iiNet Limited (ASX: IIN), the internet service provider, has had a strong run over the past several years, growing its network and expanding its services into mobile, home phone and Pay TV, which mirrors the convergence of telecom and internet that other competitors are also incorporating in their business models.
Acquisitions and customer growth
Previous acquisitions of The TransACT Group and Internode contributed to a full year of business for the group, helping to bring total revenue to around $941 million, up by 13% compared to 2012 full-year revenue.
In August, the company increased its customer numbers by 70,000 with the acquisition of Adam Internet for $60 million, bringing its total up to around 900,000 users at the time of the acquisition. We will have to wait until the company next reports to see the initial results of the purchase.
Bundling services and staking positions
The company's goal is to deepen the service usage of each customer by having the average of three products per customer, up from the current 2.23 average. One way it plans to do that is to offer Fetch TV, a video on demand and program recording service, which it is advertising in conjunction with Optus, the number two mobile service in Australia owned by Singapore Telecommunications Ltd (ASX: SGT).
This is to rival the Foxtel Pay TV service that Telstra Corporation Ltd (ASX: TLS) wants to bundle with its broadband internet and mobile services. The other advantage to increasing average products per customer is that the customer may stay with a particular service longer the more they have services intertwined and connected to one service provider.
Enter Vodafone
The next action may be from Vodafone Group (LSE: VOD) because it may move to have new business relationships with ISPs to expand its mobile and internet offering in Australia. ISPs like iiNet and TPG Telecom Ltd (ASX: TPM) that are not too strongly aligned with other mobile phone companies may satisfy the need to bundle more services, as well as expand potential customer reach.
The newspaper The Australian reported that Vodafone Australia had approached both iiNet and TPG Telecom informally about potential tie-ups within the past 18 months. Such moves would also involve Vodafone Hutchison Australia's other 50% owner Hutchison Telecommunications (Australia) (ASX: HTA), which has the exclusive licence to use the Vodafone brand in Australia.
Foolish takeaway
The telecommunications and digital entertainment industries are coming together faster and faster. Investors following one or several stocks in this space also keep in mind how they could work in combination with others and build depth in providing services.
