues with this one. I suspect that Telstra could have eventually gotten it across the line with the regulator, had it had more time. But eight months on, even Telstra must be getting impatient at not being able to progress what was, after all, not a huge acquisition. It’s time to call “time” on this one, and everyone knows it.

What now for Adam Internet? I would expect TPG to look at buying it. iiNet already has a strong position in Adelaide courtesy of its Internode brand, and Optus doesn’t really do acquisitions. But the price will have to come down now, and TPG always likes to look at bargains. Either that, or perhaps M2, which already owns the Commander and iPrimus brands, amongst others?


  1. As a former Adam employee I’m not at all surprised by this – while the concept of Adam being Telstra’s “Jetstar” brand was good I was sceptical the accc would allow it considering Telstra’s current market power.

    I wonder if Greg has any other suitors lined up to buy Adam? It’s a great company!

  2. I’m not actually surprised. Telstra acquiring another ISP with the sole purpose of buying into a market sector, would have the regulator asking some hard questions.

  3. A left field suggestion for a potential buyer: Kogan. They’ve dipped their toes in the water in the telco space through Kogan Mobile; maybe they’ve learned that in order to compete as a telco (or ISP), they’d need to be more than just a reseller. We all know that Ruslan likes a challenge; the ISP space would give him a few more windmills to tilt at.

  4. I wonder if iiNet would receive the same amount of scrutiny were they the ones attempting to buy Adam Internet?

    I personally believe they’ve been getting away with murder given their record of acquisitions and how that is supposedly enhancing competition.

    • They could have done that but I suspect they thought expanding an existing player with a great reputation and low overheads was a better idea.

    • I don’t think the ACCC can stop Telstra from setting up its own “Jetstar” type company. If the truth be known this is what will probably occur if they still want that type of service. In reality it was probably more cost effective to purchase an existing operation.

      Makes me wonder what the difference is from starting from scratch or buying an established operation. I don’t see what the big deal is with the ACCC and that of Telstra’s rivals, particularly in an NBN environment.

      If Adam customers didn’t like the arrangement, they could always leave and those that have already done so, I hope your new provider is on a par with what you had at Adam. A profound hatred of something (Telstra) is like a cancer, that will eventually consume you.

      • Starting from scratch is an epic undertaking, the systems required are not COTS and heavily customized or in house developed for all the ISP’s that I’m aware of.

        • Would the low cost brand actually have to have structural seperation from Telstra (both retail and wholesale?)

          if yes then i understand buying an established brand has advantages , such as customers from day 1 , lowering competetion against your main brand and billing and network systems.

          • I think the seperation issue was raised by other ISPs concerned Adam might get preferential treatment on a TW deal and thus have an unfair advantage.

          • But that concern is no more than BigPond getting preferential treatment over other ISP’s from Telstra Wholesale, Bigpond sold retail plans once many years ago lower than TW pricing and were fined heavily by the ACCC.

            The result also was a drop in wholesale TW ADSL pricing for all, I don’t think Telstra would do that again and have not.

            I think in this instance the ACCC just took too long to think about it and contracts expired and Telstra thought it’s not that big a deal to pursue further.

          • Telstra has had a long history of preferential pricing. Bigpond does not source capacity and services from Wholesale. Both Wholesale and Retail access services from a networks division.

            Obviously Telstra couldn’t satisfy the competition regulator. Given their prodigious experience in competition matters, and eight months of negotiation, it’s pretty clear Telstra doesn’t see the numbers working for them.

  5. As a former employee of Telstra….their proposal had me “baffled”. Having said that, in Adelaide most Telstra employees were connected via Adam… was lest costly, more proficient, offers WiMax…..even with staff discount there were droves of Telstra people using Adam!!! It was always better than BigPond….I hope Adam either remains in sole ownership or perhaps gets a “nudge nudge” from iiNet…..rather than TPG. If Adam can “stand on its own legs” from a business model…..I’d be delighted, as I am with Adam personally.

    • Same, they were always $10 a month cheaper than Node and just as good if not better in many respects – also their Data Center is still the only true Tier3+ facility in Adelaide and just a really well thought out design all round.

      • Adam were only ever $10 cheaper because it was an Adelaide ONLY ISP, and that was mainly metro area as well

        • You are right, it’s easy to be cheaper when you dont have millions of dollars of debt from building a national DSLAM network – I guess Greg felt serving South Australia well was more worthwhile than tryinf to compete with Telstra and Optus nationally.

          Btw, Adam has had a TW agreement with Telstra for years and does provide regional BB services.

  6. 60 mil was to high a price for adam in the first place, plus Nodes data centre and national and international network walked all over adams. Plus Node is a lot better company not just for customers but also for its employees.

    • Im not sure where you get your info from but as a former DC manager I can tell you Adam’s is the only Tier3 spec DC (exceeds Tier3 spec actually) in Adelaide, Nodes DC doesnt come close to meeting Tier 3 spec as it simply doesnt have the same levels of inbuilt redundancy (see the outages they have had in recent years as proof). Its managed cable system is also best described as inflexible.

    • PS, part of Nodes problem is they retro-fitted and existing floor of CBD building, Adam started with a blank slab and designed it from the ground up to exceed Tier 3 Spec.

    • Nodes DC’s can’t hold a candle to Adam’s DC here in Adelaide. You’ve got a telco DC on one hand, compared to a purpose built tier 3+ DC which is designed to serve enterprise customers. It’s really the only show in Adelaide when it comes to quality DC hosting space.

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