iiNet back on track?

commentary Just nine months ago it was panic stations at Perth-based upstart telco iiNet. Out of nowhere, the company suddenly fell into a financial black hole, issuing a profit downgrade and admitting its coin counting systems couldn't keep up with the strain of too many acquisitions.

commentary Just nine months ago it was panic stations at Perth-based upstart telco iiNet.

Renai LeMay, ZDNet Australia
Out of nowhere, the company suddenly fell into a financial black hole, issuing a profit downgrade and admitting its coin counting systems couldn't keep up with the strain of too many acquisitions.

In an attempt to stave off doom, iiNet made a devil's bargain with fellow telco PowerTel, under which the pair would connect their networks together.

The move allowed PowerTel to sell wholesale access to iiNet's extensive broadband network -- one of the nation's largest and an asset that had previously been hoarded like the crown jewels.

This week iiNet started to show signs it was clawing itself back from that May abyss, delivering a record half-year net profit.

Key wins for the period included reduced operating costs, as well as the sale of New Zealand subsidiary iHug and a positive regulatory decision that should affect the cost of Telstra's services.

iiNet has also started connecting customers from other ISPs to its network through the PowerTel wholesale arrangement, with the current total around 1,000.

Smaller Internet service providers better watch out ... iiNet CEO Michael Malone stated his group was "well placed" to make acquisitions amongst the 600 or so Internet service providers expected to come under pressure due to the competitive broadband market.

And then there was iiNet's ever-improving call centre performance. In March last year it took iiNet's tech support staff more than six minutes to pick up the phone ... now that number is down below one.

In short, a swathe of good news. But this, of course, isn't the whole picture for iiNet.

Telecom New Zealand's pending acquisition of PowerTel (and its 17 percent iiNet stake) means iiNet's future is still in doubt. No doubt the Kiwi powerhouse would love to add iiNet's assets to its stable ... and reports that Telecom had approached fellow Perth telco Amcom with an AU$80 million offer gave credence to the idea.

Amcom has its own 19.9 percent share of iiNet, picked up when the company's shares went south last May.

As your writer suggested during iiNet's dark months, the telco has also reined in some of the technological innovation that gave it so much mindshare with early adopters.

Malone told corporatefile.com.au that iiNet's broadband footprint was now "substantially complete", with plans to add just 60 telephone exchanges to the list in 2006 and 2007. That's a different story from March last year, when the executive had just announced a substantial network expansion.

And, as Malone acknowledged this week, iiNet had previously competed primarily with major telcos Telstra and Optus by offering substantially faster broadband. Both of those parties (and a number of others) have now launched high-speed services, which are doing much to match iiNet's speed and coverage claims.

The growth of broadband itself too, is slowing, with some parts of the industry expecting a broadband price war to soon commence.

iiNet's popular Internet telephony product will go some way towards insulating it against these challenges. But nobody can pretend the imminent future is going to be a piece of cake for the telco.

Will iiNet sink or swim? Be acquired or acquire? Drop me a line directly at renai.lemay@zdnet.com.au or post your comments below this article.