Magnet will still sell DSL to consumers, says Kennedy


9 Feb 2007

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Magnet will still sell DSL to residential consumers but only if they ask for it, the company’s chief executive told siliconrepublic.com, clarifying the company’s position on the matter. Vern Kennedy said the company will no longer actively promote the service “but we won’t turn you away either”.

Earlier this week the company outlined plans to focus on two key areas – broadband and telecoms for business customers and fibre to the home for consumers – and would invest an additional €25m in this strategy.

Asked whether this actually meant the company would discontinue selling DSL to consumers, Kennedy said the company would no longer promote or push the service. “We are downplaying the offering but we are not exiting the consumer local loop unbundling [LLU]: if you want it and we are in a position to give it to you we will.”

Kennedy told siliconrepublic.com that IPTV (television over the internet) will only work on DSL connections that exceed 5MB and therefore Magnet will only provide IPTV to fibre-to-the-home customers or DSL users whose connections excel beyond 5MB.

On the subject of no longer emphasising consumer DSL offerings, Kennedy explained that it was largely a question of economics. “When I arrived at Magnet the company was sampling or trialling several different markets such as triple-play, consumer DSL, you name it. As a businessman I am motivated by delivering profitability. I decided we only should focus and put our resources into the areas that will deliver a profit.”

He agreed with the assertion that the cost of acquiring consumer DSL customers was too high. “The cost of acquisition was a component or driver for choosing one market over the other. I’m here to make a profit and focus on the areas that drive profits. Any business school will teach this fundamental question – what are the costs of acquiring customers relative to what your cash flow is?

“The cost of acquisition of fibre to the home in new housing developments will still cost us money but in the long term we get to keep 100 cents on the Euro at the end of the day,” Kennedy explained.

Kennedy said that existing consumer DSL customers will continue to be served with broadband. “We are not leaving the consumer DSL space, we just aren’t spending money promoting it. However, if you ring us up today and ask for it and we are in a position to deliver it we’ll say: ‘Great, let’s do it!'”

He said that sales conversion costs were just one component in the decision to reduce emphasis on consumer DSL. “The migration process for consumers who want something here and now wasn’t right. It’s all about customer experience. Consumers want something rapid, painless, seamless, just like if you were switching a mobile provider. Unfortunately no one wants to wait and have their service interrupted.

“On the business front it is different, because business managers know that they are going to enter into a long-term contract and are prepared to wait for the installation. For them it’s not an impulse buy.

“These were the variables – financial returns, competitive situation, operational adequacy, the provisioning process – across all the several business lines we were looking at and we had to decide which of these would make the most sense to invest €25m in. We decided on two areas.”

On the subject of IPTV as a consumer experience, he said: “To really get any benefit out of IPTV you need to have 5MB of bandwidth. For our fibre-to-the-home developments you have unlimited bandwidth and its flawless and highly reliable. But when you look at areas like LLU you have so many variables such as length and condition of the loop and of course issues like split lines. If a loop is 10,000 feet long it will only support 4MB per second. The shorter the loop, the better the speed.

“IPTV was too variable, people were asking for a service and if the DSL line couldn’t support them we’d have to say: ‘I can’t give you something you want.’ That’s not an ideal situation. Other aspects such as delivering three bills in one are not good if I can only give you two out of those three.”

When asked about rumours that there had been redundancies at Magnet Networks, Kennedy said that that was not the case. “There have been no redundancies. What has happened is we’ve had a 100pc reorganisation internally to better meet the new strategy to focus on two key business areas. In fact, we are currently advertising for more people.”

Kennedy also said he was optimistic about the new enforcement powers that could be granted to ComReg (Commission for Communications Regulation). “Robust competition is what the Irish market needs and migration is the key issue.

“Eircom says it is not happy about the cost of building an automated migration system for LLU. There’s a way around this. There was a decision in the US to add a surcharge of 75 cents on broadband bills and this made sense. Very quickly we had a great system in place and people could transfer between providers as if they were changing their shoes. There was no disruption – if there was it was at most two days. The regulatory situation in Ireland today is very much like it was in the US in 1999.”

By John Kennedy