news Highly acquisitive Internet service provider iiNet has revealed plans to buy Adelaide-based ISP Adam Internet, swooping in quickly on the company following the collapse of a controversial deal that would have seen it bought by Australia’s incumbent telco Telstra.
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. Several weeks ago Telstra announced that it had abandoned plans to buy Adam Internet, as delays caused by the competition regulator’s concerns about the deal having caused its timeframe to have blown out.
In a new statement issued this morning, rival ISP iiNet revealed that it had entered into a binding agreement to buy Adam Internet for a total of $60 million. The buyout will add some 70,000 broadband subscribers, plus a range of government and business clients, to iiNet’s total customer base, growing the company’s number of broadband services to over 900,000. iiNet expects to gain revenues of $55 million from the 2014 financial year from the Adam acquisition, with EBITDA being approximately $11.5 million.
Greg Hicks, executive chairman and founder of Adam Internet said that the transaction represented a great outcome for Adam Internet customers and staff. “We believe that this transaction provides real benefit to Adam Internet’s customers and staff as it aligns them with iiNet, Australia’s leading ISP in customer service. Adam Internet has long provided customers with innovative products, high quality service and value for money, and this will be further strengthened under iiNet’s ownership,” said Hicks in iiNet’s statement.
iiNet’s chief executive officer, Michael Malone, said the acquisition reinforced the company’s position as Australia’s second largest DSL Internet Service Provider (ISP) and the leading challenger in the telecommunications market.
“Like iiNet, Adam Internet has a loyal customer base and strong reputation in its core markets. This acquisition further builds on our strategy to grow scale in the national residential and business broadband segments,” said Malone. “Following completion of the acquisition, iiNet will have over 900,000 broadband customers accessing industry leading service levels and a growing suite of telecommunications products at the forefront of industry development.”
Completion of the acquisition is subject to a number of standard procedural conditions which are expected to be met by 31 August 2013, according to iiNet and the ACCC has already cleared the transaction.
The acquisition will have the effect of dramatically consolidating South Australia’s broadband market into two main players, with Telstra having a large slice of the state and much of the remaining market share going to iiNet, through its Internode and now Adam brands. The move also dramatically removes one of iiNet’s main competitors in the state, Adam, from competing with its existing brands in South Australia.
iiNet has rapidly consolidated Australia’s ISP market over the past several years. The company bought major rival Internode in December 2011, shortly after buying a substantial rival in Canberra, TransACT. It has also bought rival companies including Netspace, OzEmail, Westnet and the consumer division of AAPT, as well as dozens of other smaller telcos.
In many cases, iiNet has removed each brands’ distinct product offerings from the market, replacing them with identical branded copies of its existing product lines. This has had the effect of removing competition in terms of different service offerings from the Australian broadband marketplace, and has led too iiNet being labelled the ‘iiBorg’ by some commentators, due to its habit, like the alien race from the science fiction TV series ‘Star Trek’, of assimilating all competition.
iiNet has already flagged an opportunity to increase the bundled product offering to Adam customers “from iiNet’s existing product suite”, in this morning’s media release.
An analysis by Delimiter of the impact on competition of iiNet’s acquisitions, published in April 2012, concluded that the net impact of each acquisition had been to harm competition in Australia’s broadband sector, but that the sum total may have generated some benefits to consumers, as iiNet was able to gain scale to better compete with large telcos such as Telstra and Optus, as well as launching new products. At the time, Delimiter wrote:
If you specifically examine iiNet’s major acquisitions over the past half-decade or so, it seems clear that most of the buyouts have had at best a mildly negative impact on real-world competition in Australia’s telecommunications 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.
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 when we look at iiNet’s acquisitive history in Australia, and its impact on competition, is that, as its regulatory chief Steve Dalby correctly noted, the company has acted as a very strong competitor towards larger, dominant rivals such as Telstra and Optus. Alongside TPG, iiNet provides a strong alternative to the majors when it comes to fixed telecommunications services. The launch of ADSL, ADSL2 and ADSL2+ services, the development of naked DSL and IP telephony, the increase in the quality of customer service, the provision of value-added services and the solidification of the process of migrating customers onto new ADSL infrastructure and off Telstra’s systems are all real improvements which Australian consumers can lay at iiNet’s door. Without iiNet, it is unclear what state of competition Australia’s telco sector would enjoy.
Image credit: Star Trek: The Next Generation