Several of Pipe Networks’ (ASX: PWK) customers have expressed apprehension about the company’s imminent sale to telecom player, Soul/TPG (ASX: SOT).
Pipe owns an extensive optic fibre network along with Pipe Pacific Cable (PPC-1) submarine cable assets between Sydney and Guam. It serves as a wholesale Internet service supplier to many ISPs in Australia. The deal is estimated to be worth $373 million and was unanimously agreed upon by the group’s board of directors. Pipe CEO, Bevan Slatthery, has made public statements claiming it will be business as usual after the sale.
One ISP representative, who did not wish to be named, labelled the acquisition proposal as a “disaster for the industry” and claimed Soul/TPG CEO, David Teoh, was notorious in the telco sector for being a challenging person to deal with.
“Pipe is a major supplier and in many cases, the only supplier as an alternative to Telstra,” he said. “It is going through to a company with a reputation of not being able to communicate with anyone in the industry; it’s terrible.”
The representative predicts the move would significantly reduce competition and expressed hoped that the Australian Competition and Consumer Commission would disallow the acquisition.
Longtime Pipe patron, Internode, found some comfort in Slatthery’s public statements but the ISP still has fears for the future. An Internode spokesperson was concerned over one of its major retail competitors owning one of its key wholesale service providers.
“[Soul/TPG] will end up with a serious conflict of interest when it has to choose between looking after its interest and looking after the interest of Pipe wholesale customers and would tend to head towards where the highest margin is,” he said.
Internode conceded Soul/TPG’s reserved nature may seep over to Pipe after the purchase.
“It is a quiet and private organisation that does not interact with the rest of the telco industry in Australia, whereas Pipe a loud and boisterous company and interacts with industry, regulators and government most vigorously; so they are culturally at complete opposite ends of the spectrum,” the spokesperson said. “I would expect the new owner to set some policy over what its subsidiary does.”
With the acquisition agreement yet to be finalised, Internode is expecting a bidding war to ensue as Pipe’s assets may appeal to other organisations such as the NBNco.
Pipe Networks also supply services to Netspace. While the latter company was surprised by the purchase, it did not foresee any impact to Netspace.
“I don’t think Pipe being owned by Soul/TPG or someone else for that matter will make an awful lot of difference to the nature of the business we do with it,” regulatory and carrier affairs manager, Matthew Phillips, said. “I don’t think things will change over the next 12-24 months.”
Phillips claimed accusations Soul/TPG was difficult to deal with was merely “scaremongering” and cited Netspace’s good working relationship with the company. He also claimed the deal would actually bolster competition in the telco industry.
“Pipe is a good profitable business and I would imagine Soul/TPG’s position would be interested in continuing to reap the benefits and do nothing to damage that,” Phillips said. “I think the test will be how the combined entity evolves over the next couple of years and how it chooses to compete in the market and refocus on its retail efforts.
“I think it’s quite positive to the industry and they will join to be a decent sized competitor to Optus and Telstra. It should provide much needed competition for the industry.”
The acquisition is due to be finalised by December 11 with confirmation of funding by the purchasing company to be received by December 18.