It’s been a busy year for Australian telcos and the National Broadband Network (NBN) contortions in Canberra have managed to provide operators big and small with plenty of food for thought.
Vodafone Hutchinson Australia has lost its chief executive to NBN Co, TPG Telecom is getting ready to take fibre into apartment buildings, Optus is going full throttle on its 4G TD-LTE rollout and Telstra, well the nation’s incumbent telco is presumably poring over the NBN strategic review to bolster its position ahead of the crucial negotiations.
When it comes to deals, the sector was buzzing in 2013, with some notable winners and losers.
The ever acquisitive iiNet was able to pick up Adam Internet for $60 million, with a little help from the Australian Competition and Consumer Commission (ACCC). South Australian outfit Adam was initially in Telstra’s sights but the ACCC stepped in to temper its aspirations. The watchdog listed a number of concerns with the agreement, the foremost being its impact on Australia’s budget internet service provider landscape.
Telstra’s loss was iiNet’s gain with the ISP wasting little time in snapping up Adam.
It will push iiNet’s customer base to about 900,000 broadband subscribers and add South Australian business and government clients that consume data-centre, hosting and cloud services. Consolidation has always been on the top of iiNet’s agenda but the list of potential targets is starting to look thin.
Meanwhile, M2 Telecommunications got its hands on Dodo and Eftel and TPG Telecom may have been pipped at the post by the Ontario Teachers Fund on NextGen, it managed to make up for it by picking up AAPT’s wholesale arm.
The AAPT deal actually caps of a remarkable year for TPG and 2014 could be even bigger for the telco.
In May, the company surprised many at the spectrum auction by paying $13.5 million for 2x10MHz in the 2.5GHz band. It might not be a lot of spectrum, certainly not enough for any substantial mobile broadband access play, but combine it with AAPT’s inter-capital fibre footprint that TPG just picked up and suddenly you have the fourth infrastructure player in the Australian market.
TPG boss David Teoh might shun the limelight but some astute thinking in 2013 has allowed the telco to carve out a very lucrative space in the market. TPG’s footprint might not be very big, compared to Telstra's, but it’s present where it matters. And this is where the changes to the NBN approach come in handy for Teoh. Multi-dwelling units were neglected under Labor’s NBN approach but TPG’s aspirations to wire up 500,000 or so apartments could become a reality under Coalition rule.
The plans to enter apartments is ambitious and the planned revival of the HFC networks provides a significant opportunity for TPG to leverage its expertise to perhaps even lend NBN Co a helping hand. It won’t be alone in that aspiration but TPG has everything it needs to be serious player.
It won’t be all smooth sailing however, independent telco analyst Chris Coughlan says that dealing with the Strata corporations that own/manage these buildings will be tricky.
“I’d believe that they’d need a reasonable take-up by the residents in the building to make an investment work, also they will need to manage the interference between those on their service and those still on an ADSL2 , or later perhaps a NBN supplied FTTN VDSL2 service.” Coughlan says.
Also just what ramifications do TPG's moves have on the likes of Vodafone and Optus.
But TPG now has more assets under its control than ever before and its reliance on others for backhaul to NBN Points of Interconnect (POI) has lessened substantially. The New Year is shaping up as a big one for David Teoh and TPG but don’t expect it to hold a parade. TPG is all about keeping a low profile and getting the job done - expect more of the same in 2014.
Is iiNet out of targets?
With regards to iiNet, the ISP is starting to run out of targets and given the changes to the NBN, iiNet's likely to start concentrating a lot harder on services, marketing and application innovations.
Telco analyst Paul Budde says that iiNet has strong track record on that front but warns that if they are not able to differentiate at that level they will come under price competition from TPG.
While a Fibre to the Premises (FttP) NBN would have ultimately been in iiNet's best interest, Budde says in the end iiNet should make the most of what it gets.
“FttP of course allows for a far higher level of innovation and service differentiation so in that respect they are and have always been a vocal FttP supporter,” Budde says.
As for acquisitions, there may be a few more to come but the scale will be smaller and price will be proportionally lower in terms of revenue multiplier; as they will also have less infrastructure assets.
Budde reckons there’s still room for further consolidation at the second-tier of the sector, which includes TPG, MacTel, iiNet, M2 as well as Optus and Vodafone. M2 is probably the most interesting prospect on that list, simply because it’s running out of targets as well.
The Big Three
Over to the big three telcos, Telstra cleaned up at the spectrum auction, it’s on track to cover the majority of the country with its 4G network, and despite all the turmoil and a change of government, is still poised to make in a killing from the NBN
The state of its copper network may be a mystery and we don’t know how the HFC play will work out. But behind the scenes, Telstra has been pretty active in building its technology portfolio, especially in the healthcare space. It spent close to $25 million to buy 50 per cent of health technology provider Fred IT, invested $5.2 million into HealthEngine.com, a service that allows patients to book doctors’ appointments online, and splashed out $40 million to buy Database Consultants Australia’s health division. Apart from this, Telstra also acquired Sydney-based unified communications and contact centre technology integrator NSC Group (North Shore Connections) to beef up its Network Applications and Services (NAS) portfolio and invested $18 million in mobile applications developer Kony Solutions.
With the fixed line business in decline, cashing out on the copper for $11 billion may not be such a bad thing for Telstra, especially if it allows it to focus more closely on its 4G plans and global aspirations.
For Optus, 2013 marked the beginning of its quest to atone for its sins and win back customers. That campaign to lead the sector with its Net-Promoter Score is likely to be an ongoing theme for Optus going into 2014. Though, Optus will need more than promises and plans to make a dent on Telstra’s customer base.
Knowing this, the telco’s investing big in its emerging 4G-LTE network, capitalising on the spectrum it acquired from its Vividwireless acquisition back in 2012. The telco has aptly called this service it’s ‘4G-plus’ network. So far, this extra capacity dual-band network is only available in Brisbane, Canberra, Melbourne and Sydney.
Getting 4G plus right has to be the top priority for Optus.
Vodafone Australia may not have had much to say about the NBN but the project has left a big mark on the telco. With chief executive Bill Morrow moving to NBN Co, the obvious question for the telco revolves around who will replace him.
But there may be more pressing matters at hand.
Vodafone’s success in 2014 will likely framed by its results in February. After years of turmoil and promises, all eyes are on Vodafone to actually produce some subscriber gains to vindicate Morrow’s tenure. It accounted its last reported subscriber loss to database clean out and has now put even more pressure on itself, offering double data to new subscribers over the Christmas period.
Anything but positive numbers will likely cast doubt on the turnaround and make the incoming CEO’s job that much harder.
On that front, chief marketing officer Kim Clarke has been tipped to take up the role; and it’s not a bad bet. Clarke, an Australian native, was poached from Salesforce five months after Morrow joined Vodafone to help with the turnaround.
While Morrow reinvigorated the company and put its network back on track, Clarke has been working feverishly behind the scenes on every element of how the telco presents itself to consumers.
She had a hand in revamping the telco’s retail presence, leading its PR division and also cheerleading more consumer friendly, understandable telco plans. Clarke earlier told Technology Spectator that she represents the voice of the consumer in the telco’s leadership team.
The next 12 months will likely see Vodafone double down on its marketing efforts. Morrow might feel like his job is complete but Clarke’s job however is only just beginning.
M2 Telecommunications, Amcom, Vocus
While the big players will likely again hog the media spotlight in 2014, it is worth making an honourable mention to some of the smaller enterprise-focused players in the telco space, like M2 Telecommunications.
In the past couple of years, M2 has been buying out rivals in a bid to pick up customers going into the NBN. Well, with the M&A in the sector starting to settle, it seems as if M2 is starting to run out of targets, and in turn may become one itself.
For M2, the start of 2013 was charactered by reports that it may merge with iiNet ahead of the NBN rollout. Such chatter around M2 may make a return 2014 according to Ord Minett telco analyst Brad Dunn. Either M2 could again try to partner with iiNet or may become the target of an even bigger company higher up the telco food-chain. Moving lower down that chain, and it seems things may stay relatively calm for the enterprise-focused telcos Amcom and Vocus. Both are growing steadily, and are also sitting on valuable fibre networks across the country.
Microequities Asset Management portfolio manager Carlos Gil suspects that Vocus’s fibre network – which spans the capital cities of the eastern seaboard of Australia – may be an acquisition target. He also opined that Amcom may be a bidder, as it would give the operator – who has fibre in Darwin, Perth and Adelaide – a foothold in the east.
Though, Dunn disagrees, saying that Amcom is largely focused on growing its existing business, and as a result is less likely to expand through acquisition.