This report provides an overview of the main 2nd tier telcos in Australia, including key revenue an operational data as well an analysis on company strategies in response to market developments and an intensifying competitive environment.
The companies profiled in this report are Amcom Telecommunications, iiNet Limited, Macquarie Telecom, M2 Telecommunications, AAPT (acquired by TPG in early 2014 though operated as a separate business), Nextgen Networks (Nextgen Group) and TPG Telecom.
There is a separate report that covers: Australia - Telco Company Profiles - Telstra, Optus, and Vodafone
Researchers:- Henry Lancaster, Phil Harpur
Current publication date:- December 2015 2014 (21st Edition)
Consolidation in the 2nd tier telco market continues
The second tier Australian telco market has seen further significant consolidation over the past year. A process that is set to continue over coming years. Moving towards a structurally separated regulatory environment with a NBN at the horizon, size really does matter. Macquarie Telecom, iiNet, M2 Telecom and TPG continue to report strong revenue growth.
Telstra’s aggressive activities to increase its market share, particularly in the mobile and broadband sectors continues to have a significant impact. This has been detrimental to a number of 2nd tier players, reflected in declining revenue in sectors including fixed and mobile voice. However, there was an overall recovery in total revenue among most players in 2015. This has partly been the result of greater efficiencies gained by increased scale brought about by market consolidation. Overall revenue for these operators, of about $4 billion in 2015, still accounts for less than 10% of the total telecoms market in Australia, but the proportion is growing in the face of flagging revenue from both Vodafone and Optus.
In late 2015 M2 accepted a merger offer from Vocus to merge. It will create Australia's fourth-largest telecommunications company and the third-largest in New Zealand. The combined Vocus/M2 company is a welcome strengthening of the competitive environment in Australia following Vocus’ acquisition by Amcom in mid-2015. The telecoms market has developed more and more into a utilities market, and in such markets size matters. It will allow the combined entity to be more efficient and more effective.
TPG has been growing from strength to strength and after its successful acquisition of iiNet is now in the top three of the Australian telecoms market. TPG now has the largest data network and voice network after Telstra, the largest fully converged voice, video and data IP-based access network in regional Australia, and the largest voice-enabled IP network. With an efficient and cost effective business model, TPG remains one of the most successful competitors in the competitively priced residential broadband market. Its cost structure and low exposure to legacy high-margin products allows it to be aggressive on price and thus win market share. This has resulted in consistently strong organic earnings growth and at the same times enjoys one of the highest margins in the industry.
M2 Telecommunications Group Limited is Australia’s largest independent provider of fixed-line, mobile and data telecommunications services. The company also provides fixed-line and mobile services in New Zealand. M2 has shown consistent growth both through organic growth and strategic acquisitions including the acquisition of CallPlus, People Telecom, Commander Communications, AUSTAR Mobile, Primus Telecommunications, Dodo and Eftel. In 2015 M2 signed a 15-year deal with Telstra Wholesale for NBN backhaul that will allow it to reach all 121 NBN points of interconnect.
M2 has indicated that it may invest further in the energy sector, taking advantage of deregulated markets and the low customer acquisition cost advantages held by Dodo Energy. In late 2015 M2 accepted a merger offer from Vocus to merge. While the TPG/iiNet merger brought two similar companies together, and as such potentially reduced the number of players in the market, the Vocus/M2 combination brings two different companies together – one operating in the business market and one operating in the retail market. This will allow the companies to share resources and attract better deals from the various ICT (wholesale) providers they do business with.
TPG Telecom (iiNet)
TPG Telecom Limited provides telecoms and multimedia services in the Australian marketplace. In August 2015 TPG acquired local ISP iiNet which had developed into one of the largest DSL providers in Australia. TPG is now Australia's second-biggest provider of fixed-line broadband in Australia. Services including voice, internet and data solutions are provided to a customer base ranging from the consumer market through to small and medium enterprises, corporate and government sectors. iiNet delivers a wide range of telecom services including fixed-voice, mobile and broadband services, business data housing and cloud-based services, VoIP and IPTV. The company manages a significant DSL and FttP network.
The company is delivering an extensive FttB service to apartment buildings in capital cities, offering broadband at 100Mb/s at a price which undercuts existing offers from rival ISPs. Through its PIPE Networks division the company has a strong position in the backhaul market, which gives it the option to link directly to all or most of the 121 NBN POIs. It has the potential to explore its own wholesale opportunities as well, providing the company with an extra competitive advantage over rivals such as Optus, and Vocus/M2.
FOXTEL is the largest subscription television provider in Australia, offering over 200 viewing channels. The subscription TV (STV) industry as a whole in Australia has had to deal with increased digital TV coverage areas and the subsequent growth in the number of FTA channels, as well as more widespread Internet Protocol TV (IPTV) services from the growing availability of faster broadband services. The company hopes to expand its services, launching a triple-play bundle of TV, broadband and telephony service with the latter two services resulting from a wholesale agreement with Telstra. FOXTEL has also moved into the IPTV arena in an effort to increase subscriber availability options. FOXTEL has also moved into the IPTV arena in an effort to increase subscriber availability options. The Presto SVoD TV service was launched in early 2015.
Amcom is a second-tier telecommunications carrier providing fibre, DSL broadband, data centre, IP voice solutions, internet services. It also offers training services to the consumer, corporate, wholesale, government and Small and Medium Enterprise markets. Amcom was acquired by Vocus in mid-2015. The Western Australia-based company has good prospects for future growth, and remains a well-managed and focused business. Amcom has constructed over 2,000km of high-speed fibre optic networks in Perth, Darwin, Alice Springs and Adelaide. It has seven data centres in its own right, while its network connects to 71 centres in the capital cities. The network provides access to around 80% of business premises in these cities.
Macquarie Telecom is an integrated telco providing a full range of hosting, data, voice and mobile services to the business and government market. It also offers a range of cloud services including security, storage, backup-as-a-service and virtual hosting / data centre services. Macquarie’s two key target markets are Australian mid-size corporates and the government sector. A third data centre, in Canberra bolstered the company’s hosting and cloud-based services, which remain the main focus of its strategy for growth. In mid-2015 Macquarie Telecom completed sold its Intellicentre 2 datacentre to Keppel DC, a Singapore real estate investment trust.
Nextgen Networks (Nextgen) is a licensed telecommunications carrier and the company specialises in data services for carriers, service providers, government and corporations. The company was also awarded an RSP license for the NBN Co trial areas. Nextgen owns and operates one of Australia’s largest national fibre networks, of over 19,000km of fibre rings. It also operates data centre assets in all capital cities. A majority share of Leighton Holdings’ telecom assets was sold in mid-2013 to a Canadian pension fund, and was subsequently rebranded as Nextgen Group Holdings. The fibre network runs between the country’s principal capital cities of Brisbane, Sydney, Melbourne, Adelaide, Perth and Darwin and has links to nodes in regional cities and centres. The company has an extensive national Virtual Private LAN Service switched data network, the first such in Australia. The VPLS network allowed the company to become a full data service provider to the broader Australian market.