iiNet swallows left-over Flow

Perth ISP iiNet has signed a contract to buy Flow ADSL and Froggy Internet for $6.3 million from the administrators of failed parent FlowCom.

FlowCom, a holding company for a number of internet-related businesses, entered receivership 21 January after defaulting on $16 million owed to secured creditor Crown Financial. Phil Carter and Greg Hall of consultancy PricewaterhouseCoopers were appointed the receivers.

iiNet confirmed 25 February it had agreed to buy FlowCom's Froggy Internet dial-up and Flow ADSL customer bases totalling 35,000 subscribers for $6.3 million in cash.

The acquisition brings ASX-listed iiNet, which claims to be Australia's fifth largest ISP, to a total 350,000 customers in Australia and New Zealand. iiNet made about $35 million for the first half of the 2003-04 fiscal year.

Michael Malone, managing director at iiNet, said both businesses would augment the Perth ISP's existing operations but the main attraction was Froggy, which would add to iiNet's recent iHug acquisition to ramp up its Sydney operation.

iiNet had agreed to retain all Froggy's 35 to 40 staff but not those of Flow ADSL, which was a very small part of the package, he said.

"Flow ADSL is more just an add-on to our existing ADSL business," Malone said. "But ... Froggy ... will enable us to do a build in Sydney and bulk operations up in that area. Froggy has over 30,000 customers."

Froggy was a strong brand which iiNet would likely continue, he added.

Flow ADSL included iGreen -- which hit headlines a year ago when previous owner Green Communications was forced into administration by creditor Optus Networks -- and Flow ADSL itself but each part was quite small, Malone said.

"While ADSL is great, we don't add a lot of value in ADSL [but] we have our own dial-up infrastructure... which pushes costs down by putting [Froggy] on to that infrastructure," he said.

Malone said iiNet, which has bought out some 30 rivals in 10 years, was still in acquisition mode. "Our opinion is that the industry will continue to consolidate," he said.

However, any perception that many little ISPs were failing was inaccurate, he pointed out. By and large, he said, the companies that iiNet had acquired were successful, financially secure companies.

Those that had failed or bought out had often been repeatedly acquired -- such as Froggy.

"It's often the same ones over and over. Froggy was in trouble, Flow acquired it because it was the largest creditor," he said.

Running ISPs could still be very lucrative, he said, and only a small number of ISPs, in terms of the overall size of the industry, were failing.

"For most of those guys out there they can be on 15 to 20 percent margins. Especially for those running SMB ISPs, it's a tidy little business as long as you keep your eye on the ball," Malone said.

Lex Melzer, a spokesperson for PricewaterhouseCoopers, said that Froggy and Flow ADSL had been the largest parts of FlowCom's wholly-owned subsidiary Flow Communications for sale but the receivers still sought buyers for other parts of that business.

The telco's other wholly-owned subsidiary, MacroCom, had not entered receivership and thus no part of that business was for sale, Melzer said.

PricewaterhouseCoopers had more than 25 enquiries from prospective buyers for parts of FlowCom since the sale was announced 23 January.

"On the retail side, there are still little bits and pieces left," Melzer said.

Holding company FlowCom incorporates a range of data communications products including dialup and DSL internet, web-hosting and wholesale carrier services, facilities management and e-commerce packages.

FlowCom had called a trading halt on 14 January pending clarification of the status of its arrangement with Crown Financial, following receipt of a notice of withdrawal of funding from Crown.