TPG caused shockwaves recently when it announced that it intends to buy a 100 per cent controlling stake in rival internet service provider (ISP) iiNet. The deal’s set to be worth $8.60 per share, and places iiNet’s total value at a cool $1.4 billion dollars. Not bad for an ISP that started life back in 1993 operating out of a garage in Perth.
The deal’s not quite signed, sealed and delivered just yet; there are some shareholder objections to deal with — the whole deal has to go to a shareholder vote in June, with expected finalisation in July — and of course it has to get the tick of approval from the ACCC, as the takeover would shift the power of iiNet, which by most estimates is the second largest ISP in Australia once you take its subsidiary ISPs, which include Internode, Westnet and TransACT into consideration, over to the somewhat smaller TPG group, which has for years sold itself as a “value” ISP. If you’ve seen one TPG ad, you’ve seen them all, as TPG sells itself on a bare-bones experience with generally “unlimited” plans, whereas iiNet is more of a premium player with a variety of quota free inclusions on its plans, more support options that even include a South African office that exists largely to allow it to offer 24 hour support — and a pricing model to match.
It’s a fascinating business move for TPG given it’s the smaller of the pair, but the takeover would have a significant impact on the ISP scene as a whole. iiNet’s a premium player compared to TPG, but it’s often cast itself as a competitor brand against Telstra, and that’s largely meant very competitive pricing along with its service provisions. If it becomes part of TPG, there’s suddenly a little less competition in that space, because one thing that iiNet itself has done is gobble up a number of smaller ISPs, and even a few mid-sized ones as well. From a consumer standpoint that could be problematic, because a lack of competition for utility services — and Internet provision is fast becoming just another utility, whether you use it for recreational or business purposes — is often a fast track to higher prices and lessened competition.
Not that the competition is exactly sitting still in any case. Telstra’s making aggressive moves into everything from launching software for parents of smartphone owning kids to a tie-up with Foxtel that sees a Foxtel-branded broadband product hitting the market along with Telstra offering access to Foxtel’s “Presto” streaming service across its T-Box system for six months to its subscribers. That’s a premium play, although Presto is in some ways the weakest of the three big jostling streaming media providers in Australia, and one that TPG will no doubt keep an eye on. TPG’s stated that it’ll keep iiNet on as a separate brand, presuming the deal goes through, but there’s no word on whether iiNet’s other brands would survive the takeover. Without a doubt, a budget-focused group like TPG, especially if it’s taking on a billion dollar deal, would be looking to cut duplication in staff and services as much as was feasible, which means if you are an Internode, Westnet or similar customer, your days under that specific infrastructure could be numbered.