re: Ann: MNF launches Naked ADSL2 service at ... Seems they are...

re: Ann: MNF launches Naked ADSL2 service at ... Seems they are locked in until 2011.


From the MNF prospectus dated 12/4/2006

https://www.mynetfone.com.au/media/investor/annual-reports/asx-mnf-prospectus-for-ipo-v7.pdf

The parent entity and company entered into a new VoIP technology services agreement including the provision of technology, software, support and related services with Symbio Networks Pty Ltd (a director related entity) for a term of 5 years commencing on 1 April 2006. The agreement stipulates an agreed pricing structure which is volume based and gives My Net Fone Australia Pty Limited the ability to benefit from higher volume commitments in order to reduce its costs base. Based on the current level of
business the monthly commitment as part of the agreement stands at $60,000.

Apparently they are reviewing this service agreement, this from the 2008 EOY Report:

https://www.mynetfone.com.au/media/investor/annual-reports/annual-report-2008.pdf

(i) The Group entered into a VoIP technology services agreement which includes the provision of technology, software, support and related services with Symbio Networks Pty Ltd (a director related entity) for a term of 5 years commencing on 1 April 2006. The agreement is at both normal market prices and on normal commercial terms. Additionally the agreement stipulates an agreed pricing structure which
is volume based and gives the Group the ability to benefit from higher volume commitments in order to reduce its cost base. The agreement is currently being reviewed in light of experience gained so far and future plans.


As an MNF shareholder I am pretty happy with the way this initial deal was structured to save MNF the startup costs and ongoing Opex required to run their own VOIP backend. As we have seen with Engin & Freshtel this has clearly advantaged MNF substantially over these other financially crippled VOIP companies.

I suspect that there will be little chance for any really meaningful negotiation until 2011. Symbio no doubt would state that they purchased infrastructure, etc and took just as much a chance on MNF growing and so are entitled to a premium return if a premium of sorts is in fact being charged.

I looked into this about a month back and concluded that MNF reported a 39% gross margin in the FY09 1/2 yearly. Given that ENG reported a 52% gross margin in EOY FY08, it would appear that as a rough guide the provision of VOIP services by Symbio to MNF is perhaps in the order of up to 13% of gross MNF revenue? I know this is not a scientific comparison but it is perhaps indicative.

The question that must be asked is this "is 13% of gross revenue a fair price to pay Symbio for the provision of all VOIP backend?" On balance, I can not see that it is some huge premium but am happy for it to be even lower if possible. Also, MNF have not had to invest in VOIP hardware and staff to initiate and operate this VOIP backend.

MNF have shown that with increasing revenue that their Opex either remains the same and has also recently fallen***, with continued growth rates in revenue terms one can only assume that the cost of VOIP services supplied by Symbio will continue to fall as per the indicate statement in the Symbio/MNF agreement.

*** MNF FY09 1/2 Yearly (Feb 09) https://www.mynetfone.com.au/media/investor/announcements/MNF-exceptional-half-yearly-results08.09.pdf

None of us here are likely to ever be privy to the specifics of this agreement between Symbio & MNF but again from where I am sitting as a shareholder looking at my investment in MNF I do not think MNF is particularly disadvantaged by this agreement thus far. Again, 0-$10M and profitibility in 3 years is quite a respectable achievement and clearly shows that this is the best way to build a VOIP company.

Perhaps moving forward they would be advised to consider the cost of implementing their own backend but I am not so sure as to what amount of revenue & Opex would justify this. To qualify this, one simply needs to look at Engin with it's $20M turnover, providing it's own backend saw it lose about $10 last year. This from a company that has operated at massive losses for it's entire 8 years.

Also, MNF as a takeover target is much more marketable if it can simply unbolt itself from the entire VOIP backend and attach to another service provider which it appears at present it is able to do.