news The nation’s largest telco Telstra has announced plans to firm up its already dominant position in Australia’s broadband market, through the acquisition of South Australian broadband provider Adam Internet.

The planned deal was rumoured in the industry this week, and confirmed this morning in a joint statement issued by Telstra and Adam Internet. “Telstra has entered an agreement to acquire the Internet Service Provider, Adam Internet and will support the South Australian broadband business expand nationally,” the pair’s statement said. “The agreed acquisition, which is subject to ACCC approval, will see Telstra acquire all of Adam’s business including Adam’s Adelaide data centre and fibre assets.” Telstra said it would would retain the Adam brand and run the company as a stand-alone subsidiary of Telstra.

Telstra’s Innovation Products and Marketing Group managing director, Kate McKenzie said the acquisition aligned with Telstra’s strategic priorities to retain and grow customers and build new growth businesses. “Adam is a respected brand with a loyal customer base in South Australia,” McKenzie said. “It’s a great online, low cost business that lets customers purchase and manage their own services. This model offers opportunities for growth, particularly for consumers wanting online sales and support.

“Customers trust the Adam brand and we’ll certainly be keeping it as we work towards further growth under Adam’s first class management team. We are excited to be able to help this South Australian success story expand nationally,” she said.

Adam’s executive chairman, Greg Hicks said Adam and Telstra’s shared customer service philosophy was “a pivotal reason” behind today’s announcement. “This agreement will help cement a strong future for the Adam brand, our people, and our customers and represent the next stage of Adam’s growth,” Hicks said.

“The outcome of this transaction for Adam’s existing customers is simple – Adam will continue to provide excellent value for money broadband that doesn’t compromise on service. The message for potential new customers is that, with Telstra behind it, Adam will be expanding nationally. We’ve built a great business with a great team running it and we’ve got a bright future. Adam Internet customers can continue to contact us in the normal way,” Hicks said.

Hicks will remain an important part of the Adam operation as a consultant following the completion of the sale. The pair of companies said that existing employment arrangements for current staff would not be impacted by completion of the sale.

News of the acquisition is likely to attract the interest of the Australian Competition and Consumer Commission, which will likely consider whether the deal would be to the detriment of competition in the broadband industry, given Telstra’s already dominant position in it. It is possible additionally that Telstra’s rivals would object to the buyout on the basis of competition grounds.

According to figures released by iiNet recently as part of its annual financial results package, Telstra has about 2.6 million ADSL broadband customers; dominating the market compared with the next largest ADSL broadband company, iiNet. Optus and TPG were in third place with between 570,000 and 580,000 ADSL broadband customers each. Telstra and Optus additionally boast substantial counts of HFC cable broadband customers.

The news comes as Australia’s broadband market continues to see sharp levels of consolidation, with companies such as Internode, AAPT’s consumer division, Netspace and TransACT having been snapped up recently by iiNet, and Optus picking up wireless telco vividwireless.

opinion/analysis

It’s been an open secret for a long time in Australia’s telecommunications market that the Hicks family — which has long controlled Adam Internet – has had the company up for sale. I think the family has just grown tired of managing the business which it founded back in 1986 and is looking to cash out, at a time when the industry is going through rapid change and continued consolidation is afoot.

Given iiNet’s acquisition of Internode (also based in South Australia) and the fact that Adam Internet is believed to hold a substantial portion of South Australia’s broadband customers, it was never likely that iiNet was going to be able to buy out Adam Internet as well; this would have placed iiNet in a dominant position in South Australia. Plus, there’s also the fact that iiNet still has last year’s acquisitions to bed down and likely isn’t keen to take on more just yet.

However, I am quite surprised that Telstra has put its hat in the ring to pick up Adam Internet. The telco must surely be aware that the ACCC will be looking very carefully at this acquisition to vet it for competition concerns. Most industry onlookers have ruled out new acquisitions by Telstra in Australia’s telco sector for years, because of the big T’s already dominant position. Telecommunications policy is supposed to enhance competition; not facilitate Telstra to crush it.

In this sense, it is possible that Telstra views this acquisition as a test case. If the ACCC cracks down on this one with a vengeance, it will mean that Telstra will find it hard to expand further along similar lines in future. But if the ACCC allows it, it may mean that Telstra’s tacit ban on acquisitions may not be quite as firm as previously believed.

Either way, I am surprised that Optus or TPG hasn’t bought Adam Internet first. Both have the cash; both would like to boost their share of Australia’s broadband market, and both would have been quite aware that Adam Internet on the market. Strange days indeed.

I am also puzzled by Telstra’s apparent interest in retaining the Adam Internet brand in the market. The Telstra and BigPond brands are massive; what could possibly be the point of retaining the Adam Internet brand and competing against them nationally?

The only possible reason I can think of for doing this is to position Adam Internet as a low-cost alternative to Telstra’s expensive BigPond broadband services … or possibly to make an argument to the ACCC that, like iiNet, Telstra will be operating competing broadband brands in the market, helping to enhance competition. Of course, this won’t really enhance competition. But it would be an interesting and new position for Telstra to take. Interesting times. There’s a Telstra and Adam Internet press conference at 11AM. We’ll know more after that point.

Note: If you’re wondering, the photo above is of Adelaide’s Torrens River, with some of its famous pelicans ;)