Industry laments loss of Pipe Networks

Industry laments loss of Pipe Networks

Summary: Pipe Networks' chief, Bevan Slattery, may have found his "cash-out" door from the company that helped internet service providers snub Telstra, but many of those customers are not happy that a direct competitor could now control it.


Pipe Networks' chief, Bevan Slattery, may have found his "cash-out" door from the company that helped internet service providers snub Telstra, but many of those customers are not happy that a direct competitor could now control it.

"This will be a disaster for the industry. Because, for roughly 50 per cent of DSLAM exchanges, Pipe is the only alternative to Telstra," said the boss of one of Pipe Networks' ISP customers who wished to remain unnamed. "In the type of services ISPs need and Pipe provide, they are the only game in town. This will be a major problem for the industry. It's terrible."

Boss of a smaller client, Exetel, John Linton said he would take his $40,000 per month spend with Pipe elsewhere if it's merged with TPG parent, SP Telemdia. He said he wasn't criticising the way SP Telemedia boss, David Teoh, runs the ISP but, "Why would we do business with TPG?" asked Linton.

Linton's comments were in stark contrast to iiNet boss, Michal Malone, arguably Pipe's largest customer, who yesterday said the proposed sale to SP Telemedia was not a supply concern. "We all buy stuff from each other anyway," said Malone. Still, highlighting the sentimental status of Pipe to the industry, Malone added that Pipe's two co-founders Steven Baxter and Bevan Slattery had "changed the landscape of Australian telecommunications forever".

Chief of mid-size ISP Netspace Stuart Marburg said there were worse outcomes than what's been proposed. "I don't think anyone would be happy, but at least it's not Telstra buying them," he said.

"I think the main concern is that [TPG] will get preferential pricing ... but you can't do much about it," said Marburg. He congratulated Baxter and Slattery for "setting up a great company and getting a good return on that".

But few of the ISP executives who interviewed for this story were surprised by Slattery or Baxter's decision to sell. One source close to Slattery called him a "serial entrepreneur" while two other directors from separate ISPs said Slattery had been looking for an "exit strategy" for the past year.

"This looks like the latest round in Bevan and Steve's exit strategy," one said, but noted that the four-month horizon before a decision is approved gave ample time for a preferable entity to place a bid for Pipe Networks — the NBN Company.

According to this source, Pipe's metropolitan fibre network, which the likes of iiNet, Internode, Netspace, iPrimus and others heavily rely on for connectivity to phone exchanges for the provision of ADSL broadband services, reaches about 80 per cent of Australia's population, which made it an attractive option for the NBN Co.

Boss of iPrimus, Ravi Bahtia agreed. "The NBN Co should buy it because Pipe has what the NBN Co needs — backbone transmission. The NBN Co will need a grid, and will be a wholesale provider of connectivity, and this would play a role in that."

But Southern Cross analyst, Daniel Blair, said the National Broadband Network plans were not clear yet, and that there was a chance Pipe's fibre network won't reach the right places. "How does this change under an NBN? At the moment, you have 5000 phone exchanges in Australia. Under a copper architecture, exchanges are about every 1.5 kilometres apart. From what we know, with GPON (the core technology planned for the NBN) you can go up to 20km from a home, so many of those exchanges are not required and could be bypassed completely."

Shareholders though, were not happy about the $6.30 offer made by SP Telemedia. David Hall, an owner of Pipe shares said although shares were trading at a fairly high multiple, there wasn't a takeover premium. "It's quite clear that Pipe will represent quite a large portion of their profit going forward," said Hall.

Yesterday, SP Telemedia issued a 2010 guidance outlining that its $470 million annual revenue would amount to $47 million in net after tax profit, while Pipe's $98 million revenue would deliver a profit of $25 million, roughly a third of the merged entity's expected profit.

Both Netspace's Marburg, also a shareholder in Pipe, and Southern Cross' Blair agreed with Hall.

"The consensus valuation for Pipe is about $6.80 so [the $6.30 bid] is in the ball park, but there's no premium," said Blair.

Topics: Telcos, TPG

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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  • netscape back in the game!

    > Both Netscape's Marburg, also a shareholder in Pipe

    good ol netscape... what a browser :)
  • Old habits die hard

    Nice catch Anon.
  • Sorry, try again

    Is this egg I see on Conroy's face.

    Classic empty words by the Communications Minister.

    "Announced by new Federal Communications Minister, Senator Stephen Conroy, PIPE Networks' cable will play a key role in the government's plans for a national Fibre to the Node network.

    "It has the potential to improve Australia's internet transmission capacity and increase competition in the Australian telecommunications marketplace. This is great news for Australian internet users because the result will be faster and cheaper broadband," Conroy said.

    "As a firm believer in the value of competition in the telecommunications sector, it is great to see a smart, energetic Australian company doing so well and also having such ambitious plans for the future.",pipe-network-undersea-cable-to-boost-australian-broadband.aspx

    >>>>>>>>>>>>> Fast forward November 2009:

    Pipe Networks flog the network!

    Conroy's Pipe dream expands from $5.9 billion Fibre to the Node network TO $43 Billion Fibre to the home network
  • 1.5KM?

    But Southern Cross analyst, Daniel Blair, said ...Under a copper architecture, exchanges are about every 1.5 kilometres apart. ...the core technology planned for the can go up to 20km from a home

    I don't quite understand that how under our current architecture exchanges are 1.5 KM apart. Does this mean 1.5KM of cabling apart or approximately that in as the bird flies distance. Why are they approximately 1.5KM apart? Is this a technical limitation? Is he saying that the exchange interconnects are 1.5KM of copper at the moment or is he saying that most homes are about 1.5KM from the exchange? I can understand distance from exchange to person should be around 1.5KM (thought it was more) for a reasonable high speed ADSL service however he's saying that exchanges are 1.5KM apart. *scratches head* Even for ADSL you could be around 3KM apart and still get reasonable coverage for most people, 1.5KM apart gives you complete overlap (on average someone will be 750M from an exchange?). It is a little weird: he starts by talking about distance between exchanges and then he closes on distance between homes.
  • egg on face for you too

    i just see egg on your face from those telstra shares, ha
  • @1.5KM

    He also states that "GPON (the core technology planned for the NBN) you can go up to 20km from a home, so many of those exchanges are not required and could be bypassed completely".

    My understanding is that all of the conduits/ducts eventually go to the nearest exchange so how can he say that many of the exchanges are not required and could be bypassed completely. Is he proposing that there is going to be a significant amount of trench digging just to bypass an exchange.

    I think ovell the analyst does not not know what he is talking about or has been misquoted.
  • He's wrong anyway

    He's wrong anyway. There is no way the current exchanges are that close together, as the crow flies or as the cockroach crawls.

    If he was right then Sydney along would have something like 1,900 exchanges.
  • Wnat the?

    How is that in any way "egg on face" ? Your beloved Telstra could sell all it's cables tomorrow, would only take some lame exec to decide to outsource and drive down cost/captal.

    TPG may well pick up Pipe but so what, the cable is still being wholesaled, the cable is still being used..
  • Adsl2

    I think he means that adsl is generally 2 - 4km limitation due to line loss, depending upon which version and speed. To get real broadband you need to be less than 1.5km from the exchange (to get about 6Mbs) . Given how many people are stuggling to get above 512kb on adsl, I am sure the average is closer to 5km in major cities and above 10km in most regionals.
  • What a Shonky Deal!

    I'm amazed that Rudd, Conroy & the ACCC have stood idly by and let this deal proceed.

    Isn't Fed Govt policy to separate wholesale & retail?
    How can they force Telstra to separate while this mob of crooks do the exact opposite to create another anti-competitive situation?
  • Lock em all up, aye?

    Yes, and set the feds on aapt, optus and others who have wholesale & retail customers while you're at it... seems a bit harsh to label the deal telstra 2.0, don't you think?
  • lock you up aye?

    this is a thread about pipe, telstra morons, take your telstra bs back to nwat.

    no they aren't the same, get it through your thick skulls, optus, aapt and others weren't gifted an oz wide network like telstra.

    and pipe customer, ha, bs.
  • Moron, gifted?????????????

    Telstra shareholders paid $65 billion for the copper network in three tranches T1 T2 & T3
  • Locking up sarcasm

    I agree but I think you missed the sarcasm in the post you're replying to.
  • moron, paid $65 billion, not $60 billion he said before, ha

    ha, there was life before telstra shareholders
    when telstra were gifted the network!
  • Vested/floated, two totally different occurences!

    I wouldn't worry about a few, living in denial, idiot Telstra shareholders anonymous.

    You are 100% correct!

    But to be fair, Vasso is right too (although, his figures, as you say, do vary by billions, lol).

    Telstra were vested (gifted?) the monopoly network ("with strict access rules for competitors") in 1992, long before the "shareholder".

    But... Telstra shareholders did buy Telstra (in '97, '99' & 06).

    Technically though, Telstra shareholders, didn't buy the network per se - they bought Telstra - who were vested the network previously.

    Herein lies the inequalities and why regulations and access rules were and are required.
  • Locking up sarcasm

    Sarcasm is not the only thing he missed.
  • Re: Vesting network

    I think that the government vested the network to telstra because if they had sold it to Telstra... they would have had to give telstra the money to buy it - which would have then been given straight back to them (as owners of the cooper network). Also they would have had to put a price on the network - which as we can see now is difficult and would have affected the share float.

    As for the regulations and access rules - they could have been placed on telstra if the network was sold or vested.

    As for the takeover of Pipe - I think it is a shame, because they had no or very little perceived conflicts of interest... and helping the telecommunications market be competitive. If there were more companies like pipe... regulations and access rules could eased or at least made more uniform across the industry.
  • @Re: Vesting

    Interesting conundrum Anon, in relation to the vesting. However all roads lead to Rome.

    No matter how you look at it, pre-privatised Telstra still received a "golden goose", PSTN monopoly, which they have profited handsomely from for 17 years.

    Yes Telstra was later sold to investors, agreed - "but with ACCESS rules applying to the PSTN"!

    Rules these TLS investors either pig headedly refuse to see. Or are (WILLINGLY) still brainwashed by Dr Phil and Sol into believing, wrong. Or simply can't fathom!

    Not only have Telstra profited directly from this vested network, they also receive rent from wholesalers/accessors and subsidisation from the government, to continue supplying money making (monopoly) services in rural areas - the USO.

    I bet if the government asked Internode, iiNet or any other Aussie company, we'll vest you a multi-billion dollar monopoly network "with the proviso, others can use it", but they will pay you to use it and we will also pay to help you supply services and maintenance in those hard to reach area's.

    I wonder if they'd whinge and whine like Telstra (well pre-Thodey Telstra and a few diehard, idiot shareholders anyway)?

    Easy answer - NO!
  • Dont BS me moron! I AM a Pipe Customer!

    Hey dick brain, this is not about Telstra.
    I don't give a rats about Telstra.
    I am a Pipe Customer through my ISP (Internode) which uses the Pipe PPC1 cable to Guam for international backhaul.
    When that cable was lit up, my quota increased substantially. I also get very good speeds with International sites.
    Now that SP Telemedia have got control of PPC1 I bet that Soul/TPG get the best deal & Internode will have to pay a higher price eventually & so will its customers.
    My point is that the Government is once again asleep on the job.