Friday, July 30, 2010

AAPT Consumer business sold to iiNet

Well, the AAPT Consumer business has been sold to iiNet for $60M. In the various announcements this is about 120,000 customers so on the old $/sub methodology a customer is worth $500. Interestingly Telecom expects the sale to decrease EBITDA by $10M while iiNet expects to increase EBITDA by $20M. Where they will find $10M of synergies that weren't available to AAPT (which owns significant fibre backhaul of its own) is interesting.

More interesting is that the transaction includes the "billing system" which presumably means Hyperbaric which cost AAPT somewhere over $100M.

Yesterday I blogged about purpose and used AAPT as a case study. The history of AAPT's consumer business alone is somewhat entertaining.

AAPT's initial business was heavily focussed on the business market - by connecting up company PABXs. In the post 1992 era a business was to be had by using the corporate pricing plans of Telstra - the Strategic Partnership Agreements (which I had a big role in creating) to access corporate discounts which were arbitraged to as resale. I also had the experience of losing the News Corp account which I was running (and we were JVing with for Foxtel)to AAPT - as News also owned almost half of AAP.

Telstra eventually (I think Feb 1995) massively revised these deals mostly eliminating the savings on local calls. AAPT at that point massively contracted its business. AAPT also commenced a long dispute with Telstra over the charges - quite frankly the billing system implemented for SPAs was never equipped to provide the functionality wholesale customers required.

However in 1998 the ACCC decided to "declare" the local call service. Both One.Tel and AAPT got into the consumer voice market in a big way - and both priced local calls at 15c when the retail price was 25c. Telstra responded with a very cute structure that included dropping the main price to 22c but expecting to return it to 24.2c with the GST (I think those were the numbers)and matching the 15c for calls within an exchange area. The Telstra plan came a bit unstuck when Richard Alston said his promise that local calls wouldn't go up under the GST didn't mean they wouldn't go up from 25c - they wouldn't go up - so Telstra got stuck at 22c.

It was about this point when I arrived at AAPT and I distinctly recall having to explain to AAPT management that the ACCC wasn't going to set the wholesale price at a number that was determined by what AAPT chose to sell calls at. Neither One.Tel nor AAPT made any money from this foray - the wholesale price never did make the call price attractive.

After Telecom acquired AAPT and changed out a lot of managers (the first of three full changes in my time there) the consumer business imposed a price change that put a surcharge on the bill if the customer didn't make "enough" long distance calls. It was the only way to try to shed 100,000 loss making customers.

But Telecom's first big strategic error was to decide to run its mobile and internet business from 2000 to 2002 as Trans-Tasman businesses - AAPT was just the "voice and data" business. Worse the separated internet business then got into a consumer business JV with America On Line. So just at the time when as a consumer business AAPT should have been building the start of its broadband business it couldn't. That AOL customer base was eventually sold to Primus.

But the latest sale I think has generated the single most memorable line from a telco media release. Two management team changes later than the first Telecom acquisition at AAPT we were having a management meeting to determine the key messages for PR. The new self-styled Chief Mrketing Officer lent forward and earnestly said "it is important that we communicate that we are customer-centric". I looked up and said "yes that is important because I'm sure that all the other telcos are saying they want to communicate that they are network-centric".

I see in the announcement from Telecom today what I thought was sarcasm was instead foresight of the eventual strategy. I quote;

"Together these transactions rationalise non-core assets, strengthen
Telecom’s financial position, and help reposition AAPT’s operations into a
focused, network-centric wholesale and corporate business that is wellpositioned
for future growth."

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