Regional telco Red Wifi blames NBN costs, low margins for insolvency

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Regional telco Red Wifi blames NBN costs, low margins for insolvency

Regional fixed wireless provider Red Wifi claims NBN connection costs and poor margins led to its closure and subsequent winding up, according to a liquidator's report.

The liquidator of the Queensland-based company has also reported the company may have been mismanaged prior to it ceasing operation in September 2017.

David James Hambleton of Rodgers Reidy, who was appointed by the federal court on 15 June following a winding up by TPG-owned AAPT, said the telco’s failure may have been caused by poor financial control and strategic management, with the lack of records hindering further investigations. 

Based in the Darling Downs region, Red Wifi was a provider of wireless internet services in rural Queensland, installing satellite dishes on elevated positions on silos, water tanks and sheds.

A January 2017 report from ABC said changes brought by the Australian Communications and Media Authority (ACMA) on access to certain frequencies forced Red Wifi and other regional telcos to compete with major mobile carriers and NBN Co in rural areas.

The liquidator reported that company director Steven Stephens attributed Red Wifi's failure to a number of factors, namely high competitiveness in the industry, high costs in relation to the NBN broadband access network and low-profit margins.

A Red Wifi Facebook post dated 24 July 2017 detailed the company's intention to drop NBN services and stick to its core point-to-point (P2P) fibre-over-wifi network.

"After being requested by many in the area to sell NBN, ADSL, BizPhone & Landline services, we reluctantly decided to add these products & services," the post read.

"We flourished, we floundered, we waded our way through these services and the time has come to an end to say goodbye to these services and stay with what we know and what we are good at, P2P fibre-over-wifi network.

"NBN, ADSL, Bizphone and landlines are not our networks and infrastructure and we have to follow their processes, which is fair enough, if you don’t own it you don’t get a say. These services and fault processes are not where we feel they should be. It’s too unreliable with too much red-tape and protocol for us and takes much of our time from our P2P customers and the network.

"So we have decided to remove these from our product/services line and stick with our own network that we know and can manage and control all aspects of."

Some of the debts listed in the liquidator's report include $120,000 to Vocus-owned Nextgen Networks, $43,000 to Sydney-based financial services provider Multipli and $21,000 to Toyota Finance. The debts for AAPT, distributor Bluechip Infotech and the Australian Taxation Office are to be determined.

Stephens, who left the company on 1 March 2017, became director of regional telco Nextgen Wireless. The liquidators are also investigating if the company is related to Red Wifi.

Hambleton said the lack of record-keeping has hindered a number of possible recovery actions, unable to determine if there was any unfair preferences, unfair loans and unreasonable director-related transactions.

The liquidator is also investigating if Red Wifi was subject to illegal phoenix activity and if there are any uncommercial transactions that may be commercially recoverable. An insolvent trading claim against the directors is also being investigated.

Last month, Melbourne-headquartered Binary Networks set up internet services in Queensland community Goondiwindi, a region Red Wifi had also operated in. It is understood a telecommunications broker acting on behalf of Binary had been in talks with Red Wifi to transition some of its clients. 

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