iiNet and Netspace? Hell, it’s about time

Renai LeMay
Thursday, 11 March 2010 07:24

IT Industry - Strategy

Microsoft Office 365

opinion I am completely unsurprised by the news this morning that iiNet is in talks to buy rival Netspace for what the AFR said was between $60 million and $75 million and what the ISP itself said later was a lot less.

Indeed, having known the principals at both the ISPs — iiNet chief Michael Malone and Netspace MD Stuart Marburg — for some time, I would be surprised if the pair hadn’t flirted occasionally with the idea of a merger on and off for the past decade.

After all, they’ve been leading their respective companies in the same industry for almost two decades. And that industry — due to the fact that it sprang up in the 1990s and grew extremely rapidly — has had a massive history of consolidation.

There must have been quite a few occasions — occasions just like the Australian Telecommunications User Group’s annual awards dinner, coincidentally to be held tonight, where Marburg and Malone made eyes at each other and thought … “what if?”.

As Malone told ARN about acquisitions at the company’s recent financial results briefing … ““In many cases, it is just about when the time is right for them to exit the market and a price point can be reached where we both feel comfortable. Westnet is a good example – we were in talks for eight years. That is just part of the game.” For Netspace, that time may just be now.

In the same article Malone even noted the company was looking at East coast ISPs … which for most in the telco industry would have brought to mind Netspace and its strong Victorian and Tasmanian customer base.

It’s also been quite a while since iiNet bedded down its $81 million acquisition of the fellow Westnet — it’s biggest acquisition.

If you look at iiNet’s history, you’ll quickly realise that it hasn’t gotten to its position as arguably the third or fourth largest internet service provider in Australia through organic growth alone. Malone might be one of the nicest guys in Australia’s telecommunications industry — but from a business perspective he has played the game hard over the past twenty years, acquiring other firms en-masse.

In Australia’s ISP industry, iiNet during the late 1990’s was the equivalent of Google or Microsoft in Silicon Valley today. If you’ve got a hot ISP startup with a fair few customers and a desire to cash out, it would have been a good idea to give iiNet a call.

In other words, with the Westnet acquisition out of the way, it’s time for iiNet to start looking around for further expansion opportunities.

Growth in the ADSL broadband market — iiNet’s core area of strength — has slowed down. It’s only natural for companies like iiNet to buy to build scale.

Ultimately I think a Netspace/iiNet tie-up would be a good arrangement for both companies if the right financial deal could be met. iiNet puts quite a high value on customer service and providing fair value plans and value-add services (for example its pending IPTV launch). I can’t imagine too many Netspace customers are going to cry too hard about an acquisition.

For iiNet, Netspace offers a company with a similar company and customer culture to its own that would give it an additional instant level of scale and revenue to continue pushing up against Australia’s major ISPs, Telstra and Optus. And there’s the nice little network of DSLAMs Netspace has in Tasmania to keep in mind.

It would also offer the company’s shareholders an easy exit strategy and a comfortable home for their baby that wouldn’t involve the stress of publicly listing or other options such as selling out to private equity.

On the flip side, we’ve already been hearing from some customers today that they’re not happy with how iiNet has developed its customer support offering as it has grown. So it may not all be roses.

Are you an iiNet or Netspace customer? What do you think of a potential merger between the two ISPs?

Image credit: iiNet