MICHAEL Malone might be one of the rare arrivals at Monte Carlo in early June when he appears to represent Australia in the Ernst & Young Entrepreneur of the Year Awards.
Mr Malone, who founded and runs the nation’s third biggest ISP, iiNet, knows it is something of an uphill battle for him to win the global award, due to the challenges he has running a business in a high-cost country such as Australia.
Unlike many of his rivals for the EOY award crown, his business options are limited and he struggles to make a case for expansion beyond this continent, despite iiNet’s local success in challenging the incumbent Telstra.
However, Mr Malone does see the potential for expansion in regions close to where the EOY finals will take place – what we could dare call the ‘ruins of Europe’.
“When you are looking at the next obvious place to enter, you know where you end up?” Mr Malone asks rhetorically.
“Europe,” he answers.
“Like Ireland, while there is a bit of personal bias there, broadband penetration in Ireland is below 50 per cent.
“Even though that is on the other side of the planet it is a friendlier place than Indonesia.
“Entering another OECD country would be easier than entering a developing country.”
Mr Malone said broadband telephony was considered a utility in a country such as Ireland, compared with a developing country, where it would be a luxury.
As part of the Babcock & Brown empire the incumbent player, Eircom, had been starved of capital for a couple years when the Australian infrastructure group ran into financial difficulties.
With a strong Australian dollar, limited options for acquisition opportunities at home, and a service culture he believes fits the high cost needs of mature economies, Mr Malone hints that a market such as Ireland could offer iiNet its first step outside the region.
The Perth-based ISP still runs service centres in New Zealand and South Africa, so it is not inexperienced when it comes to international operations across multiple time zones.
But Europe’s disastrous economic settings do not necessary make it easy pickings.
Apart from the risk of going into places where growth has stopped and GDP is declining, some of the worst-affected countries have very stable and strong ISPs.
Mr Malone notes the strength of Spain’s Telefonica telco, which has built a dominant position much like Telstra, but with a different strategy. It went off to Latin America and became a major player in the developing world, using the profits from operating in these low-cost countries to challenge incumbents and help it build market share at home.
“Europe is interesting,” he said.
“Each country is a universe that could have been Australia.”
Mr Malone said he had been thinking hard about how he could win over the judges in Monaco with a story of innovation largely linked to one country – Australia.
“It is now a different league,” he said.
“When you are in the World Entrepreneur of the Year they are going to ask how is your business model going to move outside of Australia. For telcos, because we are bound to our infrastructure, it is very different, how do you take the strategy from here and mirror it overseas?
“We are paying too much but we can also afford it. Relative to the rest of the world Australian consumers are in a very good position.
“The flip side of that is how do I take my model overseas?
“Markets overseas are split into two; they are highly regulated mature markets like Asia, which require a local partner to get in, or there are the third world countries, the developing countries where you need razor-sharp costs.
“So I am looking at that and saying ‘how do we expand’?
Mr Malone hasn’t written off the idea of returning to New Zealand after selling out some years ago.
“We (already) got out of New Zealand; to the world, by the way, New Zealand looks just like Australia. I think the time is right for us to re-enter New Zealand; there are 160 ISPs in New Zealand and no consolidation.”
South Africa also offers some opportunity, but recent deregulation has not allowed enough time for the market to mature and settle down.
“There is a temptation to invest there. However, when a market gets deregulated like South Africa, foreigners and locals have a tendency to over invest for the first couple of years,” Mr Malone said.
“There has to be that first-round collapse. When the costs drop in the second round, there is the opportunity for service providers to enter the market.”