Tucked into an unexpectedly leafy part of the Auckland suburb of Albany, Megatel’s offices are those of a standard small ISP, with a bit of trendy Silicon Valley thrown in. The staff are young, and headset-toting. The management structure is flat; the bosses sit among the employees. There’s free fruit and home-made breads in the meeting room; witty staff caricatures on the walls. There’s probably a foosball table hidden somewhere too.
But in other ways Megatel is far from typical. All its 23 full-time and 10 part-time employees speak at least one North Asian language (plus English). Some speak three or four. The company offers custom-developed set-top boxes and content packages, as well as mobile plans where New Zealand, China and Korea are treated as the same country in terms of pricing.
Most unusual of all, you can buy electricity along with your fibre broadband. In fact, company co-founder Jisan Jang, known as JJ, reckons Megatel’s power subsidiary would make it into the Top 10 New Zealand energy retailer list. It has almost 4,000 power customers, including some sizeable business clients, such as the IMAX entertainment centre, on Auckland’s Queen Street.
“Launching MegaENERGY was tough – the regulatory system is very different. You are dealing with a market where the price changes every five minutes and can have huge spikes. Initially, we grew fast by offering deals to our existing customers, but now we are approaching the market directly. In November 2015, we launched a mainstream brand, Wise Pre-Pay Energy, and these days we earn more profit from power than telecommunications, and volumes are bigger.”
Ask most people about power plus broadband packages and they will tell you Trustpower was the pioneer. They’d be wrong. Megatel started selling electricity to its telco customers before Trustpower moved its business the other way.
JJ says his model makes more sense than you would think. The ISP market is crowded and competitive. Even the major players are trying to be nifty and entrepreneurial. But the power sector is different. Most of the big generator-retailers are still pretty conservative and cautious, he says. This creates an opportunity for a nimble ISP to profit from offering different customers various options. A larger business might be tempted by a cheap power offer but be happy to pay more for broadband, for example. Whereas, households tend to be price-sensitive about broadband but less dollar-savvy when it comes to electricity prices.
Megatel’s latest $69 residential UFB (Ultra Fast Broadband) offer throws in a free router and unlimited data. Add power and you get a 15 percent prompt payment discount too. Meanwhile, the fibre plan is $5 cheaper than ADSL/VDSL, because fibre provides more opportunity for add-on services.
Being a successful small player is about being nifty and flexible, says JJ. He and business partner Jakob Lee, both New Zealanders of Korean descent, founded Megatel in 2003. They began by selling dial-up and international phone packages. Just a few years later neither product existed. Profitability (and survival) means keeping ahead of the competition in terms of pricing and products, says JJ.
Early on, the company discovered its target customers, Korean and Chinese Aucklanders, used an astonishing seven times more data than the average Kiwi. Not only were they heavy users of devices, but when they plonked down on the sofa at 7pm they weren’t watching local terrestrial channels. Instead, they watched Asian television and movies via the internet. So, JJ and Jakob set out to offer plans with considerably more grunt data-wise.
Megatel started out as a niche telco, selling dial-up and cheap international phone minutes. These days it’s still niche, with broadband, mobile and television content packages aimed largely at local Korean and Chinese speakers. But now a brave new venture into the electricity market could take the company mainstream.
“When the other ISPs were providing 40GB, we went in with 200GB. When they launched 200GB plans, we offered 400GB.”
The company now has more than 5,000 broadband customers.
Another of Megatel’s strategies has been to keep a close eye on trends in the Korean market, which tends to be a few steps ahead of New Zealand.
“In 2011, it seemed every Kiwi ISP was offering the same package, but we noticed that the ‘triple play’ – phone, internet, TV – was popular in Asia. So, we launched New Zealand’s first IPTV package including set-top box, mobile app and website. We signed licence deals with 22 Chinese and 20 Korean TV stations and became a content provider.”
Even then, it was two steps forward, one step back. In April this year, Megatel canned its Chinese television packages, unable to compete with the rooftop antennae technology that gives Chinese speakers access to hundreds of pirated channels – for free.
Another successful differentiator has been developing proprietary software.
“We realised broadband and phone services – the infrastructure part of the business – would be nothing. Our future power was in the value we could deliver with clever technology. Suddenly we became a software developer. The first item was the TV product, and we developed different versions of the set-top box and our own remote controls. Now we have a TV app, a mobile phone app, video-caching software and our own billing engines.”
In the constant struggle to keep ahead of
the pack, JJ says Megatel is keeping a close eye on ultra high-definition television, and on the electric and driverless car markets. What are the untapped areas where a telco-cum-power retailer can enhance the experience for customers?
“Infrastructure is just infrastructure,” says JJ. “Our job is to look for what we can provide on top. We believe size doesn’t matter because unique value will control the market. We need to provide that value.”