TPG's iiNet takeover is 'bittersweet' for Michael Malone

iiNet founder and former chief executive Michael Malone feels bittersweet about TPG’s takeover of his internet service provider, after the deal was approved by the ACCC yesterday.

iiNet will now cease trading as part of the S&P/ASX 200 Index after the close of trading on August 24.

The $1.56 billion acquisition of iiNet will see TPG overtake Optus as the country's second-largest provider of retail broadband services.

The deal had strong personal significance for Malone, who founded iiNet alongside Michael O'Reilly in a Perth garage in 1993, and served as the company’s chief executive until he resigned in March last year.

Since then, the internet pioneer has joined the boards of a number of companies including Seven West Media and Yatango. He has also backed IT security service provider Diamond Cyber.

Malone told iTnews he had mixed feelings about the deal going ahead.

“I do believe this is a good result for iiNet shareholders and the board did its duty in recommending the deal,” Malone said.

“However, like any parent, after I left I always hoped iiNet would grow to the next level and become a major force in Australian telecommunications. That is not to be.”

A key concern for Malone has been how TPG, as a low-cost provider, will handle iiNet’s corporate culture.

“Of course I’m concerned for the future of the many outstanding staff and customers who have supported the company for decades,” Malone said.

“Incontrovertibly, it is disappointing for the sector to lose a very visible and consistent advocate for consumer rights.

“I do have a great deal of respect for David Teoh, so I think the Chicken Little brigade should hold off and see what happens before assuming the worst,” Malone said.

Concerns for customers

Malone’s reservations about service levels are shared by consumer advocates such as ACCAN chief executive Teresa Corbin, who told iTnews the deal could lead to a reduction in competition and consumer choice.

“There’s obviously quite a bit of difference between iiNet and TPG. iiNet is a premium provider that was the first major ISP to bring innovations, such as Naked DSL and large-scale VoIP services, to the Australian market,” Corbin said.

“Also, iiNet complied with the [ACMA] customer service guarantee standards, while TPG customers waived those rights. Our concern is there will now be more services without safety nets.

“The ACCC said in its decision that customer demand will either be met by TPG, or those customers will go elsewhere. We hope that will be the case."

Corbin said it was unlikely TPG would make any significant changes to iiNet services in the short term, as it would lead to a customer exodus similar to the one Vodafone experienced in 2010, following its merger with Hutchison.

“It’s sad we’re going to be losing iiNet, because it was a strong advocate for its customers’ rights. I hope TPG take up that baton,” Corbin said.

Ovum research director David Kennedy told iTnews it was likely TPG and iiNet will continue to operate as separate brands, at least in the short term.

“The corporate culture of iiNet and TPG are very different. TPG have recognised that and said iiNet will continue to operate as a separate brand,” Kennedy said.

“The synergies will really be in the back office. It’s an opportunity to move iiNet’s customer base on to the TPG/Pipe backhaul network."

Kennedy said TPG had shown a preference for assimilating brands in some of its previous acquisitions, such as Soul and Chariot.

However, the scale of iiNet makes it unclear whether it will try a similar approach over the long term, he said.