Australian Voice over IP specialist MyNetFone has grown from modest beginnings into a technology leader with an expanding global footprint. Chief Executive Rene Sugo saw an opportunity to transform telephony services in Australia with the arrival of VoIP technology – and has evolved with this fast-moving technology to build a company worth shouting about.
MyNetFone now runs the nation’s largest VoIP network. It sells to consumers, to SMEs, to large enterprise customers and to governments. It also sells wholesale services to other providers via the Cloud.
Having developed a clutch of smart software tools for delivering bomb-proof reliability and cost efficient product, the company is now an export-facing Australian success.
MyNetFone is listed on the ASX, and headquartered in Sydney. But its business reality is now global, with its focus on building new markets. It now has active subsidiary operations in Singapore, New Zealand, the United States and United Kingdom.
Telecommunications remains one of the most highly regulated sectors in the economy. But in Australia we can count ourselves as relatively open – and we can also count ourselves as among the worlds-best-practice leaders in IP telephony services.
Mr Sugo says there are always frustrations in a regulated market. But there is a lot that the government has got right.
In this interview, he talks about MyNetFone’s global aspirations, its view of the regulatory world, and why he intends to keep calling Australia home.
James Riley: Where are you up to with MyNetFone? What are the opportunities and where are the challenges?
Rene Sugo: As a company now we are just edging out at 200 people. We have operations in five countries, and we remain headquartered here in Sydney. Our annual revenue is in the order of $200 million and our forecasted profit forecast this year is for about $11 million. We’re listed on the ASX our market cap is around about $250 million, so we are in that mid-size space.
Our operations are in Australia, New Zealand, Singapore, US and UK. We’re still very much focused on Voice over IP, which is where we started 13 year ago. In saying that, we provide the full spectrum of services all the way from consumer products to SME services, to enterprise and government. And of course we have software as a service wholesale products delivered via the Cloud.
We are an internet company. The current opportunity that we’re focused on is the shift from traditional service networks into the internet. That is, the shift from dedicated infrastructure-based telecoms networks into Cloud-based telecommunications. The key factor driving this is the movement of telephone numbers from traditional providers into the Cloud.
We have built sophisticated and disruptive business models where we take traditional telephony concepts and do creative things with them.
This is why we have decided to go global, to take this technology to other countries. We see this as a huge opportunity over the next ten to fifteen years, as people start to break down traditional networks and move all voice communication into the Cloud.
Where does government fit in this picture?
Rene Sugo: Let’s start with a positive. One of the really good things the regulator has done – I am talking about ACMA (Australian Communications and Media Authority) – is that it has been very open-minded about embracing innovation and change within the voice communications sector. It has been open-minded about the move from traditional networks into the Cloud-based networks.
Australia is a leader in that space and the ACMA has done a great job in removing barriers, and we wouldn’t where we are as a company if it had not been so open-minded. That is a really positive thing. I’ve had lots of meetings where the industry has sought change, and ACMA gone back and tried to develop policy or regulations to meet that need.
On the flip side, there are a few other areas of government regulation that have not been so helpful. If we look at the history of telco regulation over 20 or 25 years, the focus was really on Telstra. The aim has been to open up its network to allow other people to resell Telstra capabilities. That was meant to be a quick and easy solution for government to implement – creating the illusion of competition.
It really only allowed one other player to build infrastructure (Optus) and reach critical mass. We started with a kind of protectionist type philosophy – where we’re trying to protect Telstra – allowing one other player to reach critical mass and ended up with a duopoly.
Because of that original philosophy, we haven’t had a successful third of fourth player to date that has managed to innovate and build their own infrastructure and find their own foothold. If you look at the next three or four big telcos in Australia, but most of them resell Telstra’s infrastructure in one way shape or form.
The government over the last 25 years has failed to really address that, and provide a level playing field for competitors and innovators to come in and offer new products and services.
If we look at the present day, the National Broadband Network (NBN) presented a really good opportunity to level the playing field. But there are problems. The ACCC ruling that there is going to be 121 PoIs (Points of Interconnect) in Australia is bad news. It really takes us back to the 1980s.
What they are saying is that ‘we only want one telco in the country.’ Because there’s only one telco in Australia that can reach 121 points of interconnect and that’s Telstra. By fragmenting Australia to 121 segments, you generate a lot of small regional areas that can’t be serviced by anyone else other than Telstra.
The rest of the industry was lobbying for six.
Is it too late to fix? Where to from here?
Rene Sugo: It’s not too late to fix, but it would need a policy change. It would be relatively easy for the NBN to aggregate the 121 PoI’s into a smaller fit. It might not be six, but it could be 15 or 20. The NBN could choose to aggregate into a smaller number of larger zones. They could provide that as an option to the industry, and say you now have two choices, you can take 121 if that suits your network or you can take 6 or 12 if that suits your network. That won’t break what they’ve done today, but it will give the rest of the industry some hope.
When you look across the government levers that have an impact on your business – what should government be doing more of, what should government be doing less of?
Rene Sugo: In the early days of Symbio, in 2003, 2004, we actually got a R&D Start grant. That was really positive and beneficial for us. It was reasonably onerous to get – we really had to prove ourselves – but it was a pretty good program.
These days’ people are focusing on incubators. I would have to say though, that in 2002 when we looked at a technology incubator at Redfern, we decided it was too expensive, we couldn’t afford it. So I’m not sure that incubators are the right way to go. I would prefer a lightweight program a bit like the R&D Start grant which really lets you get on with your innovation.
You listed pretty early in the game to raise money – you didn’t really go down the venture capital route?
Rene Sugo: We looked at venture capital – keep in mind this was 2002 – it seemed likes VC was more onerous than listing. Partly that was for reasons of cost and partly it was about control. But back in 2002, VC was difficult and we felt we would have lost control of our own destiny.
We chose listing on the ASX as the better option, and it was the right thing to do. Even after we were listed no one really noticed us for another four years. So we were quietly humming away as a listed entity – like most startups it did take a few years to get momentum and flourish. But the thing about listing is that it let us go back and get more money over time.
These days with start up space it looks like IPOs are no longer about raising money for expansion, it seems to be about cashing out, you get an evaluation before you go into the IPO.
Rene Sugo: Yeah they have a few technology IPOs, I see that as well. There’s a place for that, and there is nothing wrong with that. I think it is harder to value a startup company in Australia.
That’s one thing different between us and the US. In the US they will apply a very high valuation on a company that’s not making a profit, based on the opportunity they present. Australians are far more risk-averse.
Now you’re going global. Can you run a global company from Australia or will you be shifting elsewhere?
Rene Sugo: Right now, it is our intention to run the global company from here. We now have offices in other countries, and the key to our success will be to get critical mass in those countries so they can become self-managing subsidiaries. So we want to get to critical mass quickly.
You can’t try to run the operation from Australia, because the time zones will kill you. Our intention is to maintain our headquarters in Australia, and maintain the pointy-end of the management structure in Australia. But we will still need to have senior management in other regions – which means we need to reach critical mass in these markets quickly.
Is there anything the Australian government can do to make it more interesting to stay here? Or is it all down to execution?
Rene Sugo: It’s an interesting question and links back to what we’ve done with on the ASX. The fact that we listed on the ASX in some ways acts as an anchor to keep us here in Australia. Our shareholders are predominantly Australian, they are self-managed super funds and other funds that actually value [our] dividend deals and they have to be franked – or have tax paid.
So by virtue of the fact that we’re listed on the ASX it means we do want to continue as we have, to keep bringing that franking tax back to Australia.
If we were VC-funded or self-funded then there would be nothing holding us to Australia. Then absolutely the pigeon will have flown the coop. There’s nothing to hold you back because at the end of the day, we are selling software, which can be sold from anywhere. But we are listed on the ASX here, and this is where we are located.
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