Australia’s 45 fastest growing telcos

The SmartCompany Dun & Bradstreet Telco Industry Growth List shows which companies are booming thanks to growing demand for online content, faster internet speeds, VOIP, and new consumer trends. By MIKE PRESTON

By Mike Preston

The SmartCompany Dun & Bradstreet Telco Industry Growth List  shows which companies are booming thanks to growing demand for online content, faster internet speeds, VOIP, and new consumer trends.

A new generation of businesses built around the latest internet technologies and online consumer trends are achieving extraordinary revenue growth and reshaping the telecommunications sector.

Booming demand for online content – and the advertising revenue it attracts – is fuelling double or triple digit revenue increases for the industry’s leading companies.

Digital music, video and entertainment company Destra Corporation achieved 438% revenue growth in the 2006-07 financial year, a feat that earns it first place on the SmartCompany Dun & Bradstreet Industry Growth List for the telecommunications sector.

Second is online portal and advertising business Ansearch, with 401% revenue growth in 2006-07, and Comtel (3rd), MobileActive (7th) and Interactive Data Services (17th) have also achieved impressive revenue growth by selling digital content and advertising.

Faster broadband and more tech savvy customers have helped drive fast growth for voice-over-internet businesses such as My Net Fone Australia (4th) and Engin (5th).

And telco advisers and re-sellers such as GlobalConnect Australia (8th) and Integ Communication Solutions (11th) are making money helping businesses take advantage of the digital communication revolution.

The companies building the cables and transmitters through which all these new online opportunities flow are also taking their share, with Pipe Networks (6th), Clever Communications Australia (9th) the standout performers.

Online communities = advertising profits

It is telling that the top three businesses on the SmartCompany Dun & Bradstreet Industry Growth List are exposed to the global online advertising market, which is expected to be worth $US46 billion in 2008.

Sharp growth in online advertising revenue has helped Destra consolidate its position as Australia’s leading online content company, with 14 acquisitions in 18 months providing the basis for 2006-07 revenue of almost $67 million.

Founded in the mid 1990s, Destra has changed its spots a couple of times – from selling content to web hosting and back again – and is now in the process of adapting to tap the rivers of gold flowing from online advertising.

Chief executive Dominic Carosa says he expects much of the business’s growth in coming years to come from advertising rather than selling the music, video and entertainment content itself.

“We’re always thinking about how to monetise our content, and basically we believe that more and more content will be given away free and wrapped in advertising,” Carosa says. “When Rupert Murdoch recently dropped the subscription fee for The Wall Street Journal he said he can generate five times the revenue selling advertising, and Destra is in a similar situation.”

Telecommunications analyst Paul Budde says Destra stands apart from other fast growing business in the sector in its exposure to the mass media market.

“Many businesses are achieving success in niche markets, but they won’t be able to make the transition to a mass market company. Destra has done that, it is absolutely a serious media company and no longer a niche player,” Budde says.

Third-placed ASX-listed Comtel also sees its future in advertising, but unlike Destra it builds communities around mobile phone services rather than digital content. It’s latest product is Amici; cheap mobile services pitched to 18 to 29 year olds, which includes special offers from advertisers.

Comtel’s fastest growing revenue source is a recently acquired business that owns several websites and portals, and executive director David Sweet says bringing advertising to its mobile phone customer base will be a key source of growth in the years to come.

“Advertising and content will be crucial for us in the future; everyone globally is looking for ways to access the market,” Sweet says. “Looking ahead, the mobile phone bill may well be subsidised from advertising delivered straight to the handset, and we’ll be very involved in that.”

VOIP fuels growth, but more change to come

There is no denying the impressive revenue growth, but experts are divided on what the future holds for voice-over-internet-protocol (VOIP) providers such as My Net Fone and Engin.

Independent analyst Paul Budde argues usability barriers will keep businesses providing internet voice services confined to a relatively narrow niche for some time to come.

“People find it too complicated, that’s the bottom line. VOIP has not delivered, won’t deliver any time soon, and we will see businesses in the sector shutting down,” Budde says.

Geoff Johnson, research vice president with technology analyst Gartner, agrees that the VOIP sector is unlikely to remain in its present form, but says the change is likely to come through mass proliferation rather than stultification.

“People like Microsoft, IBM, SAP and Oracle are now looking at packaging communication services within their platforms. We are likely to see these big new players come in and they will give away VOIP or sell it at very low costs, so it is very likely the stand-alone business we see now will either be subsumed or wiped out,” Johnson says.

For his part, My Net Fone managing director Andy Fung takes a very different view of the future of his business, which had 104% revenue growth to $3.275 million in 2006-07.

“We’ve seen our customer base grow from 10,000 in 2006 to around 50,000 today, so it has been very rapid growth,” Fung says. “VOIP is going into the mainstream now, and we believe as broadband user numbers and speeds rise, more people will feel comfortable purchasing voice services on top of that.”

Young turk telcos shift from growth to profits

While telecommunications giants Telstra and Optus are continuing to perform strongly, a second tier of internet generation telcos are becoming steadily entrenched in the market.

Leading the young turks include WA-based broadband company iiNet with 7% growth to almost $230 million revenue, while the like of Soul Communications/SP Telemedia and Macquarie Telecom Group also made the list.

These businesses are now moving into a new phase, with a frenzy of acquisitions of recent years giving way to a new period of consolidation and focus on increasing profits.

Paul Budde says tough market conditions means these telcos have been forced to adjust to operate low margin, high volume businesses.

“That second tier have built some mass and are now growing,” Budde says. “Size matters because margins are low, but with enough mass there is money, and that’s what the Souls and iiNets are doing – you have to be big or you can’t compete.”

Build the pipes and they will come

Like many others on the SmartCompany Dun & Bradstreet Industry Growth List, broadband infrastructure company Pipe Networks has built a business by taking on the big boys.

Unlike most others, however, the business has been profitable from its very early days, a feat that makes the 88% growth and close to $24 million revenue the business generated in 2006-07 all the more impressive.

A new project to build an undersea broadband cable from Australia to the US territory of Guam should see Pipe Networks move to a new level in the years ahead, Gartner analyst Geoff Johnson says.

“Fibre around capital cities, and now its pipe to Guam, makes a lot of sense for the business. The fibre cable to Guam will introduce genuine competition in the trans-ocean market where previously there was only Southern Cross and Telstra, so Pipe Networks will do well,” Johnson says.

Other businesses in the sector are focusing on infrastructure of a different variety, with operations like Big Air and Clever Communications that have focused on building WiMax services to provide broadband to business customers performing particularly well.

Johnson says question marks remain over whether WiMax will be able to continue to be able to compete in metropolitan cities where terrestrial fibre networks and improving mobile broadband speeds may present stiff competition.

Clever Communications Australia chief executive Scott Carter counters that many businesses need fast, reliable broadband now, not in five or 10 years time.

“There are interesting things on the horizon, but we can provide 10Mbps speeds to 80% of Australian business today,” Carter says. “Other (3G-based) wireless networks are designed primarily for a consumer market, but we are focused on businesses only, so we see a long term future in that.”

And the future? More change

The SmartCompany Dun & Bradstreet Industry Growth List shows the telecommunication industry landscape has altered dramatically in recent years, but it is likely there is plenty more change to come.

Faster internet speeds, changing technology that will bring mobile internet to the masses, and the Federal Government’s proposed national broadband network are just some of a few of the events that could have a big impact on the market, analyst Paul Budde says.

“We will hardly recognise telecommunications in five years. There will be an enormous number of new companies coming into the market to take up these opportunities, and no doubt some present now will go; so it’s watch this space.”

SmartCompany Dun & Bradstreet Telco Industry Growth List