iiNet profit to dramatically dip

"iiNet is now expecting an EBITDA result of AU$24.6 million, before any abnormal items, down from the previous guidance of AU$40.1 million," the company said this afternoon in a statement to the Australian Stock Exchange (ASX).

The announcement follows five weeks of uncertainty for iiNet investors as the company suspended trading of its shares on 18 April, citing the need to identify clerical errors in revenue recognition.

The company's executive chairman Peter Harley said it was "now obvious" that iiNet's internal processes had not kept pace with its rapid acquisition trail, which has recently included large Internet service providers iHug and OzEmail.

"In every other six month period since 2001, there has been either a large acquisition or a major integration," said Harley. "This is the first clear period without such activity."

iiNet said its auditors Ernst & Young had identified several factors behind the lower EBITDA guidance.

Those included one-off costs relating to the OzEmail integration and immature processes and procedures between iiNet's finance and acquisitions teams surrounding forecasting.

The auditors added that iiNet also had "underlying profitability issues" that were being addressed by the telco.

iiNet expects to complete a full strategic review of its business in conjunction with GEM Consulting by the end of June.

In related news, business and wholesale telco PowerTel said it had committed to a 14.9 percent placement in iiNet, based on the Perth-based telco's current issued shares.

In return, iiNet will provide PowerTel with exclusive wholesale access to its extensive broadband network, one of the nation's largest. iiNet has not previously allowed other telcos to utilise its infrastructure, and the move will be seen as an attempt to wring greater returns from the investment.

The move will allow retail telcos who utilise PowerTel's network to also utilise iiNet's broadband network, which allows ADSL speeds of up to 24Mbps.

"This strategic alliance will give iiNet economies of scale and therefore improve the return on our network," said iiNet managing director Michael Malone.

"It will also finally give other ISPs and Australian consumers an opportunity to get access to real broadband speeds, rather than waiting for the incumbent [Telstra]," he added.

Telstra currently sells wholesale ADSL broadband at relatively slow speeds of up to 1.5Mbps.

"PowerTel is a large and successful wholesaler already, with existing sales and support facilities and a well-established customer base," said Harley. "We believe that PowerTel is far better positioned to drive wholesale sales nationally and enable iiNet to leverage the value of its network."

PowerTel said it would not compete with its wholesale customers in the retail field.

iiNet claims to be Australia's third-largest Internet service provider and is also gaining market share in the voice market, with recent offerings including an Internet telephony service.

iiNet said the share trading suspension would be lifted and trading on the ASX would resume on Monday.