A Good Deal That Is Not Without Its Share Of Risk

The Age

Wednesday November 24, 1999

By GARRY BARKER, TECHNOLOGY REPORTER

For average Australians, especially those on lower incomes and with little knowledge of computer technology, the Virtual Communities offer, based heavily on the mass market promise of the ACTU, the Catholic Church, AFL clubs and some others, is a pretty good deal - about half current retail prices.

With an initial fee of $60 and $9.50 a month for three-and-a-half years, subscribers to this ``members only" arrangement get a reasonably capable IBM Aptiva PC with a 15-inch monitor, a pair of speakers, a modem, 16 hours a month of Internet access and a bundle of basic software.

Another $2 a week adds a color inkjet printer and some educational software. Add $3 a week and you get what is termed, somewhat optimistically perhaps, a ``business package".

A significant added cost, not mentioned yesterday, will be the ink cartridges for the printer. It can be as high as $80 a time.

The deal's backers face ``substantial risks", said Mr Bernie Fraser, former head of the Reserve Bank and now chairman of the Australian Retirement Fund. The fund has put $6million into the venture that is managed by Virtual Communities, a Melbourne online company, supplied by IBM and Primus Telecom and funded at 8 per cent by AXA. The interest rate is regarded as favorable to low on today's money market. A reliable revenue flow will be crucial for the deal's survival.

Margins have been pared to the bone, said Mr David Thodey, chief executive for IBM in Australia. The PC offered was being ``adapted" to the price in its Wangaratta plant. IBM would need large-volume sales to make the deal viable.

Primus, too, is aiming to gain a big chunk of the Australian domestic telecommunications market through its participation in the project. Beyond the Internet side of this deal the company's chairman, Mr Ravi Bhatia, clearly sees expansion of his local, STD and ISDN telephone business.

For the arrangement to survive, all participants will need to see, and hold, the promised volume of subscribers. Yesterday they talked of figures higher than two million. If they get them Australia could set a benchmark for mass-marketing the Internet.

The effect on the computer market could also be considerable. About 85 per cent of Australians do not yet have Internet access in their homes and about 50 per cent do not have domestic computers. Taking up to two million potential buyers out of a market of a relatively small size could change the future for many retailers and perhaps send some to the wall.