Since it was announced, the National Broadband Network (NBN) has caused a lot of worry and anxiety among telecom operators and investors alike.
Australian telcos are facing an uphill battle against the National Broadband Network (NBN). Large players such as Telstra, Optus, Vocus and TPG are experiencing great pressure from the network resulting in decreasing margins across the board. The NBN is a fixed wireless and satellite infrastructure of optic-fibre, replacing the now obsolete copper network, providing Australians with the fastest and most reliable internet in the nation’s history.
Traditionally, consumers would access internet through the HCF or copper infrastructure provided by telco players such as Telstra. NBN Co. has since bought out the cable network as churn rates, the percentage rate at which customers stop subscribing to the service, on copper networks are trending upwards. NBN migration, effectively a forced churn, will not only increase network costs but also open the door to potential pricing pressures and market share loss due to new entrants.
So why exactly are big telcos bracing for the future?
The NBN roll-out levels the playing field for all industry players as all operators will go through NBN Co. to sell broadband. Moreover, this means telco players such as Telstra and Optus will lose their ownership economics, a considerable competitive advantage, joining their peers in the industry as resellers of NBN. Furthermore, the NBN roll-out has paved the way for new entrants into the market as resellers of NBN are creating additional pressures with price wars and diminishing market share of existing big players. Companies such as Vodafone Australia, Amaysim and MyRepublic are expected to become NBN resellers. This influx of intense competition is disrupting the industry market shares as average margins per unit (AMPU) are beginning to worsen.
As a result, telco stocks Telstra, TPG Telecom and Vocus have been crunched across the board, most notably VOC.AX falling by more than 70% over the past year. What’s next for Australian telcos? As the largest operators in the industry report deteriorating returns due to the NBN rollout and fierce competition, management are under pressure to find new ways to grow revenue. If U.S. history serves as an indicator of what will happen going forward for Australian telcos, previous episodes in the states saw U.S. telcos acquire media and technology companies in order to drive top-line growth. Additionally, providers may look to improve on services unaffected by the roll-out such as data-storage or to diversify their offerings with services such as TPG’s Fibre to the Building (FTTB) or dark cable.
It’s tough to predict what the telecommunications industry has in store for the coming years as the full effect of NBN won’t be known until it’s full installment in 2020.
Antoine Nguyen