Expert fears implications for smaller ISPs as ACCC stymies Adam buyout

A $60 million buyout of South Australian internet service provider Adam Internet will not proceed, the company announced yesterday.

The deal with Telstra, completed in October pending ACCC approval, failed to achieve a tick from the regulator by June 30, which was the contractual deadline for the acquisition proposal.

As a result, the acquisition deal has lapsed.

The regulator, as well as rival telcos iiNet and Vodafone Hutchinson Australia, had raised concerns about Telstra increasing its dominance of the broadband market.

“The ACCC’s preliminary view is that the proposed acquisition is likely to result in a substantial lessening of competition in the supply of retail fixed voice and broadband services,” the ACCC’s chairman, Rod Sims, said in December as the ACCC called for public comment on the acquisition. 

In a statement, Adam Internet founder and executive chairman Greg Hicks said he was disappointed by the outcome. “This important condition precedent could not be achieved in a commercially acceptable time frame, and therefore we will no longer be proceeding,” he said.

Independent telecommunications analyst Paul Budde says the drawn-out nature of the collapse of the deal is of concern.

“In our market, telecommunications and internet services, you need to act in months, not years. So I’m worried about the fact that they took so long to finally come to the conclusion that it’s isn’t doable.

“It’s definitely detrimental to the value of smaller companies trying to monetise their value.”

Budde says he thinks the ACCC was being overcautious about the competition implications, as it’s difficult for Adam Internet to compete with the larger ISPs anyway.

“I think the failure of the deal is a pity,” he told SmartCompany.

“The market has changed quite dramatically and size does matter.

“In the end, a company the size of Adam Internet won’t be able to survive on its own in the long term. It’s providing a basic range of telecommunications services. But it’s a vanilla product – the major thing that counts in the market is price. When you’re a Telstra, an Optus or an iiNet, you’ve got more volume, so you can use economies of scale to compete.

“A small company like Adam Internet, while what it is doing is fantastic, has its limitations.”

Because of this, Budde says he wouldn’t be surprised to see other ISPs look to acquiring Adam Internet in the future.

Telstra intended to purchase Adam Internet to offer a discount brand, similar to the way Qantas uses Jetstar to offer cheap air travel. Budde says this would have offered some new innovation in the market and it’s a pity this won’t be going ahead.

Speaking of the industry broadly, Budde says he expects to see more buyouts announced in the coming months.

“The sooner we get to the full deployment of the NBN, the more need there’ll be for more consolidation.”

SmartCompany contacted Adam Internet, but received no response before deadline.