How NBN Could be Profitable in FY25

How NBN Could be Profitable in FY25.

Background:

• Losses are booked for the last 6 years and are anticipated to continue until FY24. 
• Depreciation and Amortisation are a drag on the NPAT and will continue in the $2.9-2.5 Bn range. 
• WACC will be around >=2.97% 
• Revenue increase (less idle network) is assumed to be 4-5% YoY. 
• Cost is anticipated to increase by 5-6% in FY23 and FY24. 

How the Govt and NBN can make it profitable:

• Increase the wholesale price via SAU
• Reducing the serviceability of debt (this is now executed, where serviceability has been reduced from $1.47 Bn to $0.37 Bn per year)
• migrating <= 50 Mbps tiered users (78%) to >=100 Mbps high-speed internet,
• by applying these levers, it can book a profit (NPAT) in FY25, even with a 25% idle network. 

My previous post on why the government is worried about NBN after FY23 H1 results can be read here

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

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 

Why the Government had to intervene in Vodafone Idea

 Why the Government had to intervene in Vodafone Idea  

Shareholding of Vodafone Idea

My previous post on Telecom Industry in India - Oligopoly to Triopoly

Source: Ventura, BSE

Open AI - Why Google is Threatened

 Open AI - Why Google is Threatened

If search without AI was an order of complexity - one, then search with AI is like an order of complexity two. Google is now launching its own #AI chatbot - BardAI which will respond to complex queries instead of simple questions served by google doodle. AI is now venturing into more complex tasks; hopefully, more players will participate and emerge.

More info on Open AI can be found here

State of IT Services and Software Industry - 2023

State of IT Services and Software Industry - 2023 

Digital Transformation is about Ceasing Revenue Debt

 

My other work on Digital Transformation can be found here 

Global State of Telecom Industry - 2023

Global State of Telecom Industry - 2023

 

Telecoms Organic Growth Play - 2023

Key Message:

• Market Size: $2.9 Tn 
• Growth (CAGR): (6%), Recovering since COVID 
•  Technology Change: High 
• Life Cycle: Matured Regulation: Heavy 
• Avg P/E < 15 (no growth), Industry is struggling in generating ROI 
• Organic Growth: Both Horizontal and Vertical Play are employed 
• Inorganic Growth: Adapt, Amalgamate, Acquisition

 

Telecoms Inorganic Growth Strategy Spectrum - 2023

Key Message:

• Market Size: $2.9 Tn 
• Growth (CAGR): (6%), Recovering since COVID 
•  Technology Change: High 
• Life Cycle: Matured Regulation: Heavy 
• Avg P/E < 15 (no growth), Industry is struggling in generating ROI 
• Organic Growth: Both Horizontal and Vertical Play are employed 
• Inorganic Growth: Adapt, Amalgamate, Acquisition

Global Challenges and IT Spend Macro View - 2023

WIP - more to come ....

Pathways to Digital Transformation

Pathways to Digital Transformation 

• In Business, value can be created by generating more revenue or reducing the cost envelope. In either case, this can be achieved by transforming the business operations. 
• Composing and deploying new services with compelling CX is key to driving growth in a digitally enabled business world. Besides enhancing operational efficiency, dividends are key to improving a business's bottom line. 
• The following pathways are available to achieve this goal: 
1. 1st transform CX and then Operations - Move from Silos to Integrated Experience and then to Future Ready. 
2. 1st transform Operations and then CX - Move from Silos to Industrialised Experience and then to Future Ready. M
3. Move from Silos to Future Ready State directly, that is, do both transformations in parallel, CX and Operations. This is the most challenging pathway as it requires aligning Business and IT resources in parallel for a desired outcome.        
• In practice, either path can be followed, depending on the maturity of digital transformation and how much information can flow without boundaries 

IT Services Organisations Positioning and Performance

Key Message - IT Services and Product Players

• Market Market Size: $1.4 Tn 
• Growth: (6-8%) 
• Technology Change: High 
• Life Cycle: Matured 
• Regulation: Med-Low 
• Business Environment - High Risk hence all of them have a cash surplus on their books and give insight into their sales and organisation culture (loyalty based instead of talent-based like Apple)  
• Capgemini and Cognizant brand has no equity in them and both have strayed from their original positioning. Capgemini in particular has lost its mojo. 
• TCS is the shining light when it comes to brand equity, growth potential, and margin among all IT services players. 
• From India's IT services sector perspective, TCS and Infosys are premium players. HCL and Tech M are low-cost (price-taker) players. 
• Accenture is the flag bearer of a premium tier 1 IT consulting services organisation.
• IBM is trying to compete with Accenture and other IT players to get its premium position in the market. The balance sheet is leveraged and they are getting aggressive in the market and are taking more risks.




Updated View with IT Services Players 











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View with IT Product or Software Players




ServiceNow is leading the pack of Cloud-based ITSM providers with an EBITDA Margin of nearly 500%. This is reflected in its PE ratio. 
Cisco is struggling with the decline in MPLS (SD-WAN) and IP Telephony (Teams) and facing heat from HPS and cloud providers. Besides supply chain issues and competitive pressure and loss of market share to Huawei is adding to its woes.
Oracle is finding it hard to compete with Salesforce and SAP in CRM and Cloud-driven business apps respectively. 
Salesforce is undervalued and is leading the CRM and BSS domain. Its currently facing internal headwinds because of a couple of acquisitions like Slack, Tableau, and Mulesoft. Once the integration is complete it will be in the topmost quadrant.
MSFT has completely turned around under Satya Nadella. Its 365 and Cloud portfolio is leading the transformation

Software Performance - 2023

IT Services Landscape for Enabling Digital Transformation - 2023

 IT Services Landscape for enabling Digital Transformation 

• Composability and Agility driven by API and Orchestration 
•  Microservice Architecture enabled by containers for Portability) 
• Cloud Native Apps and Migration to Cloud (Agility and Savings) 
• ML, AI and robotics-enabled automation for S/W and H/W 
• Agile Delivery - DevOps, CI/CD (Agility, MVP) 
• Ex - from Data, API and Development Management to Campaign, Distribution Management, from Hosting, Security to After Sales Support, Personalised Customer Advice, Ride Sharing, and Business Led Products

 Digital Transformation - M2M to IoT