I have been seeing a bit of people unsure on what ABB plans to do, what they do and how they will expand. I thought it might be good to lay down some key points I've seen brought up and discuss them in a bit of a broader sense.
I'm someone who is currently in the ISP space and has attended their talks at AUSNOG
My Position and thoughts of IPO:I currently have 2000 shares from the IPO and plan to watch it next few days to stock up more, if I knew they were trading early I would have picked them up on the dip during day one, but I will probably wait to see if it drops to 1.5 or lower and buy up a larger amount.
ABB has handled this IPO direct to customers poorly, with surprise early listing and poor communication with customers. I don't know how much this is to blame on ABB vs Link, but still poor form.
What they do basics:ABB is an Internet service provider(ISP). As an ISP their main services they provide are related to the NBN network, providing internet connectivity to residential and commercial sites. They also offer third party business grade services like Telstra and Optus fibre and SIM services(for business only).
They are a similar provider to TPG and I believe TPG is what ABB will end up like only better(if it isn't bought out along the way). The reason I say this is because of the automation TPG has with its purchasing of AAPT.
What is the IPO for:The IPO was to allow ABB to deploy their own Fibre network to mostly connect NBN POI's to their main network to remove the reliance on providers such as Telstra for their backhaul services. That is the MAIN reason for the fibre, but once deployed they will also attempt to expand out from that deployment to offer business grade services and sell their own backhaul services for other providers as a way to make additional funds from the fibre deployment.
How an ISP grows:As an ISP grows, all funds received have to go directly back into the company, as for you to increase the amount of customers you have, you have to have the network to support those future customers. The first few customers help pay for the equipment to support the next and so fourth. So the company grows and grows almost forever, as there is always further you can go.
With enough residential customers you basically get free network bandwidth for business customers. Residential customers are most busy after work hours 3PM onwards. This means for all the business customers you sign on, you don't have to upgrade your core infrastructure to maintain them(as a general rule). So on the residential front, ABB makes pennies, but since they don't need to upgrade the infrastructure for business the margin is MUCH more healthier and is where most the big profits come from. Residential to build the network, business to make the money.
Don't expect ABB to make a(substantial) profit EVER. They should always be expected to be negative each year, as the ISP will be buying equipment for tomorrows customers.
Growth from a small ISP to a large ISP is pretty common on the steps, a small ISP will start by reselling another larger ISP's services, for ABB it is NBN services mostly. Once they have gained enough recurring revenue they look to offer their own services, these services are generally what separate the ISP's. Some will offer solutions that have a lower upfront cost, the most popular being Wireless towers servicing commercial buildings, this is where you get your things like Spirit telecom. Others like ABB will go the Fibre route, this is how TPG grew. Laying out your own fibre lets you tackle both reducing your underlying costs as well as providing new services with more margin.
The problem with fibre is the upfront costs(slightly solved by an IPO) and the actual deployment. I believe ABB would have done their due diligence and figured out the best place to start their fibre to maximize both reduction in cost of upkeep as well as maximize potential sales. Speculation is where traders make or lose money.
What makes them competitive:Common:Good support - on shore
Good service
Residential:
Specific to Residential, most other providers could copy their game plan, provide a good service with good support. The formula isn't hard. ABB does have a bit of a kicker and I will discuss it below with Automation.
Commercial:
Surprisingly good service for business isn't as common as you think when it comes to ISP's. Often a company will pay a Managed service provider(MSP) to literally be the middle man between them and the ISP because they don't want the hassle of talking to the ISP.
The good thing for ABB on that is that it means they can charge that extra premium and get away with it. So their costs on the business side aren't what you would say "premium" how the residential side is. They are up against the likes of Telstra who will charge a kidney for even basic services(yay for monopolies). Telstra has started reducing costs on services to compete, but since they are so bloated they are struggling to match the likes of TPG or Vocus. Most the time Telstra is chosen because they are the only ones available.
The biggest PRO for commercial is the next heading.
Automation:ABB has a BIG focus on automation, They are hitting the ISP space with the new ideas that network engineers only wished they could deploy on Telstra's ageing infrastructure.
The key point of automation is to reduce the onboarding and maintenance of customers. When a customer calls up with a problem, being able to run scripts to diagnose the issue saves your engineers much needed time to service the customers, which makes on shore service possible.
The biggest kicker is automating of advanced networking for business and wholesale customers. An MPLS network is a complicated thing to have setup, most companies automate the process, some to a better degree than others. TPG has expanded their offerings and is getting better while Telstra is miles behind.
ABB is automating it to the point that a wholesale / business customer can go from ordering a link > configuring it as an MPLS > adding router config required > adding it to the bill. without the need for an engineer. When a wholesaler can order your services without even interacting with a person in the company the overheads shrink massively and allow you to expand massively without having to expand your employee count.
Note: An MPLS network is best seen as similar to your homes network connection but expanded across multiple physical locations. So configuration is done mostly on the ISP side of the network. This type of network is popular for multi-site companies.
With ABB focusing so heavily on automation to keep the upkeep low, they will easily become a favored solution for MSP's and smaller ISP's. When MSP's can resell ABB services with ease, ABB can literally make free money. The MSP's are onboarded, shown the portal, they start making their orders and paying their bills without any interaction. The services are 3 year contracts, there could be 0 service issues during those 3 years. A whole service deployed with no interaction is free money.
I'm being a bit hyperbolic, but from my experience with hundreds of business grade links, as purely anecdotal evidence I would say 50% have fewer than 1 issue requiring the customer to call about a fault. Most of the rest would have 5 calls over the 3 years.
Overall I'm saying Automation is where ABB will separate itself from the rest. It is why I also believe MP1 is a great stock and Megaport is pretty much fully automated and their growth shows, I honestly expect MP1 to be a global company in the next 10 years as their competitors are just subpar compared to them. I fully expect ABB to grow in that direction.
Negatives / Things needing to see how it plays out:If their Fibre build out runs into issues, with council permits and the likes. It could blow out the completion date further and further. I hope whomever they are using to install the fibre is well versed in tackling those issues that always arise with fibre installation.
For every month they are sitting on their unfinished fibre is money down the toilet.
Main problem with automation is when you start adding more and more possible cases to the installation. With their own fibre being deployed + NBN there could be a larger delay for automation of multiple product stacks.
I'm honestly on the side that ABB might be bought out. Since they have fully automated their deployment of the NBN network, if any company decides "I want an NBN network" ABB is the best. So just like IINET back in the day, it might get bought out, the bonus of that is, if it does I fully expect it to be WAY higher than what it is currently priced so you make money anyways.
Conclusion / Final Thoughts:
I think ABB has a HUGE way to grow. Right at this minute, I feel $1.92 is a bit expensive to buy in right now, I think $1.50 is a much more reasonable price, but will it ever get that low...I'm honestly not sure. Since there is few companies not effected by Covid, the ones that aren't have inflated prices. As such, I would say this might end up being near the low already. I'm hopefully that it will have a dip in the next few weeks, I don't expect many of the IPO funders to exit their positions once the limit is off. So I feel it will only sell off if their is a general market sell off either overall or Tech based.
If you have any additional questions about the ISP space let me know and hopefully I can answer them. I mostly wrote this as I have seen a lot of misinformation not just on hotcopper but elsewhere about ISP's and how they work and how that relates to the ABB IPO. Easier to just link to a main page
Also I wrote this while I was a bit tired, so apologies if the grammar is a bit all over.
(20min delay)