Mar 22 2016
The ongoing rollout of the National Broadband Network (NBN) will have a significant impact on telecommunications businesses, forcing them to shift their strategic focus and increasingly partake in M&A activity. This will benefit smaller telecommunications companies, as consumers will be forced to evaluate their internet service provider, rather than just continue with their existing service. This may allow some smaller companies to win customers from the previously dominant players, like Telstra and Optus.
NBN Co is purchasing Telstra’s copper network, as well as hybrid coaxial cables from Optus that are used for pay-TV, although the timing of this purchase is yet to be finalised. This means that the NBN Co will dominate the wired telecommunications network operation industry when these changes take effect, with only a handful of smaller players remaining in the industry. Telstra and Optus will move into the telecommunications resellers industry, making room for smaller players. Wired telecommunications network operators have faced a period of declining demand, as consumers have continued to switch from wired services to wireless data services. The rollout of the NBN will improve the speed and quality of wired services, possibly making these services attractive to consumers again and benefiting players within this industry.
To circumvent the dominance of major telecommunications operators and NBN Co, smaller players will increasingly partake in M&A activities. Internet service provider M2 Group Limited is a prime example. Through M&A activities, M2 has improved its customer base and infrastructure network. M2 acquired Primus Telecom in 2012 and Dodo in 2013, which helped to build its client base. M2 then merged with Vocus Communications in November 2015, creating a vertically integrated business. This merged entity now has approximately 11,000 km of Fibre Optic Network, which will prove a huge advantage during the rollout of the NBN. The merged entity will no longer rely on Telstra’s network to deliver broadband services. Instead, it will be able to shift its customers on to Vocus fibre. As the internet service providers industry is facing growing competition from mobile internet services due to the popularity of smartphones, advantages brought about by M&A activity will prove hugely beneficial to small companies.
The M&A activity resulting from the NBN rollout will lead to a transformation in telecommunications services, where the wired telecommunications network operation industry will be made up of NBN Co and other players that have invested in their own infrastructure, like M2. The winners in the NBN rollout will be the small-scale internet service providers, which will have the opportunity to erode the market share of major internet service providers, like Telstra and Optus.