ARN: What service does VivaNET offer?
Chung: VivaNET offers clients wholesale branded Internet access. Our customers are all kinds of organisations that offer Internet access as a value-add to their products and services, all under their own brand name. It is for organisations that have a well-developed and mature Web site strategy, who want more traffic to their site. What they find with VivaNET is a strategic way to own the customer's Internet access as a medium. If you are a bank, for example, you can give hundreds of thousands of customers Internet access and set it up in such a way that every time they log in they see your home page. That's very powerful, yet subtle. Over time you build up the traffic, you build up the profile, and you make it easier to do business with you.
It can also be used as an inducement to cross-sell or up-sell other products. It can help you extend your customer relationship. If you sell a product, a PC for example, once you've sold it that's it - no more revenues. But if you bundle Internet access with every PC or mobile phone or product that you sell, you all of a sudden have a recurring relationship with a customer that earns you revenues and profits. Our customers could be in any vertical market. It's a variation on the same theme - Internet access. That's our core business - we do branded Internet access really well.
The most important thing is transparency, to protect our wholesale customer's branding. We do everything except the brand - the Internet access, the billing, the helpdesk, all in a modular approach, but end users should not know VivaNET powers the service.
How did this idea come about?
Having worked in engineering and marketing at companies like Hong Kong Telecom and Datacraft, I always recognised that a recurring revenue stream is very important, so that once the revenues are up and running, it just keeps on running. Otherwise, once you've done a project, the cash register resets to zero. Every year is a brand new ball game.
When we started up VivaNET, we had a look at the market place. There weren't many dedicated wholesale infrastructure service providers. There were some, but they weren't putting 100 per cent of their efforts into the wholesale market. They were basically offshoots of their retail divisions. It was like the retail product that they sold cheaper, and called it wholesale. That was the gap in the market we identified.
Were you concerned about listing publicly amongst the tech stock crash?
I must say that the extent of the market downturn took us by surprise. Even though we did expect it, we could not expect its magnitude. If you look at the nature of our business, we're not really a classic dot-com stock so to speak. We have revenues and a healthy growth margin; we're pretty much like an outsourcing company. If you're an organisation and you want branded Internet access, we outsource it to you.
An investment agreement worth over $50 million with Wayne Bos' Tomorrow Ltd recently fell through. What went wrong and where will VivaNET look now?
What we had agreed on was a conditional deal, subject to shareholder approval. VivaNET was to issue Tomorrow a series of options. If exercised, Tomorrow would have invested $50 million and owned 53 per cent of VivaNET on a fully diluted basis.
Basically, the independent experts said the deal was unfair but reasonable. Financially, it's pricing was unfair to shareholders, but was reasonable in its quality. They saw the benefit in why we were doing it but it didn't stack up on paper.
What effect did the Tomorrow deal have on the VivaNET board?
We did not want to have a very large board, we wanted to retain the numbers of directors to six. That's why we had to have two directors resign to make way for Tomorrow [Wayne Bos and Rod Lyle]. The two directors who stood aside were friends of mine. It's all amicable.
Since the deal was abandoned, we have had several proposals as to mergers and acquisitions and strategic partnerships. But until we properly evaluate them on their merits we won't be rushing into replacing these seats.
The Australian Stock Exchange recently requested an explanation of the company's cash-burn rate. What are you doing to control this problem?
The VivaNET business model has an overhead cost that doesn't increase as the revenues recur. It's a snowballing model. Even without any outside investments coming in, we expect a positive cashflow by the end of the first quarter of next year.
Our partners don't need to be too concerned. Obviously we are looking for merger and acquisition opportunities. If we get the right offer, and the price is right for the shareholders, we'll go with it.
What is your vision for VivaNET's future?
Our vision is that paid Internet access as we know it - buying it from a provider - will probably remain stagnant. Your Internet access won't come directly from an ISP, it will probably come from your favourite bank or airline, or your football club.
There has been a lot of criticism of Australia's communications infrastructure in recent months. What do you see as the main barriers holding us back from having a world-class infrastructure?
I see two critical factors in the Australian telecommunications market. First is deregulation. And I mean full deregulation. We all know the market is "deregulated", but if you look at the industry there are a whole lot of invisible barriers put up by the incumbent carrier and the other large carriers. Such as the price of an unbundled local loop - it is so expensive that no other carrier can afford to roll it out, simply because it is not commercially viable to lease or rent the copper from Telstra.
The second critical barrier is population density. We don't have the economies of scale in our network, so the return-on-investment is slower and the cost of service per customer is higher.
What is your philosophy for managing the VivaNET business as it grows?
I'm a very devoted classical music fan. I love symphonies, concertos, operas. It's very relaxing, and it helps me to meditate.
In a way, the conductor of a symphony orchestra can give you a lot of inspiration. There is a great parallel between conducting a symphony orchestra and conducting a business. Like in the orchestra you have the string section, the wind section, the brass section, the percussion. In a company you have sales and marketing, customer service, engineering, finance and admin - and they all have to work together. Like an orchestra, if you don't play together in harmony, you're literally just making a lot of noise. It's a great challenge.