adsl market saturation – better future deals

http://abs.gov.au/AUSSTATS/[email protected]/ProductsbyReleaseDate/6445F12663006B83CA256A150079564D?OpenDocument



The 'caveat' on all such reports is that they are based on the information provided by 101 'ISPs' and I have trouble trying to think of that sort of number of companies still in the business (though it's more accurate than when the ABS apparently took input from over 800 'ISPs'). So, personally, I have little faith in the exact numbers but I do accept the trends as being a good indication of what is going on in the ISP business.



So what can be derived from the current report? It seems to confirm that the marketplace will not buy any more ADSL services than is currently reported and that the marketplace's 'appetite' for wireless broadband continues to be very, very strong.



This obviously confirms that the various current providers of ADSL services will continue to escalate the current price/download ‘war’ and that there will be less profit in providing ADSL services than there is today. Of course that is the equivalent of stating the bleeding obvious but then......the announcement of unlimited downloads by AAPT, the latest plan changes by Internode and Optus and the sale of Netspace are all clear indicators of this 'bleedingly obvious' conclusion.



The other interesting statistic provided by this ABS report is the growth of some 30% in terms of downloads in a six month period - compared to some 20% in the previous six months. Our own statistics confirm the escalation in download usage as being higher than this but I have even more doubts about the accuracy of reporting on this aspect than all of the others.



However it makes no real difference except to, possibly, point out that even with the fall in IP costs of around 50% over the last 12 months, back haul bandwidth didn't fall by anything like that much. This in turn means that the average cost of providing an ADSL service actually increased over the past year rather than fell - and that's a really important 'statistic' provided by this report because the only reaction available by ISPs in a static market is to reduce prices/increase what is provided if they are basing their business plans on 'growth'. Not good for profits or, in extreme cases, remaining in business.



Of course, each individual ISPs situation will be different and the ABS report only gives overall trends. Telstra, by far the largest provider with around 50% of the total customer base, is going to be affected the least because it has incredibly high margins at both the retail and wholesale levels and could reduce its cost the most and the easiest because of its hugely inefficient internal operating and personnel costs - with a few strokes of the pen you could take many millions of dollars a month out of their cost of supplying internet services (Justin Milne's departure and non-replacement is one public example of that). I think it is likely to be an example of what will happen across ISP land - some fairly severe reductions in personnel by many, if not all, ISPs (except Exetel and any similarly run operations).



However, even highly efficient operations like Exetel will have to carefully consider what the ABS report signals for the future and make changes using the information provided by the publicly listed communications companies six monthly ASX reports and now the ABS report for the first half of the current financial year. Fortunately for us, we recognised what the likely marketplace scenarios would be for FY2010 and (unlike Telstra) predicted the likely outcomes more accurately. Having had that 'moment of smugness' we are not exempted from the stark realities of the ADSL marketplaces in the current calendar year.



There is little doubt that the ADSL business is going to be a lot more difficult over the coming months than the wire line telephony business has been over the past two years - and for the same reasons - a declining market, even fiercer price competition and a better replacement technology accelerating the stagnation/decline.