Orcon's loss-making telco gamble

Orcon announced earlier what they're going to do in cahoots with Siemens, and it's not ADSL2+, but VoIP or Internet Telephony as it's sometimes called. In other words, Orcon wants to become a telco.

That's understandable because ISPs in New Zealand don't make money reselling Telecom's DSL - in fact, they lose money and dread it each time a profitable dial-up customers switches to DSL. ISPs hope that having other offerings like metered voice calls with monthly service subscriptions will bring in much needed revenue; it's not like they have much choice either, now that both Telecom and Vodafone are working on packages that include standard phone service, broadband and mobile phones.

So, Seeby Woodhouse's gang have spent $2 million on a Siemens SURPASS hiQ8000 NGN switch to get the ball rolling. The ball in question is a $50-$60 a month package with VoIP, IPTV, Video on Demand (?), and broadband all in one. It'll happen by May, too, apparently.

However, it looks like a risky gamble according to this story by Jenny Keown in the Herald. Scott Bartlett at Orcon is quoted as saying:

"We are going to take a heavy loss leader in the market by providing these services."

The loss will come from the price Telecom is charging for its wholesale DSL that Orcon will use for the above package. Telecom only offers slim margins on its wholesale products, to the point that they've been described as trade discounts instead.

Orcon's gambling on picking up as many customers as possible, no matter the cost, so as to be in a strong position when the new telco regulation kicks in.

How long will it be able to lose money though?


Other related posts:
The problem with VDSL2, part 2
The problem with VDSL2
The mysterious Dynamic Line Management on VDSL2