The savage sell off in the second tier telco sector because of concerns over the NBN Co's high access charges for ultra fast broadband has been overdone and
has created buying opportunities.
That's the view of Geoff Horth, the chief executive of Vocus Communications, which has been caught up in the selling triggered by Monday's profit downgrade by TPG Telecom.
TPG has lost $2.4 billion in market value this week while Vocus has lost $463 million.
The fall in the share prices was partly caused by the belief that the seven year
long profit bonanza in the broadband sector was over.
Horth told Chanticleer on Thursday that the fall in the share prices of TPG and Vocus had created an opportunity because earnings multiples were now conservative relative to the profit earning ability of both companies.
He says
Vocus is less vulnerable to the NBN Co's high access charges for wholesale broadband services because its profit margins did not change much when customers switched from their existing service to broadband services connected to the NBN Co's multi-technology offerings.
However, Horth warned that the
NBN Co would not be able to meet its ambitious revenue targets if it persisted with an access pricing arrangement that charged extra for those using higher download speeds.
This refers to the
controversial connectivity virtual circuit (CVC) charge which is forecast to provide 30 per cent of NBN Co's revenue.
This charge is a critical part of the cost recovery for a project that has a total cost ranging from $46 billion to $54 billion depending on various assumptions.
Horth says that if NBN Co persists with the CVC charge then Australian consumers will shun the high speed plans on offer.
He says it will provide a strong incentive for customers to switch to alternative product offerings including wireless technology such as 5G mobile services.
Horth says NBN Co should adopt the flat rate broadband access charges used in New Zealand by the country's provider of fibre to the premises, Chorus. The flat fee is $NZ40 a month.
In Australia, the cost breakdown for the 100mbps service is an access virtual circuit charge of $38 a month and a CVC charge of $15.75 per MB per second.
Horth says Chorus charges a flat fee for access irrespective of the download speeds.
Vocus operates in New Zealand under a brand called Slingshot.
He says the Kiwi model has encouraged 70 per cent of new users of the service to sign up to the 100 Mbps services.
In Australia, the majority of customers have signed up for the 25mbps service.
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