The NBN Co’s announcement yesterday that it will expand its fibre rollout in both consumer and enterprise markets is a two-pronged move against the three incumbent mobile network operators (MNOs) and their (and Vocus’) enterprise businesses.
There is an offensive prong and a defensive prong. The offensive prong of NBN Co’s announcement is an aggressive investment in enterprise fibre. This is despite persistent arguments from Telstra, Optus, TPG and Vocus that NBN Co’s enterprise fibre push was duplicating their infrastructure, and should instead be rolled out only where “complementary” to the fibre incumbents’ existing networks.
Rather than back down, NBN Co has upped the ante. Its Business Fibre Initiative will offer wholesale symmetrical speeds from 10 Mbps up to 1 Gbps on-request
to more than 700,000 businesses in 240 Business Fibre Zones, including 85 Business Fibre Zones located in regional areas. It will also reduce wholesale
pricing by up to 67 per cent for businesses in Zones outside metropolitan centres, bringing them into line with CBD prices.
As annoying as this is for the enterprise fibre incumbents, this move makes a lot of sense for NBN Co. A comprehensive, national NBN enterprise fibre network allows the NBN Co to support new enterprise-focussed retail service providers (RSPs) and managed service providers (MSPs) who
are much more likely to evangelise the enterprise segment for NBN Co. And in the final analysis, Telstra, Optus, TPG and Vocus
still be customers for NBN Co enterprise connectivity outside their own fibre network footprints. The NBN Co’s expansion of its enterprise fibre network adds upside without any significant downside.
The defensive prong is NBN Co’s move to expand consumer access to GPON fibre (on an opt-in, user pays basis) where the MNOs have been threatening to offer 5G fixed wireless in competition with NBN services. The fixed wireless threat is nothing new, and NBN Co has factored wireless competition into its corporate planning for a decade. However, the arrival of 5G has increased the threat.
We have been predicting rising competition for NBN fixed broadband subscribers as the mobile network owners (MNOs) try to maximise returns from the
5G mobile investment by launching 5G fixed wireless. Optus has been offering 5G fixed wireless broadband since late 2019, and Telstra’s announcement
in August 2020 that it will follow suit is stepping up the pressure. We expect TPG to follow once it
announces its 5G strat
NBN Co is adopting a strategy we have also seen in New Zealand, where fibre wholesalers like Chorus pushed into Gigabit speed offers in 2016, partly to differentiate themselves from fixed wireless competition. These offers demonstrate the superiority of the fixed network as a bit-hauling infrastructure, but the limitations of NBN Co’s FTTN network has held back its ability to market 100+Mbps speeds – until now.
As a result, the appeal of 5G fixed wireless will be confined to low usage customers with limited bandwidth requirements. This is a rational outcome for fixed wireless, which has higher per-bit traffic costs than fibre, but it also blunts the fixed wireless assault on the NBN.
On balance, we see NBN Co offering more of a threat to Telstra, Optus, TPG and Vocus
than the other way around. NBN Co’s inroads into the enterprise connectivity market are pushing prices down, and having
a significant negative effect on revenue growth. In our recent Australian Telecommunications Market Outlook, we forecast Corporate Data and IP (Enterprise) revenue will fall -3.6% CAGR 2019-23, mainly due to growing competition in enterprise connectivity. For further details on the future of Australian telecommunications, click here to read the report.