2016 Australia - Telco Company Profiles - 2nd Tier

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Last updated: 26 Oct 2016 Update History

Report Status: Archived

Report Pages: 134

Lead Analyst: Paul Budde

Contributing Analysts: Phil Harpur, Henry Lancaster

Publication Overview

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 Macquarie Telecom, Vocus M2, Nextgen Networks (Nextgen Group), TPG Telecom (iiNet).

There is a separate report that covers: Australia - Telco Company Profiles - Telstra, Optus and Vodafone

Researchers:- Paul Budde, Henry Lancaster, Phil Harpur
Current publication date:- October 2016 (22nd Edition)

Executive Summary

Enormous Market Consolidation Continues in the 2nd Tier Market

Developments in this market have been dominated by industry consolidation, 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. The second tier market continues to grow strongly, in particular from Vocus and TPG, both of which continue to grow through increased scale via mergers and acquisitions. The market reached approaching $5 billion in 2016 with an annual growth rate of over 10% Growth is anticipated to subside over the next year due to market consolidation and a maturing market.

The Vocus / Merger with M2 creates Australia's fourth-largest telecommunications company and the third-largest in New Zealand. It sees a welcome strengthening of the competitive environment in Australia. 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.

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. TPG is now Australia's second-biggest provider of fixed-line broadband in Australia with over 1.7 million customers. 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. The company also owns a cloud-hosting company and the PIPE network infrastructure that includes the third largest domestic dark-fibre operation and the submarine cable network to Guam, Asia and the United States.

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. TPG has also secured spectrum in the 2.5GHz band to bolster its wireless broadband capabilities, and has committed to investing in additional capacity on the subsea cable linking to New Zealand and the US West Coast.

The company 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. The company’s capabilities and reach were enhanced following its $450 million acquisition of AAPT’s wholesale and business services from Telecom New Zealand, completed in February 2014.

In 2015 TPG created a new retail arm to sell its wholesale fibre-to-the-basement product to residential customers. TPG is also active in New Zealand where it is eying potential acquisitions, both Vodafone New Zealand and 2 Degrees have been rumoured to be on the company’s hit list. Also late 2016 TPG made a surprise move TPG to become a fourth player in the Singapore mobile market.

Vocus (M2)

Vocus is an Australian based telecommunications provider with offices in Australia and New Zealand. Its services include co-location, internet, voice, fibre and ethernet services. Vocus merged with M2 Communications in 2016 and acquired Amcom in 2015, a second-tier telecommunications carrier providing fibre, cloud services, IP voice solutions, broadband, data centre, and internet services to corporate and government.Vocus’ core business centres around its carrier-grade fibre network. Services include dark fibre access, data centre services, IP Transit, Ethernet, wholesale DSL, wholesale voice and internet peering.

The Vocus / Merger with M2 creates Australia's fourth-largest telecommunications company and the third-largest in New Zealand. It sees a welcome strengthening of the competitive environment in Australia. 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. The financial results of the telcos now all depend on who is the most cost-effective. They are both entrepreneurial companies and so they will be able to bring innovative new products and services to the market at attractive prices. Vocus’ acquisition of Nextgen Networks in June 2016, will seriously lift its position as an infrastructure based telco. The acquisition is the next and perhaps final part of a the company’s strategic plan that has also seen his firm expand geographically with the previous acquisition of Amcom and FX Networks, and diversify into the consumer space via its merger with M2.

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.

Nextgen Networks

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.

Nextgen has rolled out around 6,000km of a fibre backhaul link to Darwin, which it manages on behalf of NBN Co as part of the Regional Backbone Blackspots Program. The Perth-Singapore submarine cable, being managed by Nextgen’s subsidiary ASC International, secured landing permits in early 2014, so enabling the operator to proceed with the construction phase. In June 2016 Vocus Communications confirmed the $807 million acquisition of Nextgen.

Macquarie Telecom

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.  Established in 1992, Macquarie Telecom was one of the first telecommunication providers of the deregulated era and successfully publicly listed on the Australian Securities Exchange in late 1999. 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. Macquarie Telecom sold its Intellicentre 2 datacentre to Keppel DC, a Singapore real estate investment trust. In 2016 Macquarie Telecom created three new brands: Macquarie Telecom, focused on mid-large sized business customers; Macquarie Cloud Services, focussed on tech businesses and Digi SaaS customers; and Macquarie Government, focussed on cyber security and cloud for Government customers.

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