How Telcoinabox plans to tap - and feed - the ISP consolidation trend

As the fundamental structure of Australia’s ISP industry shifts under a welter of high-profile acquisitions, Telcoinabox aims to tap the trend with a new service that could itself feed accelerating market consolidation. The telco wholesaler and franchisor has now begun offering technical, legal and sometimes financial assistance to help its service provider customers acquire smaller ISPs, a process that it has dubbed ‘microacquisition’.

“We’ve got 110 service providers of varying sizes... and they, for some time, have been talking to us about the possibility of us facilitating acquisitions for them,” Telcoinabox CEO Paul Line told CommsDay. “So we’ve set up a dedicated team to make that happen – and we’ve started a proactive campaign to find smaller telcos, and in particular ISPs, who are keen to be acquired. We know there are a lot of ISPs out there who are struggling, in terms of lack of scale and margin squeeze, and we think there’s a great opportunity for us to go out and pick up some of that business.”

Consolidation in telco has been emerging as a key trend for some time; the last twelve months has seen such high-profile buyouts as BigAir’s successful bid for Clever Communications, M2’s purchase of Clear Telecom and iiNet’s takeover of Netspace along with AAPT’s consumer division. Telcoinabox, however, has pinpointed opportunities for itself and its customers in this era of consolidation – specifically, at the smaller end of the market.

“[iiNet MD] Michael Malone came out a few days ago and talked about consolidation – and one of his key points was that there are a lot of ISPs out there who are just too small for the likes of iiNet to worry about,” said Line. “Whereas our guys would be happy to pick up someone with 500 subs – that grows their business significantly. And if we can pick up five or six of those [for our customers] over the next 5-6 months, that actually adds to our subscriber base quite significantly as well.”

“A lot of the [potential acquisition targets] are kind of looking for a way out; they maybe got into the game as dial-up providers back in the early days... they’re seeing this business that’s stagnant, they’ve got margin pressure,” he said. “The ones who are more committed will transform their business... the ones who really can’t stomach that or think it’s too hard will be looking for a way out.”

Telcoinabox is keeping its own risks carefully limited, outsourcing the resources needed for processes like due diligence and carefully evaluating those customers requesting fiscal assistance for their acquisitions. The franchisor won’t charge customers for the service; rather, it is anticipating ROI in the shape of increased revenues and economies of scale from service provider clients who have boosted their own customer base via assisted microacquisition. It’s a model Telcoinabox believes is unique.

A pilot of the service launched before Christmas saw Airlie Beach service provider Voice2net acquire Mobile Office; a number of other acquisitions are currently under negotiation, and Line said that interest was running high. “We’ve canvassed our existing service provider base... early signs so far are very encouraging,” he said. “We’ve got a number of interested parties who have already started negotiations with us.” NZ, NBN OPPORTUNITIES: Alongside its new Australian service offering, Telcoinabox also continues to pursue opportunities across the Tasman and elsewhere. “Australia’s doing well but it’s quite a mature business... the revenue curve for New Zealand is just scary!” said MD Damian Kay. “We’ve had to contract sales in New Zealand just to deal with the leads.” “We kind of get the sense that the opportunity in New Zealand now is pretty similar to what it was in Australia when we started,” chipped in Line. “It’s a little behind the curve when it comes to aggregation and wholesale, so it’s very exciting.” The firm is also seeing renewed traction for its UK operations.

And on the NBN front, Telcoinabox remains positive despite NBN Co’s recent move to a model using 120 points of interconnect; the company was an outspoken supporter of the previously suggested 14- point model. “We are still very positive about the NBN – I think we would have preferred the 14-point model, we see the move to the 120 point model as more of an incremental change than a transformational change,” said Line. “[But] we’re now quite happy to look at a hybrid-type model, where we potentially connect directly to NBN Co at certain POIs and utilise an existing Tier 1 carrier at others. We still see great opportunity.”