Internode wanted iiNet's numbers for NBN

Internode wanted iiNet's numbers for NBN

Summary: With the looming roll-out of the National Broadband Network (NBN), Internode founder Simon Hackett was worried that his internet service provider (ISP) just wouldn't be big enough on its own to succeed.

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TOPICS: Telcos
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With the looming roll-out of the National Broadband Network (NBN), Internode founder Simon Hackett was worried that his internet service provider (ISP) just wouldn't be big enough on its own to succeed.

In a conference call this afternoon discussing the $105 million takeover announcement, Hackett said that because of NBN Co's connectivity virtual circuit charge, and the decision to have 121 points of interconnect (POI) for the network, only an ISP of around 250,000 customers would have the scale to survive in an NBN world. With 260,000 active services, Internode just makes the cut. He said the merger was a matter of survival.

"The size of Internode on its own is right on the bottom edge of what we've considered viable to be an NBN player. If you're smaller than that, the economics don't stack up. It would be a dangerous thing for us to enter the next era being only just quite big enough," he said.

"Now, as part of a larger group, we end up with a scale that is three or four times that in total, and that puts us right in the sweet spot to make the economics of the NBN a very comfortable thing for the combined group."

iiNet CEO Michael Malone was more reserved, saying that acquisitions would have continued regardless of the roll-out.

"I'd certainly say it contributes, [but] I think consolidation would have been happening in this market even if NBN wasn't in the backdrop," he said.

The two companies had a lot to offer each other, Malone said, such as iiNet's ability to manufacture its own hardware, and Internode's running international links with peers on three continents. Malone also expected that it would be easy to integrate many of their systems, because they would be very similar. For instance, iiNet and Internode's ADSL2+ equipment and Voice over IP (VoIP) equipment were from the same vendor.

The two companies have been talking about merging for many years, with Hackett pointing to an email from as early as 1998 mentioning the possibility of a buy-out.

In addition to iiNet's 1.3 million active services, Internode's 260,000 active services give iiNet a market share of 15.5 per cent, according to Malone, which would fall below the 20 per cent mark at which he said the Australian Competition and Consumer Commission (ACCC) would become concerned.

For the foreseeable future, Internode will keep its brand, Malone said, noting that the company's brand awareness is big online, with very little advertising elsewhere. The brand is also "very strong" in Internode's home town of Adelaide.

"It is always going to remain a great company in South Australia. There's no intention on changing that," he said.

Hackett is staying on to manage the separate Internode brand, and, with a 7.5 per cent stake in iiNet as part of the deal, Hackett has no intention of sitting on the sidelines.

"I very much want to leave a substantial number of chips in this," he said.

"We're now facing the future together."

Topic: Telcos

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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6 comments
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  • I actually admire Simon for building a succesfull company over many years, and cashing out while he's young enough to enjoy it. But really, he always blames someone whenever things don't go his way. Simon has been anti NBN since day 1, so i'm not suprised that he's blaming them now. Just more FUD on the anti NBN bandwagon.
    gr1f
    • Simon's waving "look over here" again. Attention Seeking while he's still relevant.

      He's plain wrong on the NBN numbers, but he makes himself right on it by choosing a particular "Big Boy in the Playground" take on the NBN.

      Never fear, the NBN is viable for all niche players, even more so than being a customer of Telstra or Optus Wholesale (whose wholesale models the NBN has naturally largely adopted).

      You do need to know the Australian ISP marketplace and industry to make a go of the NBN, but that's the same in any modern market, so there's no surprises there either.

      Another *yawn* whinge against Gov't causing disruption in an already broken Industry (ie: 90% of ISP Profits goes to Telstra, that's 'broken') by a big player who wants to keep making his large profits no matter what.

      Correct -> "Just more FUD on the anti NBN bandwagon".
      nothinghere-b637b
  • I went with Internode because they were a medium IPS that concentrated on services and less on Advertisments. All I have ever got from big isp's is poor service and problems - as a customer I would have liked the courtesy of an email instead of reading the story....
    Crumbled001
    • Odd. I got an email (and I am not even a customer anymore) - perhaps I got yours
      DepravoTheRat
  • So Simon is wrong nothinghere I guess your company will not be merging with anyone then.
    GBE-71384
  • ummm, are we still believing these blokes who have made money on the back of ACCC intervention - certainly not by running proper competitive businesses.
    Has Hacket heard of buying wholesale ???? You don't need 250,000 customers to survive on NBN - I could build you a retail model that will give good profit to a niche 10,000 customer operatior.
    The wholesaler you buy from (be it Telstra/Optus/Primus or whoever) will pay for the multiple interconnect sites - not the small retailer.
    Are these "CEO's" really that naive ??? or only trying to trick the investors.
    nub11