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Internet service provider iiNet’s co-founding CEO Michael Malone has had a lot to contend with this year. Two acquisitions, and a High Court challenge to boot. But maybe now’s as good a time as any to breathe easy: the numbers suggest it’s been a good year.
The West Australian company, the nation’s third-largest ISP, today posted an improved profit – up 11% on the last financial year, to $37.054 million. Revenues jumped 19% to $831.225 million.
But the future doesn't lie in doing the same thing. "We've done a lot of work to segment our customer base and retrain our service staff," he said in today's results briefing. The aim is to drive iiNet's product per customer ratio up. "In our residential business, we want to get to three products per customer as quickly as we can," he said. The company is rolling out its mobile offering, and currently offers a range of telecommunications services like cloud services and fixed-line phone plans.
A busy year
In November, iiNet acquired Canberra-based TransACT. Two months later, it bought Internode, based in Adelaide.
The Internode acquisition was hailed at the time as a good one. Both companies have a similar cultural fit, with iiNet and Internode both tending to cater to the more technologically-minded end of the communications market.
But that doesn’t mean Internode could just slot in seamlessly from the start. Both acquisitions are expected to take some years before their customers and systems are fully integrated into iiNet - at which point it can gain the greatest cost-savings from its growth.
If that wasn’t enough to manage, the telco had to navigate the end of a four-year legal battle that concluded, in iiNet’s favour, in the High Court in April. In 2008, the Australia Federation Against Copyright Theft (AFACT), which represents Hollywood’s biggest movie studios as well as Australian television networks such as Network Seven, filed a lawsuit against iiNet, arguing it had infringed on copyright law by failing to prevent its subscribers from downloading pirated material.
Malone emerged as a champion of internet liberties, going so far as to say the reason people pirated content was because it wasn’t available otherwise. “We urge the Australian film industry to address the growing demand for studio content to be delivered in a timely and cost-effective manner to consumers,” he said this year.
In 2010, a Federal Court judge found in favour of iiNet, saying it wasn’t the responsibility of the ISP to prevent copyright infringements. AFACT appealed, but this year the High Court upheld the original decision.
The geek’s choice
iiNet was founded in 1993 by Malone and his friend, Michael O’Reilly, after they finished university. They started their business in O'Rielly's parents' garage in Perth, and it was the first organisation to offer dial-up internet access to customers in Western Australia.
The company listed in 1999, and introduced broadband a year later. Over the next few years they would complete a number of acquisitions, increasing their reach and their customer base.
iiNet now has more than one million customers.
But there are few new people left to sign up to the internet. iiNet’s growth has to come from other markets, including corporate Australia.
That’s what the TransACT acquisition was about.
“The acquisition of TransACT has significantly expanded our presence in the business segment,” Malone says. “Five years ago we identified this segment as one we would focus on expanding. Since then we have successfully expanded our portfolio, and now provide services across all key market sectors from home and small office, through to small businesses and now into corporate and government businesses.”
Business customers now bring iiNet revenues of more than $170 million a year – just over 20% of total revenues.
But business customers are tough market to crack. The nation’s leading internet service provider, Telstra, is dominant. Under CEO David Thodey, Telstra has emphasised customer service, an area that had been a competitive advantage for iiNet.
iiNet is also focusing on cross-selling its range of products. It began offering mobile plans today. “It’s a very choked environment right now in terms of choice [for mobile customers],” Malone says. “We’re going to take the opportunity to give more choice to customers.”
And, of course, future growth could come from the NBN.
iiNet has 2000 customers signed up with the NBN – making it the early market leader.
“We’re basically following the NBN truck around the country,” Malone says.