An ambitious company is taking on the big telecommunications players in Victoria writes Katrina Nicholas.
For about $500 million, Fred Grossman could realise his dream. It sounds like a lot of money, and it is, but considering it could deliver paytv, voice and broadbandservices to regional and rural Australia independantly of Telstra, Grossman reckons it would be money well spent. As ceo of nca, Grossman has spent the past 2.5 years overseeing the rollout of hybrid fibre and coaxial cable in regional Victoria. Neighbourhood Cable's network now covers 3 centres- Mildura, Ballarat, and Geelong. The company has permits in place to cable Bendigo and is in the final stages of lodging it's application for a permit to cable the twin towns of Albury and Wodonga. With the cabling of regional centres costing between $10-15million, Grossman estimates nca would need a max of $500million to cable Australia's 34 regional centres. But he knows no one- not even 67% shareholder Telecom Venture Group that manages more than $1.2billion for institutional and individual investors, and has about $358million to invest- is about to give the company that sort of money just yet. "We've rolled out the cable, it's passing all those homes and now it's a matter of signing up enough subscribers to become cash flow positive," Grossman says. "Then people will look at us differently...they'll realise that what we are is really a "mini-Telstra as quoted from my friend mullahaha at hotcopper" lol. Grossman has a point. Although Telstra and Optus have cable networks, neither uses them to provcide voice services. For Telstra(which uses its cable to provide Bigpond broadband and sells capacity to Foxtel so it can deliver paytv services) there would be little point, given that its copper fixed-line telephony network covers Australia anyway. Optus meanwhile has a wholesale agreement with Telstra for local telephony and uses its cable to deliver Optus tv and broadband. By sending voice, paytv and broadband down the one "pipe" to a user's home, nca can also offer customers a discount for taking more than one service. Grossman says that typically, discounts on a customer's 2nd or 3rd service are about 15%. He also says nca can offer its customers an alternative to Foxtel when it comes to paytv. "We cant be a 'me too' if we want to compete with Telstra. Under the Foxtel/ACCC deal I could buy paytv(content) off Foxtel at a discount. But the margins aren't big enough and we cant differentiate (our paytv offering). "So we went out and went to Disney and the US movie houses to strike our own agreements. For them, it's money for jam. It doesn't cost them any more to have us access their satellite feed." However, despite nca's offering, it still has a long way to go to attract subscribers and transform its business into a profitable one. Although nca's cable passes 90,500 homes and 274,000 Australians, it only recently sold it's 12,000th service. Given many customers take more than one service, actual subscriber numbers (which nca does not release) could be a lot lower. The company is also not even close to making a profit- sorces say it could be 12 to 18 months before it turns cashflow positive-reporting a loss of $23.9million for the 12 months to June 30, 2003, and revenue of $3.1million. Its shares have also performed badly, going from 5c eleven months agoto about 1.2c now, and no institutions have expressed any interest in joining the register. While Grossman hopes to change all that, he defends nca's past performance, pointing to the hundreds of millions of dollars lost by Optus's paytv business before it's landmark deal with Foxtel, and the financial hardships faced over the years by other infrastructure building-telcos- including Uecomm and Powertel. Nca could also gain scale, as well as financial strength, should it's Hong Kong based major shareholder chose to accelerate consolidation in the third- tier telco sector by combining nca with Canberra-based TransACT, another of its local investments. TVG has already tipped 2 of its Australian investments together, combining Powertel with RequestDSL earlier this year. Although it's understood no such deal is imminent, TransACT chief executive John Mackay did join nca'c board in May.
