iiNet looks to mobile, NBN after strong FY2012

With new plans, iiNet aims to “exploit” a “very choked environment" in mobile.

Broadband provider iiNet expects mobile and the NBN to drive future profits, its executives said after reporting strong fiscal-year 2012 results.

The company is focusing more on mobile services as part of a strategy to increase profitability by selling an average of three products to each of its customers, said iiNet CFO, David Buckingham. The company recently rolled out new mobile plans and handsets for existing customers under the iiNet and Internode brands].

The iiNet plan, available to existing customers only, lets customers pay separate monthly rates for the device and SIM card. “Essentially, we’re trying to meet what we think is the untapped market of customers to be able to pick and mix between handsets and SIM plans,” Buckingham said. The company hopes to “exploit” a mobile market that is a “very choked environment at the moment in terms of choice,” he said.

Michael Malone, iiNet CEO, agreed with Optus CEO, Paul O’Sullivan, that the Australian wireless market is saturated. “The market is getting tougher and tougher,” Malone said. “We have the obvious benefit that we’re starting with nothing [and] we’re only selling to the existing customer base.” The latter factor reduces overhead for iiNet, he said. “We already have a billing relationship with the customer, the support is typically around the setup only” and iiNet already knows the customer’s credit history.

The NBN is another source of growth for iiNet, the executives said. The company has about 2000 customers already. While iiNet will support fibre, satellite and fixed wireless, most of its early customers are on fibre, Malone said. A recent projection by iiNet of what migration to NBN would mean for its business showed an increase in profitability, said Malone. Early adopters of NBN service have largely chosen higher-end NBN plans, he said.

In FY2012, iiNet's revenue shot up 19 per cent to $831 million while reported EBITDA soared 47 per cent to $144.8 million. Recent acquisitions of Internode and TransACT drove top-line growth and increased iiNet’s broadband market share to about 15 per cent, the company said. After the acquisitions, iiNet’s business segment is worth $170 million per annum, Malone said.

Integration of Internode has been particularly smooth because the companies share similar cultures that are focused on customer service, Malone said. “We expect to fully integrate Internode’s and TransACT’s systems and networks over the next 12 to 24 months,” Malone said. Consolidation has enabled iiNet to expand content for customers and provide group-wide access to unmetered content, Malone said.

“We’re sort of in early days on TransACT … with a lot of systems-based IT automation work to do” to enhance customer service, said Buckingham. “In Internode it’s a more traditional iiNet integration story, and we’ve knocked off a couple of the tasks there and we’ve got more to do … to drive that $7 million in improvement of EBITDA in FY2013.”

Integration of AAPT “continues to track as expected,” but that company is in “decline mode,” Buckingham said. AAPT was the principal driver of customer loss in the fiscal year, he said. “We’re in the middle of a big billing migration there."

New wholesale ADSL interim prices declared by the Australian Competition and Consumer Commission improved the iiNet cost base in regional markets, Malone said. “We look forward to the final determination being released soon so that iiNet can be more competitive and grow market share again in regional Australia.”

Also, iiNet announced Internode founder Simon Hackett has joined the iiNet board as non-executive director. The move was announced earlier this year. Hackett said the new role allowed him “to have input into broader strategic issues at Board level, whilst seeing Internode continue to flourish.”

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