Last week brought the surprise announcement, forced by the power of Twitter (some folks generating themselves some activity) that Vodafone was in talks with Telstra, to acquire TelstraClear. I found the coverage at National Business Review fairly balanced, with the a different take on the move coming from The Dominion Post. I certainly won't forget the events of that Tuesday - confirmation of the many rumours that swirl the industry, combined with interesting timing of calls and texts before and afterwards.
Regardless of what happens, the move signals the beginning of another consolidation round, where the biggest companies move to acquire some of the smaller ones (directly or indirectly in the industry), and so seek to gain some advantage for the next 5 years and make some money. Certainly the ISP landscape has fragmented, and the small ones are busy trying to create ways of standing out from the crowd, although most of the activity is price related rather than much genuine improvement over what's on offer. The most interesting recent move was Maxnet and their "Global Mode" feature, trying to overcome the technology around geolocation preventing users from accessing foreign content, with BBC iPlayer standing out in my mind. That barely got off the ground before being shuttered, and I was left wondering at the overally legality of offering a commercial service that actively assisted in circumventing media rights barriers.. guess we'll never know.
Consolidation happens where a market has too many competitors, and the opportunity for new sales is replaced with one company taking the customer's of the other. The NZ broadband is in this place now, with many players all contesting for the same customer base - there aren't that many new broadband sales to be had - using the levers of price, or increased elements inside a bundle ("$99 for 1TB of Internet data, knock your socks off!!!"). This creates a lot of choice, but as the growth comes from ever decreasing prices, or ever increasing costs for no new revenue - well, something has got to give. Inevitably this leads to Merger & Acquisition, where one company acquires or merges with another, pools it's new resources (technology, infrastructure, people, plant), combines it's increased customer base and seeks to gain new revenue from somewhere else.
I'm often amazed at how much speculation there has been around the future of 2Degrees, and that acquisition is almost certainly it's future - that's a pretty damning pronouncement on the future of a business and the energy that has gone into creating it. Yet fundamentally even the 2D folks know they can't keep spending money indefinetly trying to keep up with Telecom and Vodafone, on pricing that is dropping every 6 months. The cost of new technology is not dropping - it keeps going up - and the cost of your overheads (people, plant, machinery) does'nt go down either.
TelstraClear was born from an earlier amalgam of TelstraSaturn, which was born from Telstra acquiring Saturn. Vodafone acquired iHug a few years ago. Quicksilver was acquired by Woosh. Kordia acquired Orcon. Orcon acquired Bizo. On it goes. For a small country, NZ technology sees a fair share of acquisition and merger activity, and is going to see a lot more in the next 3 years, as the industry grapples with a world where - almost - everybody has to use the same fibre network to deliver voice, internet and entertainment, but where the innovation disappears from the plumbing and is replaced with the quality of the call centre, the capability of the consulting staff, the physical reach of regional offices and local people, and how to generate new revenues to stay in business.
Fundamentally, NZ will still have about 4,5m people. The global economy and the debt levels of the western world will still loom over everything we do. Numpties will continue to operate in whatever government is in charge and create fleeting, media sensation. People will still complain that Internet is too expensive, and that it should be just a monthly charge so they don't have to worry about unexpected big bills - or even regulate their own activity, consuming as much as they possibly can. Big NZ companies will be accused of gouging customers and making too much money. New entrants will enter the market again and seek to undercut the big players, winning a little business by virtue of being someone new and not encumbered with the investments of the past.
And in another 5 years, we will look on in amazement when the next consolidation round occurs.
Other related posts:
2Degrees prepay price change
Introducing the Hot New Social Network (updated!)
Comment by Kiwipixter, on 14-Jun-2012 23:40
Its business, not consolidation. The same happened in IT and other industries, telco not an exception just the norm. Also just because big telco A bought telco B doesn't mean the latter was performing bad. 2Degrees will be sold eventually, not because it can't compete with Voda or XT or performing badly, its more to do with their start-up investors aren't in it for the long run.
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