past, present and future.. imho

I started jotting some thoughts on the weekend after reading last week's debate on this stock. I've had some industry exposure in the past, so thought I'd contribute my perception of past, present and future.

Got a bit side tracked with domestic responsibilities, so didn't quite finish it on the weekend.
So here it is now for what it's worth.

Although I keep a close eye on the figures reported, my choice for investing in Eng is not based on purely on traditional FA or TA techniques alone, I think in this PARTICULAR case, such a view would not provide the complete picture for its potential. This is a unique situation.

I've been a quiet Eng believer since 13.5c and accumulated to my capacity during the 13-15 stage.

Through some of the quiet periods, I also had to resist the urge to pull the trigger, particularly during the 21->16.5c dip. A tough call at the time, but in hindsight, certainly glad of it.

A couple of things that helped my restraint were 1) having a fair idea that the sophisticated instos were probably cashing in some quick profits after the 14c placement, and the other, reminding myself of the following points I concluded during my initial and ongoing due diligence/research into Engin (ENG).

1) imo Voip is part of a revolution which we are at the beginning of. It's the new killer application for the internet. In time imo, it will be a 'must have' product replacing the once considered irreplacable, fixed line phone of the 20th century.

2)Regardless of competition, ANY company equipped with the appropriate resources, infrastructure and licencing, expertise, (all significant barriers to entry btw) which can EFFECTVELY provide the service end to end, operationally and administratively (provissioning, call handling, billing, crm, etc) will imo survive and even thrive in some form (albeit some through consolidation).

Engin is doing this now and had approx a YEAR to grow and learn from the understandable teething problems in paving the way. Any new entrants regardless of scale, will have a similar learning curve with the additional challenge of taking on a well established brand which is already a market leader and fast approaching its 'pre-pubescent' stage so to speak (beyond teething)..

3) imo Engin has an excellent marketing model. Of the numerous voip providers in Oz today, who does the average Joe associate voip with I ask myself ?

4) in paving the way for this new application, Engin have planned and forcasted thoughtfully, informed the market appropriately and todate, DELIVERED...
Not an easy task given the technical complexity (network wise, not customer use wise) and interconnect hurdles, both finacial and technical, in providing a nation wide service (again significant barriers of entry), not to mention introducing a new product unknown outside the industry.

imo These guys know what they're doing!... very high on my priority list.

5) when they got the $$ for the vodaphone settlement,
the shareholders were paid in full.... to me a sign of INTEGRITY.... again very high on my list. They look after shareholders.

6) They're actively involved in shaping the industry... eg with input through bpl, acif,
etc... more leadership qualities.


Additional observations I made as we've progressed :

- respectable management and a highly competant technical team (have to be to get this far successfully)..
- Market Leader in providing Voip... with a year head start on new entrants.
- Established Brand with solid distribution channels.
- Economies of scale kicking in slowly but surely.

Also noticed their development is appropriately staged and imo, swift yet sensible (within their means). Future plans for network expansion, overseas expansion are imo well timed within existing capabilities. Sensible growth strategy (big picture wise)

- They've successfully capitalised on resources from their previous mobile reselling business (demonstrating effeciency and resourcefulness). Their foresight in changing its business model from what it was, to what it is, and where it's going, is to me, highly impressive. (They knew the big picture, saw what was coming and positioned and prepared themselves accordingly)

- going forward, imho, regardless of future competition, government regulation.. blah blah, Engin will be there, either as a dominant force, or the owner of significant market share. If acquired then in spirit, but whatever its position, it will be PROMINENT in Voip.

I say this because firstly, they've demonstrated to me, 4 commendable qualities to earn my respect.

-Astute forsight and vision with the drive and nouse to make it happen. (this is rare.. true leadership stuff). This places new entrants in perpetual catchup mode in just having to provide an equivelent service, let alone an enhanced differentiated one.

-Sensible approach to developing the business, particularly as a pioneer in Oz.

-Core skills (both managerial and technical) are of a high calibre to achieve what they've done..

-Well respected in the industry and broader community.

They've been the quiet achiever preparing themselves for over a year before the mass unveiling... (not with the continual empty hype as we've all synically come to
expect, but hype when appropriate and more significantly, with SUBSTANCE).

To me a company of good character.

And secondly, because of their current positioning within the big picture.
If I may elaborate... the following may also address some points raised in last week's debate.

Let me share a little background in illustrating why I believe so.

The tech (dot.com) stock hype of 1999-2000 which resulted in the bubble bursting, was simply ....premature. Dot.coms were selling ideas and concepts that the world was simply not equipped to embrace (quickly). There was no foundation to support the hype which imo was initially led by some amazing visionaries that were just way ahead of their time (of course the parasites quickly hopped on the bandwagon selling stupidity desguised as concepts for a quick buck...unfortunately tainting the true dot.com concept along with investor confidence).

Manufacturers needed the time to design and build the products, which they wouldn't consider without consumer demand. There could be no consumer demand as consumers needed the time for a gradual exposure in adopting and adjusting to new technology, Governing bodies needed the time to develop appropriate regulatory controls and establishing standards. There were no synergies between vendors and service providers.. All this on a worldwide scale required time... and not the 6-12 months touted at the time.

Well 6 years later here we are... governments, Industry leaders, manufacters, service providers, consumers... society... the World.... is now ready.

The tech revolution I'm refering to, consists of a myriad of applications designed for the internet, which is now sufficiently developed to provide the undelying platform or the foundation to support the new age.

Consumer awareness, available end products, associated carriage systems, appropriate regulatory controls and standards (on a worldwide basis) and most importantly, consumer demand now exists for marketing real products which could only be concepts back in 2000.

Voip is one of those applications. Its been around a long time, primarily in the Carrier and enterprise arena within closed networks. Acceptable call quality in the consumer market could never be reached until significant network upgrades would allow vendor interoperability through standardisation, voice traffic prioritisation for quality of service and more significantly...speed... ie enough bandwidth to transmit the call packets without significant delay (throughout the ENTIRE network).

With these restrictions resolved, Voip could then become a serious alternative to the fixed telephone. To meet this objective, network upgrades were ongoing, enabling them for voip, but the final element to bridge the gap and open the gates for voip (and other 'you beaut' applications just waiting 'til the networks were conditioned to accomodate them) was BROADBAND. Given the scale and magnitude of this worldwide preparation, it's inderstandable that it's taken this long... but we're there.

Business, lifestyle, entertainment, communications, shopping, etc, can now migrate to the internet and reach the mass market. The convenience and empowerment offered now justifies expenditure on broadband and hence consumer demand, also, voip can now be a driver in itself with the associated cost savings and acceptable quality offered.

So now if you picture how Engin is positioned in the market (in line with the growing consumer demand for broadband) and it's strategic alliances with broadband providers.... well... I don't think competition with them would be a comfortable proposition for any new entrant unprepared.

The point raised about iinet (or primus, internode etc) having their own voip product is valid, but consider this, Engin have reported a 40% market share. Even if that recedes to say 30-35% due to emerging new entrants, given the projected growth of broadband this year, that's still a sh*tload of subscribers. If you then consider, Engin is only a few thousand subs from breakeven, the true potential is quite staggering for this little titan imo.

So while consumers were acclimatising all things internet, dialup, websites, search engines, broadband, ecommerce, radio, chat rooms, etc.... while networks were being upgraded and applications prepared for the new age (commencing 2006).. Eng grabbed onto a niche.. and what a niche... a product with the power to replace the telephone as we've known it since it's invention.. No other application, no matter how clever, can boast a profile to that level. They were quietly building brand awareness, educating and introducing voip, establishing distribution channels, sorting out teething problems, basically preparing for that big wave... which is starting to swell now.

Another point imo re competion, Engin, besides having the lead in many aspects also has the added and benefit of being a differentiator. It has a unique business model in Australia. It is VOIP and nothing but VOIP.. They are THE specialists in the industry with a fully regulatory and standards compliant product. No encumberances of other incomes streams to divide attention. Ordinarily, diversification would be wise to hedge ones bets, but in this case, just as the whole world uses the telephone, the whole world will in time use Voip... I think it's safe to say there will be enough for them to do just providing this one service (along with all its potential variances).

They've already commenced on a mass marketing program and have established a nationwide distribution system to cater for it, (smart cookies if you ask me).

iinet, primus and other potential competitors' first target will be their own broadband customer base. Further, voip is not their core business, that's a lot to take on as an extension to their business. Also, imo, by the time any competitor starts showing any measurable effect in the mass market, Engin should be way past break even, and own a significant subscriber base, which by then they're ESTABLISHED.

What I'm witnessing is the introduction of a technology with the ability to replace what was once considered irreplacable, the humble telephone, an essential item for every household and business, globally... by a company
which has done its homework and prepared accordingly... good recipe for success.

The carriers used voip first, then enterprise, followed by smes, now available to the consumer.
Voip will be a household product.. that's a lot of widgets for sale imho.

To me, here is a company of substance, with a revolutionary high profile product, prepared and ready to cater for explosive growth in the mass market... regardless of the swot analyses... I think it's a unique investment... the likes of which, I'll probably
not see again in my lifetime. (unless an economically viable alternative for crude oil is introduced).... I'll be in that one as well, for sure.

So... I decided not to sell... :)

cheers
Arpeggio


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The comments above are my views and opinions based on observations and research.
They should not be taken as financial advice. Please do your own research or consult your financial advisor for investment advice.
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