Juha Saarinen: Selloff of NZ firms in Vocus

The dreams of rapid growth by acquisition at Vocus look shattered. Photo / 123RF

Unless you work in telco or ISP-land, you've probably not come across Aussie-owned Vocus before.

Lots of you will be familiar with internet providers Orcon, Slingshot, and Maxnet which Vocus bought over the past few years, along with New Zealand national backbone network operator FX Networks.

Those providers are now up for sale because Vocus needs money to make up for a hefty, well over a hundred million dollar profit downgrade that appeared in the network operator's books in August this year.

Vocus is also selling 20 data centres in Australia to reduce debt. It's a big sale too, worth about $408 million in revenue, or almost a quarter of the provider's income stream currently.

Watching Vocus which is a relatively young company, founded in 2008 by Australian James Spenceley, snap up internet providers, data centres and network operators in quick succession made you wonder if such a growth by acquisition strategy was sustainable.

In Vocus' case, the report card is now in and the answer is that for that company at least, it wasn't a sustainable growth strategy.

Spenceley quit the Vocus board last year after a leadership stoush, in which he and a fellow board member sought to dump chief executive Geoff Horth, but failed to gain support.

With Spenceley out, Vocus failed to join up the plethora of different companies bought under the founder's rule into a cohesive organisation, which is why the company's profit tanked.

In short, Vocus and Spenceley bit off way more than they could chew. Vocus tried to grow large fast in a mature market, betting that bought-in volume would trump fat margins and it didn't really pan out.

Growth by acquisition is standard practice in the internet and telco business, but unless you buy a monopoly position that'll let you hike prices to service a captive market, it's unlikely to work in the long run.

Verizon buying Yahoo isn't going to be a success story and dare I say it? nor would Vodafone merging with Sky TV be. Taking that road worked maybe 10 years ago, but now it'll just lead to a certain death.

For consumers, Vocus selling its New Zealand assets is most likely bad news.

Vocus won't get top dollar for the local businesses given the situation the company is in, so whoever buys the NZ providers will be a bargain hunter looking to consolidate and cut costs in the hope of creating a viable business.

Unless of course the buyer of Vocus NZ creates a single, well-functioning infrastructure that'll support its main business as an over-the-top player reaching customers with multiple service offers, new and old.

That last option is what we should hope will happen.