Telstra squeezes regional customers from iiNet

Internet service provider iiNet has attributed a significant loss of off-net customers over the 2011 financial year to continuing price squeezes from Telstra in regional areas.

Despite recording an increase of 51,000 customers to its on-net network, a loss of 43,000 customers in regional areas led to a weaker-than-expected aggregated growth of 7700 customers across the financial year.

"Some of that has been from us migrating customers onto our own infrastructure but a lot of that is real loss of market share in those areas where we're purchasing wholesale ports from Telstra," managing director Michael Malone said.

"Telstra is actually charging more just for the port, the ADSL2 port, than they're charging retail themselves.

"We're actually doing it pretty tough in regional Australia, where in suburbia we have a significant cost base, we continue to grow strongly."

iiNet's regional customer base had primarily been served through its Westnet subsidiary, which it purchased for $81 million in 2008.

While the company reported continued strength in sentiment for the Westnet brand, losses in regional areas were largely due to iiNet's inability to compete with Telstra on price.

On questions of customer retention, Malone said iiNet could do little but focus on customer service and "hope they’ll be able to consider us again one day".

"We're still out there fighting and trying to win customers wherever we can," he said.

"The best thing we can do of course is take care of customers when they're with us right now and hope they see value in being with iiNet or Westnet today."

Subsidiary names face axe

Though Westnet would continue as an independently run subsidiary of iiNet, Malone and chief financial officer David Buckingham flagged plans to axe the AAPT brand name as well as that of Netspace once customer migration from each of the acquired providers had been completed.

Migration was nearly completed for Netspace, which iiNet had acquired in March last year for $40 million, while a complete migration of AAPT's consumer base to iiNet DSLAMS where available was expected to begin in October.

The last vestiges of AAPT equipment - a $100 million white label billing system dubbed 'Hyperbaric' - would also be ditched, following a capability review conducted by iiNet during May.

Malone said a complete migration of the AAPT brand into iiNet would deliver $5-10 million in savings over coming years.

The AAPT acquisition had contribued to a reported 48 percent increase in revenues for iiNet, totalling $699 million for the year, but the brand itself had continued a historical decline in customers of 15 to 20 percent a year.

Malone promised a painless end to the brand names.

"When we retire them, we don't break anything," he said.

iiNet reported a total of 641,000 broadband subscribers in its financial results for the 2011 financial year, largely boosted by its $60 million acquisition of AAPT's consumer base last year.

It did not breakdown the number of customers by subsidiary.

High Court costs avoid million-dollar figure

iiNet estimated a "few hundreds of thousands" in additional legal costs over the next financial year as the company's long-running battle with film studios over alleged copyright infringement went to the High Court.

The latest appeal, granted last week, would come before the court as early as October with a final decision expected early next year.

"You're not allowed to introduce new witnesses, we don't have any new evidence being submitted to the court so it's really the cost of preparing for the case and then having the silks appear in court on the day," Malone said.

"We're talking hundreds of thousands, not millions."

The company had incurred additional costs of approximately $700,000 over the past financial year as a result of the legal battle, with total, un-refunded costs totalling $7.4 million.

It had received $2 million from insurers, but would be required to pay 40 percent of the legal costs  - nearly $3 million total so far - after the film studios won a partial reprieve in a costs hearing earlier this year.