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iiNet looks to build network

INTERNET Service Provider iiNet is planning to build its own network as part of a strategy to capture an increasing share of the broadband market.

Also on the cards is a range of voice services and plans to migrate existing dial-up customers to DSL.

At last week’s AGM the company’s board described 2003 as a “watershed” year during which iiNet’s market capitalisation jumped from $36 million to around $260 million.

The company reported a net profit of $5.2 million and revenues of $40 million for the 12 months ending June 30.

iiNet co-founder and managing director Michael Malone said that, if successful, the company’s strategy would alter the current situation whereby iiNet pays around 50 per cent of its DSL revenues to Telstra for use of infrastructure.

“Telstra is not only our nemesis, they are also our major supplier,” he said.

“It was the case with dial-up and it will be the same with broadband. Realistically, they own the copper.

“iiNet’s focus has been on owning the infrastructure ourselves.”

However, Mr Malone said the rise of DSL would still leave a substantial market of dial-up customers remaining.

He said that while the dial up market was “flat”, the ISP market remained very competitive, particularly in the relatively new area of broadband

Mr Malone said iiNet had taken advantage of the consolidation in the ISP market by acquiring the customers of smaller ISPs.

This year iiNet made a series of acquisitions in Victoria, Tasmania, Northern Territory, Queensland, New South Wales and the Australian Capital Territory.

However, Mr Malone did not rule out further acquisitions in the future.

“There are still more than one million customers in smaller ISPs,” he said.

The complexion of iiNet’s business had changed quite dramatically this year, Mr Malone told WA Business News, following numerous acquisitions and a merger with New Zealand-based iHug in October, which boosted customer numbers by 170,000 in Australia and New Zealand.

In February, two thirds of iiNet’s business was based in WA. Now, due to the company’s expansion, that figure is around one third, with another third of the company’s business on the east coast of Australia and the remaining third in New Zealand.

Mr Malone said iiNet was now the second-largest DSL provider in Australia and that the company was well placed to capitalise on economies of scale.

He said that, by early 2004, the ISPs the company acquired would be operating from a low cost base facilitated through a deal struck with Telstra.

Under the terms of the Telstra deal iiNet does not have to pay the same monthly line rental as other dial-up ISPs until mid-2005 across Australia. Prior to his deal, the cost savings advantage was confined to WA.

iiNet also used the AGM to announce the appointment of Peter James as a non-executive director. This follows the appointments of Keith Goodall and Lindsay Ferguson as non-executive directors.

Mr Malone also said iiNet had plans for its telephony services.

“We expect to have a compelling bundle for long distance and international calls,” he said.

In 2001 iiNet Group launched Chime Communications, a wholly owned telecommunications carrier that provides wholesale telephony and data services to corporate clients and ISPs.

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