[LINK] Smart TransACTion puts Optus in iiNet's sights

[Tom Koltai]

So on the home straight it looks like it will be TPG, iiNet and NBN only
a nose behind Telstra.
That iiNet jockey is obviously eating his wheaties.
 

Smart TransACTion puts Optus in iiNet's sights
By David Braue, ZDNet.com.au on November 22nd, 2011 (1 day ago) Follow
@zyzzyvamedia

http://www.zdnet.com.au/smart-transaction-puts-optus-in-iinets-sights-33
9326582.htm

Quote/
A view from the trenches of Australian telecommunications. As the name
implies, it's a two-way conversation and we ask you not to pull any
punches ... we won't.

It is ironic that Optus celebrated the 20th anniversary of its
establishment - the putative beginning of Australia's telecoms
competition - in the same way that it began: by attacking a monopolist
in a hail of vitriol and dire warnings of imminent systemic collapse.

By all accounts, that was the tone of Paul O'Sullivan's speech on the
occasion, in which he warned that the NBN venture is on "a knife's edge"
and that the ACCC must guide our brand new monopolist - NBN Co - with a
firmer hand than the limp-spaghetti grip it has used to "manage"
Telstra.

There is truth in what he is saying: NBN Co must of course be managed
appropriately to ensure its status as favoured monopolist doesn't foster
anti-competitive behaviour that could hinder the industry's growth in
the future. Yet to have Optus - for years a favoured competitor to
Telstra that ran smack into the monopolist's brick wall when
deregulation kicked in back in 1997 - call for greater regulation is
sweetly ironic.


Unencumbered by 20 years of hits and misses, iiNet's new cloud and fibre
nous has it gunning for Optus. (Ordoez gun barrel image by BrokenSphere,
CC BY-SA 3.0)

The whole point of deregulation, after all, was to free up the landscape
so Optus and other vendors could swim or sink on their own merits. And
where many have sunk, Optus has thrived: 20 years on, it's an industry
behemoth of sorts, with many millions of fixed and mobile customers,
billions in revenues and a significant industry presence.

Much of this growth came because Optus was unencumbered by many of the
legacies of Telstra's past. The copper network might have been an
instrument of market control, but it's also expensive and forced Telstra
to maintain non-commercial services such as its Universal Service
Obligation investments. This sword had two edges: Telstra had to spend
to maintain and fiercely protect an ageing and problematic
infrastructure whose fundamental failures in large part justified the
NBN in the first place. Telstra itself has publicly said the network
will have zero value within a decade, and - inevitably freed of its
monopolistic strength and restrictions - it hardly wants to still be
propping up the network by then.

Of course, Optus has its own legacy: namely, a series of misfires as it
tried, unsuccessfully, to expand its core access business into new and
profitable areas. Its cable business hobbled along for years as it tried
to pry exclusive broadcast rights from Telstra-Foxtel's hands, which
eventually rendered Optus Vision extinct and diminished hybrid-fibre
coaxial's potential to the point where Optus is now happy to shut the
whole thing down and never talk about it again. There was also the
big-money Optus at Home content portal, back at a time when media companies
were convinced all they had to do was partner with an ISP to be rolling
in dough.

Telstra has had its own stumbles: remember how it decided to break to
the professional services market by buying Kaz in 2004, then held onto
it for five years before selling it off in 2009? Or how it invested
heavily in Hong Kong but ended up losing big on its CSL New World and
Reach joint ventures? Now, we hear it's reading last rites over Sensis,
a bloated holdover from the printed content era whose time came a long
time ago.

    NBN Co is not Optus' biggest problem: however good or bad NBN Co is,
it will be that way to all ISPs. And that includes Telstra, once it's
separated. No, Optus' biggest problem is iiNet.

Sensis, like obscure and usually-empty shops such as Tandy and Ed Hardy,
is one of those companies whose existence you often wonder about. It
does lots of stuff with maps, apparently; has an iPhone app that
sometimes finds what you want it to; and wants so desperately to market
details of its customers that it once led Sol Trujillo to declare it
more important than Google and predict that it would generate $3 billion
in revenues by this year.

Ahem. It didn't, and now it's being restructured as Telstra tries yet
another strategy to move forward into the digital age. Universal Service
Obligation (USO) burdens, unrealistic shareholder expectations and the
fall-out from combative management relations with government overlords
all exacerbated Telstra's problems throughout the years - years in which
Optus was happy to play good cop to Telstra's bad, collecting customers
along the way and merrily laying fibre where it pleased.

These are familiar stories in the telco world, where Optus and Telstra
have spent so much time trying to one-up each other that they've
embarked down some questionable paths that have often failed to deliver
what they'd hoped. Unless, you know, you're a huge fan of the ARIAs and
see value in subscribing to Optus just so you can watch all the
contrived back-stage dramas.

Sure, companies are always trying new things, but when they become
lumbering giants they leave themselves open for smaller, nimbler
competitors to come cut them off at the knees. And NBN Co is not Optus'
biggest problem: however good or bad NBN Co is, it will be that way to
all ISPs. And that includes Telstra, once it's separated.

No, Optus' biggest problem is iiNet.

Once a scrappy little ISP from Perth that developed a nationwide
reputation thanks to good customer service, iiNet has spread across the
country with a goofy advertising campaign, solid services, good prices
and well-intentioned investment in DSLAMs that have given it significant
broadband penetration. A series of major investments have boosted
customer numbers, while carefully-planned change programs integrated
those customers without the company skipping a beat. The company is that
rare and dangerous breed that combines an upstart's ambition with the
large scale to realise it.

iiNet is, in a word, ravenous - and it has Optus in its sights. And
that's why its acquisition of TransACT is more than just another entry
in its balance sheet: TransACT, with a long and storied history of
delivering fibre to the home (FTTH) services across the ACT as well as
owning HFC infrastructure in several regional cities, has more recently
refocused its strategy on cloud computing - and is at the end of an
18-month restructuring that has refocused its core business in that
direction.

    If iiNet continues to expand its coverage and strategically extend
the depth of its services to sit at the forefront of cloud computing and
other fast-growing markets, it will secure a position as a new and very
real contender in crucial government and big-business contracts.

iiNet CEO Mike Malone was quick to downplay suggestions that the buy is
a pre-emptive strike against the NBN. However, there's more to the story
than simply buying TransACT's 40,000 customers: like every telco, iiNet
is also eyeing cloud computing; its purchase of TransACT will give it a
big boost in that space, where Optus and Telstra are already stretching
their wings.

If it can leverage TransACT's infrastructure and expertise, iiNet will
be able to sell an even more-convincing story to the enterprise and
markets that Telstra and Optus have largely split until now. And, since
iiNet will be able to leverage the NBN, it can avoid sinking billions
into infrastructure as Telstra and Optus have done. Rather, it can focus
on fine-tuning what infrastructure it does have, gradually shifting its
customers to the new network, and continuing to bulk up and pursue
ever-larger customers at the expense of its rivals.

If Telstra and Optus are heavily-laden freighters lumbering their way
through the seas of the telecoms market, iiNet is a speedboat that's
weaving to and fro in front of them while passengers moon their pilots
from the deck. iiNet offers FetchTV IPTV; Optus does the same. Optus
runs a big mobile business; iiNet has launched itself as a streamlined
MVNO. Yet, iiNet knows what it wants to become, and it has a plan to get
there. Optus and Telstra, meanwhile, have their toes in so many
different pools that they've repeatedly found themselves tripping over
their own feet.

Just as Optus learned from Telstra, iiNet is learning from both Optus
and Telstra. Both giants are using the NBN as an inflection point, from
which to reshape their business and consider life in a world where they
don't have to focus so much on physically providing access. But iiNet
has sidestepped all that: it may have a large customer base, but its
relatively shallow base of products compared with its legacy-burdened
rivals means it has the flexibility to try many new services and quickly
ramp up the ones that are successful.

If iiNet continues to expand its coverage and strategically extend the
depth of its services to sit at the forefront of cloud computing and
other fast-growing markets, it will secure a position as a new and very
real contender in crucial government and big-business contracts - and
establish itself as the Optus of the third decade of competition.
/Quote