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iiNet’s happy dance

What’s a quarter-million BoB worth?

The high points are easy: iiNet’s profit is up by 11 percent, the company is claiming 15 percent of the broadband market in Australia, and its revenue is well over the $AU800 million mark.

Its acquisitions seem to be paying off, with TransACT and Internode giving the company a lever to use on the difficult small business market (which nobody has successfully sewn up since Telstra decided to flog its Commander), and its TIO complaints have fallen even while its customer base has doubled since FY 2009.

Those are just the highlights. In the underbelly of the figures is an equally-interesting story: iiNet’s consistent improvement in churn since 2009. In that time, the company has cut its churn by nearly 23.5 percent.

Putting that in the context of its growing customer base – 750,000 services in operation in 2009, more than 1.8 million now – and it’s easy to see how churn reduction helps iiNet’s bottom line.

Had its monthly churn remained at the approximately 1.8 percent of 2009, the company would have had to sell around 170,000 new services since then, just to stand still. And at its ARPU (for most services) of around $50 per month, those services are worth as much as $AU100 million.

The other item of interest is this: the churn reduction coincides nicely with iiNet’s 2009 launch of its BoB hardware line. Back in 2009, a lot of commentators – myself included – wondered whether a house-brand box was worth the effort. The answer now seems to be “yes”.

There are now 250,000 BoBs of various flavours out in the field, but from a purely financial point of view, they’re hardly worth the effort: the (roughly) 140,000 sold in 2011-2012 were part of a total hardware income of $AU15 million – at best, a BoB sale is worth around $AU100.

However, BoB is an expression of a lot of hard work trying to keep customers on the network – by associating the broadband service with a fixed line telephone or VoIP service, and in later incarnations as the interface to its Fetch TV service.

In BoB’s lifetime, churn has fallen from the annual average of 1.8 percent or so to around 1.4 percent. Not all of this should be attributed to the hardware sales – but it does seem to reflect a lot of work trying to understand why customers leave the network.

Even if BoB is only worth (say) 25,000 customers retained last year who might otherwise have left, those customers were worth $AU15 million – as much as BoB sales brought in on their own. From that point of view, the hardware strategy is worth twice its weight in income. ®

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