Todays NBN Result is Worrying for the Government

H1 FY23 NBN result is worrying for the government. 

Reason:

  • The uptake by new subscribers is nearly stagnant at 85Mn connected premises (same as FY22) and is moving at a snail's pace. 
  • With NBNs net growth being negligible, suggesting forces of attrition are at play and with 10K customers switching to Starlink, it is not helping its cause either. 
  • NBN is facing severe headwinds from 5G, Starlink and other fixed-line players, hence there is a twofold push by them. One is to increase the wholesale price and the second is to get regulatory protection from ACC to guard their market share against 5G and other players.
  • Today if NBN is sold it will get a price of $19 to $25 Bn (the lower end is realistic) which is less than the contributed equity of $29.5Bn. 
  • The government has committed to the electorate that it will upgrade FTTN/B to FTTC/P and increase the penetration of high-speed internet and make it affordable. Their intent is to make high-speed internet in Australia to be at par with OECD countries and get recognised as a leader in the digital enablement of the economy. Hence they have shelved the privatisation plan until 2025 or the next election.  
  • With today's number, the longer the government wait, there is no guarantee that this nation-building asset facing heat from the market forces will command a higher sales price. In fact, the risk is, that it might be sold at a lower price, putting more pressure on the government's off-balance sheet item
    (off-budget spending driving inflationary)
  • Having said that, by delaying privatisation government will fulfil its promise to the electorate in 20202 by enhancing its global internet ranking, high-speed penetration and CX.

The good news is:

  • The good news in all this is that their EBITDA margin has increased from 58% to 69% (the highest in the telecom ecosystem ) underpinned by milking high-speed tier (Pricing strategy is working), increasing business penetration and reducing OPEX (like subscribers cost).

Source: NBN Co, Google, AFR, ITnews, ARN News


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