Greg McAlister named Orcon CEO

UPDATE April /18: Greg McAlister has been named CEO of Orcon.

Until he resigned in March, Mr McAlister was general manager of product marketing at Vodafone.

Before that, he held a series of roles at Telecom including retail division CFO and  general manager for business markets.

He told NBR Online today that he is not one of the syndicate of anonymous private investors who bankrolled 52% the sale, as has been rumoured.

Vivid Networks' director Warren Hurst, who drove the deal (Vivid has a 48% stake) will work on the technical side as networks manager. Vivid, a small, business-focused ISP, is being assimilated into the more residential-focused Orcon. (Vivid Networks shares ownership with Vivid Solutions, a low-profile but well-regarded provider of managed videoconferencing services that specialises in the health sector and holds several DHB contracts.)

Orcon is NZ's fourth-largest ISP with 60,000 customes or around 5% market share, playing in a market dominated by Telecom (around 50%) and the combined Vodafone-TelstraClear (around 29%). The third-largest ISP, CallPlus (including the Slingshot residential brand) has around 9% share.

Read more about Mr McAlister's plans in New Orcon boss’s plan to avoid race to the bottom.

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Kordia sells Orcon

UPDATE / April 15: Kordia has confirmed to NBR that it has sold its ISP business, Orcon.

A public announcement will go out shortly.

The sale is to a consortium of private investors led by Warren Hurst (see below) for an undisclosed price.

In a recent appearance before the Commerce Committee, Kordia chairman David Clarke told MPs that ISPs seemed to be in a "race to the bottom", with price-focused ads.

Orcon faced the strategic challenge of competing against "two giants" Mr Clarke said - Telecom and the merged Vodafone-TelstraClear.

The Kordia chairman told the hearing the ISP has around 60,000 customers.

The deal closed on Friday.

A new Orcon CEO has yet to named (Mr Bartlett will stay at Kordia, where he was recently promoted to a much wider brief, running all of its business on this side of the Tasman).

Kordia bought Orcon from founder Seeby Woodhouse in 2007 for $24.3 million ($28 million in today's dollars).

Unconfirmed industry speculation held that Kordia tried to sell the ISP for $40 million or more. But the SOE is said to have become more flexible on price when there were few takers.

Today, Kordia NZ CEO Scott Bartlett said Orcon revenue has increased 400% since the company was bought from Mr Woodhouse.

“Kordia is fundamentally a ‘B2B’ business, so being able to reset our strategy to better focus on delivering exceptional service to our business customers is really where we need to be,” he said.

During negotiations, Orcon Holdings was set up, with Semple Investments as its sole shareholder. Semple is owned by Auckland men Tony Reimann and Warren Hurst.

Mr Reimann was until recently general manager for commercial operations at Revera, which hosts Vivid Networks' modest ISP business. Mr Hurst is a director of Vivid Networks - a respected but low profile videoconferencing provider that specialises in the health sector and holds several sizable DHB contracts.

Companies Office records updated today show Orcon Holdings is now 48% owned by Semple, and 52% by a nominee company - whose only details so far are for the law firm that set it up on behalf of un-named private investors.

Ex-telco managers tied to bid
A former senior manager with a telco has told NBR there are strong industry rumours that Greg McAlister (ex Vodafone and Telecom), David Clarke (ex TelstraClear and no relation to the Kordia chairman) plus two members of Orcon's management team are among the private investors.

Mr McAlister was Vodafone's general manager for product marketing before he quit in March.

Before that he was chief financial officer for Telecom's retail division.

In a statement to NBR, Mr Hurst said four directors of the company would be:

• Himself – Hurst will also become Orcon’s general manager, networks, 
• Maurice Kidd – independent financial investment professional
• Mark O’Donnell – CEO, House of Travel
• Michael Boersen – CFO, Yellow Pages Group

Redundancies?
On the question of redundancies, Mr Hurst said, again via an emailed statemene:

"Without having taken over the reins of the company yet, it is too early for the purchaser to have made any decisions about staff numbers and roles. However, the intention of the purchaser is to grow the business, rather than reduce headcount."

Orcon recently shed around 50 staff as it outsourced its helpdesk to Datacom's operation in Manila; Datacom has since sold its Asian call centre business. Today, an Orcon spokesman said the ISP has around 175 staff.

Some managers and staff have moved into Kordia's building i Newmarket, central Auckland over the past couple of hears, but the company has maintained its long-time building over the bridge on the North Shore as well, which will remain its headquarters.

Vivid "assimilated" into Orcon
Mr Hurst says Vivid Networks business will be assimilated into Orcon and the Vivid Networks brand will be retired.

"The purchase of Orcon brings together two well performing companies – one that provides data and internet services to large businesses and the government, and one that provides innovative data and internet services to residential customers and small businesses. This combination provides a significant opportunity to develop innovative telecommunication services for a wide range of residential and business customers."

OnKor not part of deal
Kordia has recently moved Orcon more toward the business market, sparking industry speculation about which assets would be included in an Orcon deal. Today, a Kordia spokeswoman did not immediately detail what assets were included in the deal, but did offer that Kordia's fibre network OnKor, is not part of the purchase. "OnKor is not an Orcon asset," she said.

ISP market share
Telecom: 49%
Vodafone-TelstraClear: 29% (TelstraClear today: 16%; Vodafone: 13%)
CallPlus* 9%
Orcon: 5%
Others: 8%

Source: Commerce Commission telecommunications market report released 2012

* Includes CallPlus' residential brand, Slingshot.

Kordia recently reported a $2.2 million half-year net profit (down on the year-ago period's $7.3 million) on revenue increased 10.5% to $207.6 million.

Net debt has increased $9.4m from December 2011 to $75.3 million. 

Profit and revenue were not broken down by division. 

However in terms of turnover, Orcon must be around the $50 million mark given its chairman recently said it has 60,000 customers, and most of those are on monthly plans around the $70 - $75.

Labour: short-term thinking
Many in the industry have been expecting Orcon's sale for some time. As Kordia's only retail business, it was an ill-fit. And as its chairman Mr Clarke implied to MPs, the retail ISP market is becomig brutal and commoditised.

However, Labour ICT spokeswoman Clare Curran says, “The  Government should have decided whether Orcon is now a strategic asset and if it is an important means to drive uptake of ultrafast broadband. National has to explain whether it considered this when it allowed Kordia to make the sale and release the advice it received."

More consolidation to come
Earlier, Telecommunications Users Association head Paul Brislen told NBR, "Tuanz expects there to be a lot more consolidation among ISPs as the reality of their current situation sinks in.

Margins for retail providers are already thin to non-existent and with the government’s intervention in the Commerce Commission’s determination process regarding wholesale prices, any possible upside for retailers appears to be evaporating, he says.

"Now that Vodafone has acquired TelstraClear we’re seeing the market shakedown to two or three major players and a raft of Tier Two ISPs that have little room to differentiate given our current wholesale market. Tuanz would expect there to be more consolidation at this level in the next few years.

Customers on the move beware
Mr Brislen adds, "We also expect to see a proliferation of smaller ISPs at the next level down once the UFB is completed. This kind of thing is not uncommon overseas where small ISPs pop up, acquire a few customers and either fold or are in turn acquired by larger ISPs keen to grow their customer base."

Mr Brislen adds, "It’s also important to remind customers they should only sign up with telcos or ISPs that are signed up members of the Telco Dispute Resolution Service (www.tdr.org.nz) – without that you have no backstop should something go wrong with the service you’re paying for."

Mr Hurst and Mr Reimann did not immediately return phone calls.

A rep for Mr Hurst said he would give interviews later this week.

Orcon sale imminent

UPDATE March 12 5pm / More evidence has emerged that little-known Vivid Networks is in the running to buy Orcon - which Kordia this morning (finally) admitted had been put on the block.

Vivid Networks, a tiny ISP, is majority-owned by Vivid Solutions, a respected, longtime player in managed videoconferencing that specialises in the healthcare market and holds multiple DHB contracts.

A new company has been registered with the Companies Office called Orcon Holdings, whose sole investor Semple Investments, owned by Auckland men Tony Reimann and Warren Hurst.

Mr Reimann was until recently general manager for commercial operations at Revera, which hosts Vivid Networks' modest ISP business. Mr Hurst is a director of Vivid Network.

Neither immediately responded to an NBR request for comment. On the face of things, the pair don't have the financial resources for an Orcon deal; a partner could be lurking in the background; rumours say an Aussie venture capital outfit.

A senior telcommunications industry source told NBR that at one time Kordia hoped to sell Orcon for 1X revenue, (the company does not break out results by division), based on the fact Vodafone bought ihug for 1x revenue. But telcommunications companies were valued more on free cash flow and dividend yield post tech-boom, and the state-owned company was thought to have lowed its price to $40 million, or perhaps further.

10.30am: After being confronted by NBR Online with a detailed tip-off, state-owned Kordia has finally come clean and confirmed its retail ISP business, Orcon, is on the block.

"Kordia has been in discussions regarding the sale of Orcon with several parties over a number of months. Interest in the business intensified following the announcement of the integration with Kordia in November last year," a spokesman says.

"Discussions are continuing, and Kordia expects to be able to make a formal announcement in the coming weeks."

Integration with parent Kordia has seen Orcon reach beyond its residential base for more focus on business services.

Kordia won't comment further, citing commercial confidentiality.

However, a well-placed telecommunications source tells NBR Online the deal has already been done.

Kordia recently reported a $2.2 million half-year net profit (down on the year-ago period's $7.3 million) on revenue increased 10.5% to $207.6 million. Results were not broken down by division. Net debt has increased $9.4m from December 2011 to $75.3 million. 

Rumours of an Orcon sell-off have been circling the industry for months. They were first raised by NBR last August.

The rumour mill has had everyone from 2degrees (which conspicuously lacks a landline business) to CallPlus circling. CallPlus chairman Malcolm Dick earlier offered NBR the general comment that he was interested in any ISP business, as long as the price is right. 2degree has emphasised it has partnership plans in the landline space. (UPDATE: Mr Dick told NBR late this afternoon, "We have not been involved in their sales process.")

But a usually reliable source has told NBR the buyer is in fact the almost-unknown ISP Vivid Networks, which is registered with the Ministry of Business, Innovation and Employment as a telecommunications provider. Records show it is an absolute minnow, with just 512 IP addresses, using bandwidth provided by TelstraClear and FX Networks, and co-located with Revera.

Vivid is part-owned by Vivid Solutions. Vivid Solutions CEO Simon Hayden dismissed the suggestion his company had anything to do with buying Orcon, pointing out its key focus these days is healthcare videoconferencing. Vivid Networks' directors could not immediately be reached for comment. 

Another source says "As crazy as it sounds I heard from a pretty good source about six weeks ago that Telecom Retail had been looking over things."

But however much Telecom might want to pick up Orcon's 100,000 or so customers, it would probably meet opposition from the Commerce Commission - as would Vodafone, if interested.

Second-tier ISP Compass Communications (which has a tidy side business in phone cards) has also been touted as a possible buyer.

$24.3 million buy
Kordia bought Orcon for June 2007 for $24.3 million (or $28 million in today's dollars) from entrepreneur Seeby Woodhouse.

Mr Woodhouse left the business. His prodigy, Scott Bartlett, was promoted to head the business.

A recent Kordia restructure saw Mr Bartlett promoted to run all of Kordia's New Zealand operation.

Orcon was bought as part of Kordia's bid to diversify as its once-core analogue TV business faced extinction.

However, recently commentators have pointed out that Orcon sticks out like a sore thumb as the company's only major retail business (its broadcast, telecommunications engineering and network services have a wholesale focus). Others questioned why a state-owned company was in the ISP business, full-stop.

Mr Bartlett has recently spoken to NBR about the complications of the retail ISP market as it stands today, with margin pressure, a lack of clarity over the future of Chorus copper line pricing and tension over who bears the cost of UFB connections, which could prove tricky even with subsidies.

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