KEY POINTS:
Internet service provider Orcon's business plan involves taking advantage of local loop unbundling (LLU) to connect its own broadband equipment to Telecom's network. Government-owned Orcon was bought by SOE broadcasting transmission infrastructure company Kordia last year. Simon Hendery talked to the company's 28-year-old chief executive, Scott Bartlett.
Connect: Orcon last month bought new equipment to power its core network. What's driving the present need for internet service providers to upgrade their network technology?
Bartlett: It's people downloading more videos. It's YouTube. Video streaming traffic has gone up about eight times in the past 12 months. You're constantly having to build your networks to cope with not only more customers coming on, but also every one of those customers is now consuming about 20 per cent more than they were three months ago. It's insane growth in bandwidth.
Connect: What's Orcon's business strategy?
Bartlett: To get our customers on to our own network so we can deliver a brilliant service profitably. Those two - a brilliant service and a profitable service - when you're doing it on someone else's network are incredibly tricky. Ultimately it's about getting customers on to our own networks because when they're there we can control the quality of service end-to-end. Strategically that's where the business is trying to position itself and LLU is undeniably a huge part of that.
Connect: What's Orcon's relationship with parent company Kordia?
Bartlett: The relationship is arms-length; it's not an integrated relationship. What that means is if I want to buy something off Kordia, someone goes along, sits down and negotiates, as Kordia would with any of its other customers. If Kordia wants to buy something off me, the same terms apply. We very much operate as a standalone business within the group, but ultimately we are part of the group. For Orcon to go out and spend tens of millions of dollars building LLU networks - well, if [Orcon founder Seeby Woodhouse] had tens of millions of dollars in his pocket he probably wouldn't have sold the business. So being able to have that access to capital and access to a board that has a long-term vision for our business, that's the most valuable part Kordia contribute."
Connect: How would you describe the telco sector at present?
Bartlett: Telecommunications is a fiercely competitive market. There does seem to be a period of heightened activity in the market right now, and there is a little bit of a race to zero, it would seem. We aren't playing those games. Once we've got a brilliant product and the ultimate customer service that people are prepared to pay for then we'll carve out a very nice, profitable niche. That niche is not tiny but it's not in the order of magnitude that Telecom or Vodafone have. We will never have that sort of customer base, and that's fine.
Connect: You've said you'll make an announcement about Orcon wi-fi services this month. Why is wi-fi a significant technology for the company?
Bartlett: It's a pretty exciting space with wi-fi built into almost every mobile device. The iPhone launches in New Zealand on July 11. We're going to see a huge uptake in the number of iPhones in the hands of Kiwis. People are going to want to consume more of the internet [using a device] in their pocket and they will want to do it affordably. The way to do it affordably is not off the 3G mobile network, it's going to be using wi-fi networks.
Connect: Overall, what do you see happening in the market in the next year?
Bartlett: There is a very real possibility of enormous industry consolidation above and beyond what we've already seen. My pick is that over the next 12 months we'll see consolidation within the telecommunications service provider space accelerate. It was always going to be the side effect of unbundling the local loop - that some players would make it and survive and some wouldn't - that is just the market, it's business. If you're reselling Telecom's product and not a whole lot else you're either profitable and very expensive but have a very good niche or you need to look at moving on and selling your business. So the next 12 months are going to be [interesting].
