Pipex Trading Update

Pipex have issued a trading statement ahead of their half year results. All seems well at first glance with trading ahead of revenue and profit expectations. Seeing that I am a natural born cynic and Pipex has been on a massive acquisitions binge over the last 12 months, I’d like to look at the detail in the interims when they are released on the 7^th September to analyse the organic and inorganic growth and compare it to market metrics before passing judgment. The devil is in the detail.

In terms of the Broadband/Voice Division, they now have 832k customers of which 399k take broadband. ARPU is up 9% to £25, but again the question is how much of this increase is due Wholesale Line Rental which is a real low margin product and only there as an anti-churn tactic. Pipex have unbundled 43 exchanges (they have ordered 100 exchanges) and claim to be taking a conservative approach. Personally, I feel 1 million is the bare minimum number of customers to have scale in the consumer segment and therefore the longer Pipex waits before selling up or carving a niche the more it is going to struggle in this space.

The area of Pipex business that I like is the hosting and DNS business which is growing quite nicely at 23% and 26% year-on-year.

They also mentioned the WiMAX division which is now moving into commercial trails with several local authorities. Interestingly they mentioned a planned city roll-out in 2007 as opposed cities. Surely this is a typo? Mind you, they weren’t quite as successful as Clearwire in extracting start-up cash from Intel. If Pipex seriously expect to roll-out a nationwide launch of WiMAX in 2007, they will need a serious amount of refinancing and the amount may even be beyond Intel’s VC fund.

Finally, I note that Pipex say they now have a retail presence via the Phones4U shops. I'm going to have compare the Phones4U promotional capabilities of Pipex Homecall services versus the Carphone Warehouse promotion of TalkTalk Broadband Forever.