Now, the value of these acquisitions make a fair deal of sense when you consider them in perspective. It's likely, given its historical complaints about Telstra's wholesale prices, that AAPT's customers were only making fairly low margins for the company '” an idea borne out by the fact that iiNet only expected the AAPT buyout to bring in post-synergies EBITDA (earnings) of $20 million in the first year after the acquisition.
iiNet probably paid a little more on a per customer basis for Netspace customers, as those customers were likely to be worth more in terms of margin, and Netspace had substantial chunks of its own infrastructure (so did AAPT, but we can assume AAPT kept most of its own physical network to fuel its wholesale business).
We also have some measure of what iiNet's acquisitions brought in in terms of revenues.
In the six months to 31 December last year, iiNet's revenue grew 45 percent to $330 million. 6 percent of that was organic growth, while the remaining 39 percent represented a full six months' worth of Netspace revenue, and three months of AAPT. In short, buying Netspace and AAPT boosted iiNet's revenues by about $89 million last year; and that number will go up again this year as AAPT's revenues kick in further.
Still with me? Good. Let's go on to look at Internode.
Firstly, we do know a little about how many customers Internode has. According to iiNet itself, Internode had some 190,000 ADSL subscribers as at February this year. With broadband subscribers being the key measure here, that makes Internode larger than either the consumer division of AAPT, or Netspace.
In addition, those customers are likely to be worth quite a bit more each in terms of margin than the customers of either AAPT or Netspace. Generally Internode customers are very loyal to the company. They use a lot of data, generally are on Internode's own in-house ADSL infrastructure, and likely use more than one service (for example, they might be using Internode's NodePhone internet telephony service).
Furthermore, Internode's margins (and hence its profitability) are likely to be enhanced by its penchant for both building its own infrastructure and sourcing alternative options to buying backhaul from Telstra whenever possible.
We can also compare Internode to another company '” TPG. With about 507,000 ADSL customers as at the start of this year (according to iiNet), plus a substantial amount of additional infrastructure owing to its acquisitions of Soul and PIPE Networks, TPG is also one of Australia's largest telcos. It currently has a market capitalisation of about $1.3 billion '” triple that of iiNet. However, again, it is possible, given TPG's low prices, that Internode is making a lot more margin and actual earnings from its customers than TPG is.