22 March 2016
Strong connection: The NBN will provide opportunities for smaller
telecommunications players
The rollout of the National Broadband Network (NBN) will change the structure of the
telecommunications industries, allowing smaller players to gain market share through
merger and acquisition activity.
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.
Relevant industries:
J5911 Internet Service Providers
J5800 Telecommunications Services
J5801 Wired Telecommunications Network Operation
J5803 Telecommunications Resellers