From Four to Six Pillars: The Evolution of the Australian Telecom Industry

From Four to Six Pillars: The Evolution of the Australian Telecom Industry 

The Rise of Aussie Broadband: 

The Australian telecommunications landscape has witnessed a significant transformation in recent years, shifting from a traditional four-pillar model dominated by Telstra, Optus, TPG, and the NBN, to a six-pillar model that now includes Vocus and Aussie Broadband. This evolution has been driven by a confluence of factors, including regulatory changes, evolving consumer demands, technological advancements, and strategic diversification. A "pillar" refers to any telecommunications operator with a revenue of $1Bn or more. A New Era of Competition Aussie Broadband, with its rapid growth and strategic acquisitions, has emerged as a key player in this evolving market. With revenue at ~$1Bn, the company is poised to solidify its position as the sixth pillar of the Australian telecommunications industry. (PE TTM - 35.7, PB - 1.7) 

Key Factors Driving the Transition Regulatory Framework: 

The ACCC's role in promoting fair competition and open access to the NBN has created opportunities for new entrants. Changing Consumer Needs: Australian consumers are increasingly demanding reliable, high-speed connectivity, personalised services, and cost-effective solutions. 

Technological Advancements: The rollout of 5G, cloud-based and AI-enabled services, and other innovations have lowered barriers to entry. 

Diversification and Consolidation: Providers are expanding their service offerings and gaining economies of scale through mergers and acquisitions. Aussie Broadband's Growth Strategy Aussie Broadband has been actively pursuing a growth strategy that involves both organic expansion and strategic acquisitions. The company's recent acquisition of Symbio, a leading provider of NBN services, is a testament to its ambition to consolidate its market position. 

Superloop: A Strategic Target One of Aussie Broadband's most intriguing prospects is its potential acquisition of Superloop. With a nearly ~12% stake in Superloop, Aussie Broadband is well-positioned to capitalise on opportunities in the market. Analysts predict that such an acquisition could significantly enhance Aussie Broadband's capabilities and further solidify its position as a major player in the Australian telecommunications industry. 

Conclusion The Australian telecommunications industry is undergoing a period of dynamic transformation, characterised by increased competition, technological innovation, and strategic consolidation. Aussie Broadband's emergence as a significant player in this evolving market is a testament to its ability to adapt to changing market conditions and capitalise on new opportunities. As the company continues to grow and expand its reach, it is poised to play a pivotal role in shaping the future of the Australian telecommunications landscape. 

 Src: Excerpt from my book on NBN, AFR, WSJ 

 #australia #telecom #future #strategy #M&A

Aussie BroadBand on Acquisition Spree

First, what I wrote about ABB's FY23 Results last year.   

Update on ABB's Business 

ABB's Acquisition Spree - Ongoing Tussle and Drivers Behind it. 

My other post on NBN and its Economics

TPG Heading for a Challenging Future

TPG Heading for a Challenging Future 

HY23 Results - Key Takeaways

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• The merger with Vodafone was a necessary remedy to the NBN, but it hasn’t lived up to expectations. TPG’s plan for the Vodafone merger was to do what it has always done – cram lots of users through a fixed asset base to raise profits. It hasn’t worked out that way.
• Selling off the wholesale Fibre Business can be likened to relinquishing a fortress, where the installation of the fibre requires minimal capital and new customers translate to higher margins and earnings, with the capacity for expansion being remarkable. This decision can be interpreted as a demonstration of TPG's weakness, rather than one that emanates from a position of strength.
• The business cannot sustain an expensive multi-brand strategy as it shifts towards a pure RSP play. Hence abandoning it.
• The emerging trend of choosing Prepaid mobile over post-paid is reemphasised (MVNO Play). Post-paid ARPU increase primarily from price rise in Jan and Feb.
• The mobile network is underutilised with just 3.2Mn post-paid mobile users compared to 6Mn for Optus and 9Mn for Telstra. This surplus capacity enticed them to go for the MOCN deal with Telstra.
• FW is cannibalising NBN and ADSL subscribers and improving its margin (bypassing NBN). About 0.5Mn premises are on FW. This is a growth area with an addressable market of around 20% of the Mobile Segment. 5G rollout of 3K sites by the EOY and 5K by 2025. 1 site requires 50 weeks to provision. 
• With NBN EE's market-leading position in E&G, business is experiencing stickiness, incremental revenue and higher margin managed services (SD–WAN).
• Learnings from New Zealand in the Mobile segment are acting as a guiding force.  
• IT Transformation (like single billing) has reduced impediments in P2O, O2A and RA, enabling agility in their GTM strategy.

Why the Stock Price is Flat?

TPG's share price has been flat at $5.47, with a marginal rise of 0.03c after HY23 results on August 24.

The critical reasons for this are:

• Growth in the Mobile segment because of roaming charges, rationalisation of plans and price increases to combat inflation.
• Growth in FW bypasses NBN and magnifies the margin.
• Growth in E&G supplemented by Fibre Fast and EE.
• The expected sale of the wholesale arm, Vision Stream, is seen as a value creator in the short term. In the longer term, TPG will face severe headwinds to sustain the business because selling a fortress (fibre infra.) on which the business is built is not a good move.

• By focusing on pure RSP play in fixed access, the company has positioned itself as a semi-premium player, similar to Virgin Airlines. This strategic approach enables them to provide cost-efficient services without compromising on customer service. Hence consolidating all the brands under one umbrella, streamlining their operations and enhancing their overall efficiency. This is uncharted territory for TPG as they will face competition from both high-end and low-end players.
• In the Mobile segment, they have an underutilised network, hence MVNO play will rise, and they may start exploring other network-sharing deals in the future.
• TPG is preparing itself for a challenging future.

My previous on NBN Co FY23 Results and its strategic play. 

Source: AFR, TPG, ACCC, ITnews, Reuters, UBS

NBN Co FY 23 Results - Key Takeaways

 NBN Co FY 23 Results - Key Takeaways 

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• NBN Co’s Revenue has increased by 4% in FY23 and is facing headwinds for increasing the revenue. 
• CAGR stands at 8.7%. WACC - 3.18% (heading upwards)
• Has the highest EBITDA margin (68.2%) among telcos globally.
• Consumer uptake is at a snail's pace with only 40K net additions in the last 12 months. 
• 12.3 Mn customers ready to connect 
• 8.56 Mn are active (30% idle network)
• 6.64 Mn (78.2%) users are on <= 50 Mbps
• 2 Mn (24.2%) users < 50 Mbps, 4.52 Mn users on 50 Mbps
• 1.83 Mn (20.7%) users are on >= 100 Mbps (risen by 2%)
• 6.6 Mn premises ready for Ultrafast (incl 2.5 Mn on HFC)
• Poor uptake – only 50-60K has upgraded
• In all 1.83 Mn users are using Ultrafast (>=100 Mbps) internet.
• Facing heat from Starlink and 5G providers in remote areas
• Starlink In Australia > 120K subscribers
• Sky Muster has declined from 108K to 96.1K
• In the Enterprise 35K EE SIOs are active. 
• It seeks to improve its top and bottom line by implementing price increases through the SAU. The next revision is to be submitted soon.
• Today ARPU is $47 (Residential, stagnant), and FY24 ARPU is $49 (sub-SAU approval)
• Heading for profit (NPAT) without a soft write-off of $32 Bn in H1 FY25. With the write-off, it could be Profitable in FY 24. 
• NBN’s Enterprise Value has risen from $25 - $19 Bn to $36 - $29 Bn and will be heading northward of $40 Bn if SAU with a price increase is accepted in FY24. A good prospect for the government as it prepares to offload its investment after FY25.  
• The total cost of ownership TCO of NBN in 2023 using ICRA is A$76Bn+ and without ICRA consideration it is >A$59.9BN

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NBN Co's Total Cost of Ownership (TCO) from 2010 to 2023

• NBN was established to reduce the digital gap in Australia by making high-speed internet (>100 Mbps) affordable and removing Telstra's monopoly in fixed-line access. While NBN has succeeded in removing Telstra's monopoly, but it's disheartening to see that they have failed to reduce digital exclusion by providing affordable high-speed internet.
• After investing A$76Bn over 14 years, Australia's average fixed internet speed ranks 81st globally at 53 Mbps, lagging behind many other countries in terms of internet connectivity.
• 75% of Australians are consuming the internet at a speed of 50Mbps or less.

Source NBN Co, AFR, Reuters, ACCC

Telecom Industry Evolution - 1990 to 2023

 Telecom Industry Evolution - 1990 to 2023

elecTelecom Industry Operating Model Evolution - 1990 to 2023

From Linear to Agile

Telecom Industry Performance -2023 

Telecom Industry Growth - Spectrum 

Organic and Inorganic

Telecom Industry - Todays Setup and Building Blocks 

Trends from AT&T about Fibre Economics and Data Growth

Key Trends and Message from AT&T Results from Mar 2022

• Monthly consumption at is accelerating from 900 gigabytes to nearly a terabyte today.
• We are consuming roughly 30x more data in our homes than we are on the go with our smartphones. 
• Homes are getting smarter and they're becoming more demanding environments where flawless, high-quality broadband is required. Our home has become a work environment.
• The average household today has 13 devices, and that's expected to triple by 2025.
• Enterprises are managing a multi-cloud environment, they require more low latency and secure bandwidth.
• Fibre is economical and superior therefore consumption over wireless is used for high-value mobile applications. 
•  IoT connectivity is growing 18% year-over-year. The next wave of digital transformation is being driven by cloud, AI and connected sensors.
• Data growth is exploding post covid driven by hybrid arrangement, pent-up demand and everything digital.
• Fibre is not only economical with data demand but is superior, reliable and secure. 

Suggestions for Federal Govt on NBN.

• Make 250/100 Mbps the minimum speed requirement on the network. Currently, Avg speed in Australia is around <60/20Mbps
• Waive off the outstanding debt of $27Bn and that will enable NBN to reduce the wholesale price to around $20-$25/month per user
• Make FTTP to all areas (>93%) where it can be served.
• These 3 suggestions will drive the green economy and innovation, reduce carbon footprint, will reduce pressure on Citys infrastructure, drive growth in country areas and will drive SMB growth and reach outside Australia.