Reading the AFR this morning on my phone and one of the top...

Reading the AFR this morning on my phone and one of the top articles was the one below, concluding that SSM is the obvious winner in the telco space

Winnersand losers from the NBN fibre push

What does the move mean fortelcos and other companies that have built businesses and made investmentsbased on the current state of play?

ElioD'Amato

Contributor

Sep 29, 2020 – 12.00am

The federal government’s recent decision to supportthe ailing national broadband network with an additional $4.5 billionto lay fibre-to-the-premises on demand has become the subject of politicalfootball.

Political jousting aside, observers knew the current infrastructurewas never going to meet the future needs of the community and a more robustsolution was required, and NBN 2.0 is seen as a necessary step to bridge thatgap.

But what does this mean for the current incumbents – companies thathave built businesses and made investments based on the current state of playand sought to profit from the original multiple technology matrix plan and itsinadequacies?

While time will tell how a “back to the future” NBN 2.0 will affectthese businesses, we take a look at those most likely to be discussing thisissue at their next board meeting.

Unsurprisingly, companies such as Telstra, TPGTelecom, Vocus Group and Optus have come out in support of the broadercommunity having access to technologies beyond the current copper wire.

While this may come as a surprise to some, it was no revelation tosee within their statements of support a request for NBN Co to reduce its connectivityvirtual circuit fee, arguing that retailers of NBN services makelittle or no profit margin out of reselling current plans.

This is why they have engaged so heavily in their upcoming 5Gstrategies. Not withstanding the new competition, this announcement does notchange their game plan.

New Zealand example

This act has been played out before across the Tasman in NewZealand where the old Telecom of New Zealand was split into a retail business– SparkNew Zealand and an infrastructure provider Chorus.

Like the Australian arrangement, Chorus does not sell direct to themarket, and Spark, as well as other companies, pays a wholesale rate perinstallation. Further, with government support, Chorus has been rapidly movingto fibre connections to the home, which Spark and other retailers can sell aspart of their product offering.

For some time, Spark and major competitor Vodafone have soldwireless 4G plans, which means they circumvent having to pay Chorus for theground network, giving them better margins and price flexibility. In a recentpresentation, Spark reconfirmed its wireless strategy, delivering its visionthat 80 per cent of its relationships with clients will be on wirelesstechnologies within the next three years.

It’s important to note that both Chorus and Spark have successfullyworked side-by-side through this period and therefore in principle a similararrangement can work here. All the retailers will offer the NBN 2.0 solution,but they will continue to invest heavily in 5G and other mobile technologies asthey seek better margins, and back the rising global trend to wirelessexperiences and the internet of things.

But when it comes to smaller emerging telecommunications businesseslike Spirit Telecom, Uniti Group and others, many argue that they arepotentially more at risk. The latter recently lifted its bid to acquireOpticomm, which builds and maintains fixed-line networks for retail servicesproviders, which then sell plans to residents.

What is particularly concerning about the timing of thisacquisition is that according to the new NBN plan, more than 300,000 newpremises have been identified to be "ready to connect" by 2023. Manyof these are associated with the greenfield property developments andredevelopments Opticomm would traditionally target.

But before investors panic, it’s important to remember that manyemerging telcos were born from the inadequacies of the current network.

While the intentions of NBN 2.0 may be to plug previous holes, thereality is the network is so complex and multifaceted it will be unlikely to doso. Further, in the case of Spirit and Uniti, they provide vertical servicesbeyond simply the cable, delivering a complete one-stop-shop solution in manycases – so their ability to adapt to a new ecosystem will be the secret totheir success.

And the winners are?

While time will tell how these latest developments affect thesetelco businesses, there is obviously one clear winner. And that is theengineering services companies charged with the responsibility of rolling outthe network across Australia.

While there are a number of participants that stand to benefit,particularly the larger engineering firms, one obvious winner is Service Streamwhich has a long-standing agreement with the NBNco and its price jumped some 13per cent on the day.

Before that, its price had been sliding south as the looming end ofthe NBN 1.0 would leave a hole in the revenue story.

But assuming it can capture 20 per cent - 40 per cent of work inNBN 2.0, that could equate to a further $200 million to $300 million inrevenue, closing that gap and breathing new life into the share price.