iiNet Buys Internode, Australia’s Broadband Future Looks Brighter.

Ever since I’ve been able to get broadband Internet I’ve only had the one provider: Internode. Initially it was just because my house mate wanted to go with them, but having zero experience in the area I decided to go along with him. I think the choice was partially due to his home town being Adelaide, but Internode also had a reputation for being a great ISP for geeks and gamers like us. Fast forward 6 years and you can still find me on an Internode plan simply because the value add services they provide are simply second to none. Whilst others may be cheaper overall none can hold a candle to all the extra value that Internode provides, which I most heartily indulge in.

In Internode’s long history it’s made a point about being one of the largest privately owned Internet service providers (ISPs) in Australia. This is no small feat as the amount of capital required to become an ISP, even in Australia, is no small feat. Internode’s reputation however afforded it the luxury of many geeks like myself chomping at the bit to get their services in our area, guaranteeing them a decent subscriber base wherever there was even a slight concentration of people passionate about IT and related fields. In all honestly I thought Internode would continue to be privately owned for a long time to come with the only possible change being them becoming publicly traded when they wanted to pursue more aggressive growth strategies.

Today brings news however that they will be bought out by none other than iiNet:

In a conference call this afternoon discussing the $105 million takeover announcement, Hackett said that because of NBN Co’s connectivity virtual circuit charge, and the decision to have 121 points of interconnect (POI) for the network, only an ISP of around 250,000 customers would have the scale to survive in an NBN world. With 260,000 active services, Internode just makes the cut. He said the merger was a matter of survival.

“The size of Internode on its own is right on the bottom edge of what we’ve considered viable to be an NBN player. If you’re smaller than that, the economics don’t stack up. It would be a dangerous thing for us to enter the next era being only just quite big enough,” he said.

Honestly when I first heard the news I had some very mixed feelings about what it would entail. iiNet, whilst being a damn fine provider in their own right, isn’t Internode and their value add services still lag behind those offered by Internode. However if I was unable to get Internode in my chosen area they would be the second ISP that I would consider going for, having numerous friends who have done so. I figured that I’d reserve my judgement until I could do some more research on the issue and as it turns out I, and all of Internode’s customers, really have nothing to worry about.

Internode as it stands right now will continue on as it does but will be wholly owned by iiNet. This means that they can continue to leverage their brand identity (including their slightly premium priced value add business model) whilst gaining the benefit of the large infrastructure that iiNet has to offer. The deal then seems to be quite advantageous for both Internode and iiNet especially with them both looking towards a NBN future.

That leads onto another interesting point that’s come out of this announcement: Internode didn’t believe it couldn’t economically provide NBN services at their current level of scale. That’s a little scary when one of the largest independent ISPs (with about 3% market capture if I’m reading this right) doesn’t believe the NBN is a viable business model for them. Whilst they’ll now be able to provide such services thanks to the larger user base from iiNet it does signal that nearly all smaller ISPs are going to struggle to provide NBN services into the future. I don’t imagine we’ll end up in a price fixing oligopoly but it does seem to signal the beginning of the end for those who can’t provide a NBN connection.

Overall the acquisition looks like a decisive one for iiNet and the future is now looking quite bright for Internode and all its customers. Hopefully this will mean the same or better services delivered at a lower price thanks to iiNet’s economies of scale and will make Internode’s NBN plans look a lot more comepetitive than they currently are. Should iiNet want to make any fundamental changes to Internode they’re going to have to do that softly as there’s legions of keyboard warriors (including myself) that could unleash hell if they felt they’ve been wronged. I doubt it will come to that though but there are definitely going to be a lot of eyes on the new iiNet/Internode from now on.

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