MyNetFone CEO sees opportunity in NBN shortfalls

Rene Sugo, CEO and co-founder of Australian retail and wholesale voice-over-IP (VoIP) provider MyNetFone, has said that instead of simply criticising the National Broadband Network (NBN), his company is seizing the opportunity to launch products and services aimed at the gaps left in the market by the NBN's lack of technological innovation in the communications sector.

MyNetFone, which provides cloud-based telecommunications to its customers, was founded in 2004 and listed on the Australian Securities Exchange (ASX) in 2006. More recently, it acquired the business and platform of iBoss, a wholesale telco enabler, for AU$1.4 million in July 2014. Earlier in 2014, iBoss' customer base had been saved from entering voluntary administration when it was bought out by Vocus Communications. In April this year, MyNetFone also bought New Zealand telco Spark's international voice business for NZ$22.4 million.

The CEO of the telecommunications services provider on Tuesday told ZDNet that the company is now focused on recruiting more employees, spruiking its new VoIP service, taking advantage of increasing competition in the sector fuelled by the TPG-iiNet acquisition, and leveraging the NBN's rollout.

One of the gaps NBN has left in the market, according to Sugo, is the opportunity to update voice services to a higher quality. As the NBN rolls out and copper is decommissioned, small and medium-sized businesses (SMBs) will have to reconfigure their phone systems and sign up to new ones. According to Sugo, the NBN's voice service contains only two lines, and alternative services from other telcos that provide multiple lines charge high costs per phone line.

In response, MyNetFone in June launched its VoiceLink product, which provides SMBs with unlimited phone lines for a flat rate of AU$49.

"VoiceLink is a voice-over-IP product that you can connect into your existing premise-based phone system, and you can replace your old ISDN lines," he said.

"The thing about the VoiceLink product is it's a very disruptive business model, because we're going to give your small business unlimited number of inbound phone lines for AU$49 a month. So if you've got two phone lines, it's AU$49 a month; if you've got 50 phone lines, it's AU$49 a month."

Another relatively new communications technology in the industry is voice over LTE (VoLTE), which Vodafone Australia CEO Inaki Berroeta recently said would be brought to customers "very soon".

"With voice over LTE, it's got some new functionality, and the main crux of it is wideband audio," Sugo said.

"Traditional phone service is only 4 kilohertz of audio, whereas the human voice is 20 kilohertz ... with voice over LTE, it's 20-kilohertz audio, which is much better quality, it sounds crisp and rich."

However, Sugo said that VoLTE is only available between customers who are on the same network.

"At the moment, when MyNetFone network connects to Telstra, Optus, and Vodafone, it's still via the traditional 4-kilohertz technologies, so in our network, you can do high-def audio, in their network, you can do high-def audio, but when you talk between them, it's still standard definition," he explained.

"But when the mobile networks allow us to connect to them using high-def audio technology, then you can have a call from your mobile to your home phone, for example, using high-def audio."

He said that this is one of his "bugbears" with the NBN -- that the project had decided not to implement this higher-quality audio, instead swapping out the copper network with outdated 4kHz audio technology.

His company is again taking advantage of this, however, by simply providing its own NBN customers with a voice box and handsets that are 20kHz compatible.

"When you buy NBN from MyNetFone, we actually give you another box which has voice ports on it, or we can give you handsets which have high-def audio. So we're almost leaving NBN technology behind in terms of the voice part of it, and just ignoring it, and just going over the top with our own technology, and that's letting us differentiate ourselves."

On the other side of the NBN, however, Sugo did argue that the policy involved in rolling out the national high-speed network is making it difficult for smaller players in the market in regards to both costs and recruiting.

According to Sugo, retail service providers (RSPs) are being caught in the middle of a storm involving broadband usage climbing higher, the NBN's decision to charge RSPs on a per-megabit basis, and the Australian Competition and Consumer Commission (ACCC) continuing to push costs for consumers down, meaning RSPs are being "squeezed to nothing".

"We're all being forced off Telstra's copper -- which is not great -- onto NBN's solution, but our costs are actually going to go up. So how do we, as retail providers, keep pushing the cost to the consumer down when we're getting forced to absorb this massive regulated cost on the input side?" he asked.

"There's only so much efficiency you can get; we're cutting all the other costs, and we're getting scaled, but then we're having to pay a large cost per megabit to the NBN Co for access to the consumer ... so the more and more broadband they use, the more it costs."

The broadband plans being picked by consumers are close to doubling thanks in part to the recent launch of legal video-streaming services such as Netflix, Sugo said, which then also doubles RSPs' costs of providing broadband over the NBN.

"There's a disconnection between government policy, ACCC mandate, and the NBN pricing model, which is then part of the government as well -- it's set by government policy," he concluded.

Sugo said his company should increase in size from the almost 200 employees it has now to around 215 by December; however, he said that recruiting within Sydney has become much more difficult thanks to NBN's current drive to fill 4,500 jobs across Australia.

"It's getting hard to recruit people with IT skills in Sydney for a few different reasons. One reason is the NBN Co is hiring like crazy, and they're paying over the market rate," he said, adding that there has also been a reduction in the university graduates with IT and computer science degrees.

With his own company currently growing in size, Sugo said the AU$1.5 billion TPG-iiNet merger will also allow for smaller players to rise up in the face of steadily increasing competition in the telecommunications industry.

"I think there's actually opportunity there now, because as the four big players go about executing their strategies, there is now room for more people to come through," he said.

"You've got four big pillars in the telco industry here, and then we're all going to be able to grow underneath."

He also argued that having four profitable entities in the telco field -- Telstra, TPG-iiNet, Optus, and M2 -- would mean increased opportunity for technological innovation within Australia, although he did agree with the ACCC that no more acquisitions should take place among those key players.

"I think all four of them have good mass, that they can get economies of scale and do more product innovation. One of the challenges is if you don't have enough revenue and profit, you can't develop products, so really we've got four big players," he said.

"I agree that the ACCC said there should be no more consolidation in that top band before, because it could get really tricky ... for a long time in Australian telco regulation, they said we need two players, but two players is never enough to get true competition, and you really need three -- and four's better."

As a member of the Competitive Carriers' Coalition (CCC), MyNetFone was also recently involved in industry discussion on the ACCC's decision to cut the prices that Telstra can charge its wholesale customers for use of its legacy copper network.

While the ACCC had originally planned to reduce prices across seven of Telstra's fixed-line wholesale services by only 0.7 percent, its revised price cut said the amount that Telstra can charge retailers for use of its broadband internet services is to be cut by 9.6 percent from October 2015 to ensure that customers stuck on Telstra's copper during the transition would not be forced to pay higher prices while waiting for an NBN connection.

In a submission [PDF], the Department of Communications had said that the ACCC's decision should be amended to allow Telstra to recover its costs, and to prevent cost discrepancies from dissuading customers from migrating to the NBN.

The CCC -- made up of MyNetFone, Vodafone, Macquarie Telecom, iiNet, and Nextgen Networks -- argued, however, that government involvement in an independent price debate was "dangerous", especially when calling for consumers to pay higher prices.

"The Department of Communications' intervention in the ACCC's independent price-determination process to advance the interests of Telstra is extraordinary, unwelcome, unwarranted, and sets a dangerous precedent," the CCC said.

"For a government department to be calling for higher prices for ordinary consumers, and against the interests of competition, is surely a first at the federal level... For it to be doing so in the context of fixed-line communications services, where we Australia has (sic) the national disgrace of the highest prices in the developed world, beggars belief."

The CCC then accused the government of wanting "to see millions of dollars transferred from the pockets of Australian consumers to Telstra, one of the most profitable telecommunications companies in the world".

Sugo on Tuesday explained that while the regulation of copper lines would not affect MyNetFone's business, it would have a substantial impact on Optus, TPG, and M2, which would "benefit big time" from the slashed price.

Sugo said there are conflicting perspectives in regards to whether it had been appropriate for the government to involve itself.

"The whole purpose of the ACCC is to have an independent regulator -- independent from the government -- which is there for the benefit of the consumer. So it gets very tricky when the government interferes with the ACCC. But then again, the government's here to set policy as well, so it's a very dangerous area," he said.

"Telstra's argument is that as there's less copper in use, the cost of maintaining it goes up, with economy of scale. I don't necessarily agree with that; I think that as there's less copper, actually, the cost of maintaining it goes down. So I tend to agree the price should come down."

Earlier this year, MyNetFone said it predicts its business to generate from AU$90 million to AU$100 million during FY16, driven by uptake in new telco technologies.