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$280 million to build, sold for $60 million. TransACT sale [With poll]

By 22 November 2011 22

fibre optic

The SMH has the stark tale of just what TransACT has meant to its investors including the people of the ACT now that the sale has crystalised the investment:

TVG Capital, Motor Trades Association of Australian Super and ACTEW are among investors that will get $60 million from the sale of Canberra broadband provider TransACT to iiNet – an asset that cost them $280 million to build over 10 years.

Could it have ended differently if they’d stuck to the starry eyed plan of ten years ago? Or would it have just been good money after bad?

TransACT looking back

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[Photo by St_A_Sh CC BY]

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22 Responses to $280 million to build, sold for $60 million. TransACT sale [With poll]
#1
Sammy9:41 am, 22 Nov 11

I guess it depends on whether you’ve ever had the opportunity to access TransACT’s network. I live in a suburb that was never cabled, so therefore it’s a waste of money in my eyes.

#2
Classified9:41 am, 22 Nov 11

The thing thatg killed them was their approach to wanting residential customers first, at a time when few people even had ADSL. It took ages to build the infrastructure, during which time only a trickle of money was coming in the door.

It’s nice to have grand visions, but success generally comes from having hard-nosed business sense.

#3
shadow boxer9:58 am, 22 Nov 11

Anyone else see the parralels between this fibre to the home exercise and the NBN ?

Trenches are horrendously expensive, I hope the NBN doesn’t start hanging ugly black cables off power poles.

#4
Mysteryman10:12 am, 22 Nov 11

Having to pay for the cable in addition to the ISP charges was a problem. It simply wasn’t worth the extra money.

#5
dtc10:16 am, 22 Nov 11

shadow boxer said :

Anyone else see the parralels between this fibre to the home exercise and the NBN ?

Well, one is a piece of public infrastructure, like a road or a bridge or a sewer (or a bus service), and the other is a private company. So, not really.

Transact crashed, in my view, because it was too expensive. It offered nothing (or very little) that you could not get cheaper from someone else – usually a lot cheaper.

On the other hand, the NBN looks to be price competitive and to offer additional benefits. Plus, of course, when Telstra shuts down its copper wires there wont be any real alternatives.

#6
mikal10:27 am, 22 Nov 11

This is interesting. I wonder if the value of TransAct’s assets is close to $60 million alone. Perhaps iiNet just bought it for scrap?

#7
johnboy10:33 am, 22 Nov 11

mikal said :

This is interesting. I wonder if the value of TransAct’s assets is close to $60 million alone. Perhaps iiNet just bought it for scrap?

Dunno Mikal, sadly old computer parts these days have a negative value.

#8
harvyk110:39 am, 22 Nov 11

It was certainly worth a try… Transacts big problem however was it over promised and under delivered. In the end they where offering transact over ADSL, all the disadvantages of transact with all the disadvantages of ADSL…

The question needed to then be asked, why not simply sign up to a standard ADSL service?

When transact was first launch it was talking about impressive speeds even for now. Problem was no one ever experienced those impressive speeds. Furthermore these days the average ADSL connection out preforms the average transact connection, and with some of the deals ISP’s have available is it any wonder people don’t want to sign up to a slower more expensive service, where at a minimum you need to deal with 2 companys and have special phone ports installed?

#9
Gungahlin Al10:41 am, 22 Nov 11

dtc said :

shadow boxer said :

Anyone else see the parralels between this fibre to the home exercise and the NBN ?

Well, one is a piece of public infrastructure, like a road or a bridge or a sewer (or a bus service), and the other is a private company. So, not really.

Transact crashed, in my view, because it was too expensive. It offered nothing (or very little) that you could not get cheaper from someone else – usually a lot cheaper.

On the other hand, the NBN looks to be price competitive and to offer additional benefits. Plus, of course, when Telstra shuts down its copper wires there wont be any real alternatives.

+1

#10
Classified10:45 am, 22 Nov 11

johnboy said :

mikal said :

This is interesting. I wonder if the value of TransAct’s assets is close to $60 million alone. Perhaps iiNet just bought it for scrap?

Dunno Mikal, sadly old computer parts these days have a negative value.

It would be interesting to see if iiNet put any value on the work doen digging trenches and laying conduit, meaning that when iiNet needs to upgrade cables they don’t need to do much digging. There’d have to be a fair bit of savings there.

#11
dpm11:09 am, 22 Nov 11

I’m not really concerned about what dividend etc the sahreholders etc were or are getting. I think it will be more interesting to see if iiNet can actually offer services using the TransACT ‘resources’ in a way that benefits more people! Let’s look ahead and hope the deal improves things and not whinge about the past! :-)

#12
dungfungus11:11 am, 22 Nov 11

Something doesn’t add up here. If TVG invested $29 million in 2000 for a 43% stake in TransACT this means the original paid up capital was $67 million but Actew has invested $60 million and only has an 18% share? At one stage Actew had a 25% share but sold off the difference between that and the current shareholding to an associated company. There was never a public explanation for this but perhaps it was to avoid closer scrutiny of TransACT accounts which were not always audited and Actew’s balance sheet was qualified accordingly by the ACT Government Auditor. Actew also provided a “standby facility” of $25 million to TransACT in recent times and this appeared to have been fully drawn down.
Not surprisingly, one of the Industry Super Funds, who have a lot of “unlisted assets”, has copped a substantial loss.
To top this off, Mark Sullivan from Actew is quoted in the Canberra Times this morning as saying “there will be a small book profit for Actew from the sale”
Legislation is required to stop the ACT Government and its subsidiaries from dabbling in “enthusiast ventures” and sporting sponsorships which are underwritten wholly and soley by the ACT ratepayers. Recent examples of this are Rhodium, the Arboretum, Glassworks, Totalcare etc.

#13
Keijidosha1:09 pm, 22 Nov 11

Classified said :

It would be interesting to see if iiNet put any value on the work doen digging trenches and laying conduit, meaning that when iiNet needs to upgrade cables they don’t need to do much digging. There’d have to be a fair bit of savings there.

TransACT only approached the low hanging fruit: stringing cables in suburbs with existing power poles (new Gungahlin developments excluded). They avoided trenches in established suburbs like they were afraid of digging up zombie corpses.

#14
Ian1:12 pm, 22 Nov 11

dungfungus said :

Something doesn’t add up here. If TVG invested $29 million in 2000 for a 43% stake in TransACT this means the original paid up capital was $67 million but Actew has invested $60 million and only has an 18% share? At one stage Actew had a 25% share but sold off the difference between that and the current shareholding to an associated company. There was never a public explanation for this but perhaps it was to avoid closer scrutiny of TransACT accounts which were not always audited and Actew’s balance sheet was qualified accordingly by the ACT Government Auditor. Actew also provided a “standby facility” of $25 million to TransACT in recent times and this appeared to have been fully drawn down.
Not surprisingly, one of the Industry Super Funds, who have a lot of “unlisted assets”, has copped a substantial loss.
To top this off, Mark Sullivan from Actew is quoted in the Canberra Times this morning as saying “there will be a small book profit for Actew from the sale”
Legislation is required to stop the ACT Government and its subsidiaries from dabbling in “enthusiast ventures” and sporting sponsorships which are underwritten wholly and soley by the ACT ratepayers. Recent examples of this are Rhodium, the Arboretum, Glassworks, Totalcare etc.

The only reason ACTEW makes a small profit from the sale is that they have already taken the loss on the investment by writing it down in previous years. By the looks of the SMH story, they invested $60m over the years but have written it down to $4.7m in their balance sheet as of now. Their share of the sale price will be slightly more than $4.7m hence they make a profit on the sale.

It’s a bit like going to the races, dropping $500 on races 1-7 and then winning $50 back on race 8.

#15
shadow boxer1:17 pm, 22 Nov 11

wow a $55.3 million dollar loss, you would think heads would roll……..too much time spent trying to build soccer kingdoms maybe.

#16
Chop711:57 pm, 22 Nov 11

shadow boxer said :

wow a $55.3 million dollar loss, you would think heads would roll……..too much time spent trying to build soccer kingdoms maybe.

…and to all those 100s of TransACT and ActewAGL foundation memberships.

#17
caf2:16 pm, 22 Nov 11

Keijidosha said :

TransACT only approached the low hanging fruit: stringing cables in suburbs with existing power poles (new Gungahlin developments excluded). They avoided trenches in established suburbs like they were afraid of digging up zombie corpses.

That’s not entirely true, there’s definitely TransACT ducts in Braddon.

#18
bitzermaloney2:31 pm, 22 Nov 11

shadow boxer said :

Anyone else see the parralels between this fibre to the home exercise and the NBN ?

Privitisation! Once you add government beaurcracy into any major infrastructure investment it will always cost at least 5 times as much.

#19
Waiting For Godot4:19 pm, 22 Nov 11

TransACT was a con and a rip-off. They sucked people in with the lure of cheaper electricity (“bundling”) and promised fast cable Net but throttled it making it slower than ADSL whilst charging like a wounded bull. It was a relief to escape their clutches, pay $600.00 ransom and return to the sanctuary of Telstra. And when someone actually praises Telstra compared with another telco, you know the other crowd was the absolute pits.

#20
Keijidosha4:46 pm, 22 Nov 11

caf said :

Keijidosha said :

TransACT only approached the low hanging fruit: stringing cables in suburbs with existing power poles (new Gungahlin developments excluded). They avoided trenches in established suburbs like they were afraid of digging up zombie corpses.

That’s not entirely true, there’s definitely TransACT ducts in Braddon.

Fair point, yep there were runs of underground cabling in higher-density (read: higher profit) areas. I was making a broad statement about entire suburbs that missed out on cable connections. Although you could argue whether residents of those suburbs really missed out on anything!

I still remember when two TransACT reps lobbed on the door of my parents house in 1996, extoling the virtues of TransACT services and promising the world if we agreed to sign up for phone services before the cable was rolled out.

Given that we lived in a suburb with underground services I asked when the cable installation would happen. They couldn’t give me an answer and were sent packing. 15 years later and the cable still hasn’t been laid.

#21
Grrrr12:57 am, 23 Nov 11

Yes, it would have been a different story for TransACT if they’d offered today’s speeds and prices several years ago. It’s not like the VDSL network is much different now to then. Instead, they watched iiNet and all the other ADSL2 ISPs take the lion’s share of the market by charging less and offering more. iiNet’s first 2 DSLAMs in Australia were in the Civic and Deakin exchanges.

It could have ended differently if their management had a clue about attracting customers. They were too conservative and reactive. Charging more than anyone else and only lowering prices long after they became totally uncompetitive isn’t going to win you volume business. Market share is the only way you’re going to earn $200m in a market of a couple of hundred thousand subscribers of domestic broadband.

Even today, they are rolling out VDSL2 – fastest Broadband in town for everyone not on FTTH – and it’s priced attractively….. Yet they’re doing it at a snail’s pace. Most people in the VDSL areas will be lucky if they have VDSL2 available in 12 months. If the whole Phase 1 network is getting it, TransACT should spend the money now, instead of later. They could get some market share instead of waiting for the NBN to come and take everyone after faster Internet.

Let’s see what iiNet does over the next few months. MM says he doesn’t want to run TransACT so current management is staying. I’m not sure that is in their best interests..

#22
JC7:36 am, 23 Nov 11

caf said :

Keijidosha said :

TransACT only approached the low hanging fruit: stringing cables in suburbs with existing power poles (new Gungahlin developments excluded). They avoided trenches in established suburbs like they were afraid of digging up zombie corpses.

That’s not entirely true, there’s definitely TransACT ducts in Braddon.

I think you will find the ducts in Braddon and other inner city area’s came later to get business traffic, especially government departments. I think they took over or share with the ICON fibre network that was built by one of the fed departments. So for the most part the posters comment is correct that for the most part Transact is over-head cable only, hence why large parts of southern Tuggeranong, most of Gungahlin and the newer parts of Belconnen don’t have access.

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