NetServices plc – Major League Problems

Netservices, a small UK wholesaler, announced their maiden annual results yesterday and the results were not pretty with a loss of £3m. Even worse is that they seemed to have eaten most of the cash raised from their IPO. As at 31st Aug, NetServices had £1.35m cash on the balance sheet; net cash is £629k after loans and lease agreements are taken into account. This compares to cash outflow of £4.1m for the full year; this cash outflow was financed by £4.2m raised during the year with their IPO on AIM.

In the outlook statement there is not much hope for the future in the current format:

“Continued corporate activity in the sector has seen consolidation of most of the larger DSL suppliers, including only last week BT making a recommended offer for Plusnet plc. Whilst satisfied with our current trading performance we continue to explore all opportunities to maximise shareholder value.”

This is classic stock exchange speak for "We are looking for a buyer, anyone interested?"

The woes of NetServices can really be put down to “Free” Broadband UK launch combined with the cost of launching new products such as their wholesale VOIP platform. Netservices made a provision in the accounts of £1m for bad debts related to wholesale broadband. Only last week, Netservices cut off one of its customers Biscit leaving around 9.5k punters in Broadband Hell. The comment on Biscit in the results was very interesting:

The impact of the decision made and announced last week to disconnect our largest wholesale DSL customer, Biscit CSP Limited (formerly v21.co.uk ltd), has yet to be determined. Initial indications are that about a quarter of the customers have so far signed new contracts with EezeDSL, which will lead to a shortfall in future monthly turnover; however, cost savings available in the network are expected to offset this lost income.

From my cynical viewpoint, it does look to me as if the whole EezeDSL process was designed to retain as many customers as possible for Netservices, despite the protestations that it was impossible for NetServices to issue MAC codes and therefore allow the punters to easily swap to any other broandband provider. Also, Netservices are complaining about the new BT Wholesale IPStream tariffs:

The announcement also includes a proposal to charge for MAC codes, effectively an exit charge when changing suppliers.

I have no sympathy for Netservices whatsoever, because the BT proposal is only for companies who refuse to issue MAC codes, not as Netservices imply for any people who leave any broadband services The BT measure is meant to force all companies to issue MAC codes for customers wishing to transfer suppliers and to stop incidents like 8.5k punters being in Broadband Hell.

In fact, the more I look at the whole of the situation, the more I think the ultimate owner of the EezeDSL service, the infamous Dominic Marrocco, will step in with a rescue package for Netservices when they run out of cash taking the remains he thinks are worth something. Dominic Marocco made his first million when he sold FirstNet to Pipex back in 2003. My favourite Marocco story has nothing to do with ISPs and is when he bought Mike Tyson's old Las Vegas property.