iiNet expects to wholesale Optus 4G soon

iiNet expects to be able to offer long-term evolution (LTE) or "4G" services wholesale through Optus when Optus launches its new network in April.

Speaking to journalists in a results call today, iiNet CEO Michael Malone said that iiNet has a strong relationship with Optus for its 3G wholesale product, and that it has no intention of signing up to new 3G wholesaler Telstra, which he said is only interested in offering "yesterday's technology" for wholesale once it has its LTE network up and running.

"One of the things with the Telstra arrangement is that they only offer yesterday's technology; they never offer today's technology. As Telstra has now launched LTE for its own customer base, they're offering 3G to wholesale," he said. "We'd expect to be able to offer [LTE through Optus] to our retail customers at a similar time as Optus retail customers.

"We have no appetite for selling the Telstra product."

iiNet has approximately 80,000 mobile customers, including 10,000 mobile-broadband customers. Malone said iiNet and Internode could be doing better in mobile, and said that both iiNet and Internode will be releasing mobile handsets by the middle of this year.

"I don't think we're doing a great job in terms of mobile; I think that's something we need to get more serious about," he said.

Both iiNet and Internode are in long-term exclusive arrangements with Optus, but ACT-based iiNet subsidiary TransACT has a similar agreement with Vodafone that was signed before iiNet took over the telco last year. TransACT also expects to wholesale LTE services through Vodafone when it launches its own network, although Vodafone has not yet confirmed when this will be, after slipping past a 2011 deadline.

TransACT CEO Ivan Slavich said that the mobile business had been strong on the back of being picked for the Federal Government's telco panel, adding that TransACT had recently signed a deal with Apple to provide iPhones to the government.

For the first half of this financial year, iiNet reported revenue up 11 per cent to $65 million, with net profit after tax up 17 per cent to $14.4 million, excluding $5.2 million in amortisation costs relating to subscriber bases acquired through the company's takeovers of TransACT and Internode.

The acquisition of TransACT gave iiNet an extra 40,000 broadband customers, while Internode gave iiNet 190,000 more broadband customers. This gives iiNet a total base of 860,000 broadband customers signing up for 1.7 million services.

Of iiNet's customers, 231,000 will be affected by the Australian Competition and Consumer Commission's (ACCC) decision to regulate Telstra's wholesale ADSL. Malone could not say whether iiNet would pass on the cuts in price while Telstra is still charging high costs for backhaul to those areas.

"The real question is: how much do we get to hang on to?" he said. "The usage of our off-net customer base continues to increase."

He said that average usage in the past few years for off-net customers has jumped from 5 gigabytes to 15 gigabytes per month, and that Telstra is charging an aggregated virtual circuit (AVC) for backhaul that is costing iiNet "three times more to service an off-net customer than it does to bring traffic into Australia."

iiNet's chief regulatory officer Steve Dalby said that iiNet would do the number crunching before revealing how much iiNet would keep and how much would be passed on to customers.

Internode managing director Simon Hackett said that although the ACCC has set interim prices, there has been no final determination announced, and it is too soon to be guessing what the ACCC may decide. He said, however, that the certainty will be welcomed by the internet service providers (ISPs).

"It's really the ACCC putting a placeholder in to say, 'OK, now it's regulated', but the final access determination is yet to be determined, [but] it will give us ultimate price certainty where we haven't had it in the past."

Telstra has warned that regulating wholesale ADSL will discourage its retail rivals from deploying more DSLAMs in exchanges to provide services directly to customers, but Malone said that this wouldn't stop iiNet.

"We did about 30 to 40 in the last 12 months. If we can find the right places and the right backhaul provider, it shouldn't be any different in the next 12 months," he said, adding that the company would need to do a business case for every expansion.

Hackett said that the combined Internode and iiNet businesses may improve the business case for extra DSLAM deployments, and said that Internode customers would be able to get services through iiNet's DSLAMs in a matter of weeks.

"It's going very smoothly," Hackett said.

In areas where iiNet and Internode have doubled up on DSLAM deployments, such as the recently announced Darwin expansions, the DSLAMs will remain there, but there will be no future doubling up on DSLAM infrastructure, Hackett said.

Malone said that since the acquisition of the AAPT customer base a year and a half ago, the number of customers has declined from 100,000 to 85,000 and iiNet continues to lose around 15 to 20 per cent of customers from this brand every year.

"The AAPT churn problem is ongoing. The churn is reduced," he said. "It is going to continue indefinitely, because we're not adding any new customers to there."

iiNet retired the AAPT brand last year, and Malone said that although iiNet has not marketed to those customers directly, most are churning from AAPT to iiNet. He said that the rest are mainly churning to Telstra, a pattern he said is repeated across the rest of the iiNet group.

"Overall, 85 per cent of iiNet's churn goes to Telstra.

"We gain most of our customers to Telstra; we lose most of our customers to Telstra."