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Wednesday, July 12, 2006

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 7th 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.