iiNet's NBN bluff

Perth-based telco iiNet's boss Mike Malone has never been short of chutzpah, whether it's taking on the collective might of Hollywood heavyweights or keeping an acquisitive TPG at bay. And true to form a pugnacious Malone has now evidently switched his focus on NBN Co.

While Communications Minister Stephen Conroy was busy telling the Senate yesterday that only 7000 out of 30,000 NBN customers have fibre-optic connections, iiNet was touting the fact that it had 10,000 customers using its Fibre-to-the-Home (FttH) network.

The statistics would be doubly pleasing for Malone given that he used the telco's annual general meeting last week to send the Gillard government and NBN Co a clear message: buy our fibre infrastructure or get ready to compete with us.

Not only is iiNet signing up customers to its fibre network at a quick fire rate but it also recently launched high-speed broadband services on its own hybrid-fibre coaxial (HFC) network in the Victorian regions of Geelong, Mildura and Ballarat.

Malone has been a key proponent of building scale in readiness for a post-NBN world and iiNet's acquisitive streak has seen in buy TransAct and Internode. And after the splurge Malone is evidently looking to cash in, courtesy of NBN Co's need to get as many users on to the NBN as possible.

The NBN represents the single biggest forced migration of users on to a purpose-built fibre network and given the substantial sums paid to Telstra and Optus for their infrastructure one can't blame Malone for at least trying to make a buck at NBN Co's expense.

Unfortunately, the chances of NBN Co acquiescing to Malone's demands remain extremely slim.

According to Telstye's telco analyst Chris Coughlan, iiNet's infrastructure just doesn't warrant the same sort of price paid to Optus and Telstra by NBN Co.

“At the end of the day he doesn't have the subscribers and the value of the infrastructure is a lot less,” Coughlan said.

While iiNet has ample time to build that subscriber base it's unlikely that NBN Co would display the same sort of enthusiasm it did for Optus HFC network.

Coughlan reckons Optus was pretty lucky to pick up the $800 million to close its HFC cable and after copping grief about the anti-competitive nature of the deal it's unlikely that NBN Co will be keen to repeat the process with iiNet.

That view is backed up by Ovum's telco analyst David Kennedy who said that iiNet just doesn't have the sort of scale that would compel the NBN Co to come to the table.

The biggest drawback for iiNet is its capped footprint and the fact that it will be unable to expand its network farther than 1km from where it is today.

Malone reportedly told iiNet shareholders last week that if NBN Co is not willing to buy out iiNet's networks at $1,050 per premises it better get ready to compete with it in those areas.

For the time being that prospect shouldn't send any shivers of trepidation down NBN Co's back and with the Telstra and Optus deal laying down the foundation of the NBN infrastructure there is very little here for NBN Co to indulge Malone's ambitions.