iiNet sells TransACT’s FTTP to NBN Co

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news National broadband provider iiNet this afternoon revealed it had reached an agreement which would see the National Broadband Network Company buy the fibre to the premises network which iiNet bought 18 months ago with its acquisition of Canberra-based TransACT.

“iiNet Limited has reached an agreement with NBN Co for the sale of TransACT’s fibre-to-the-premises (FTTP) network in the ACT region,” iiNet said in a statement this afternoon. “The TransACT FTTP network covers approximately 8,500 premises with a further 4,500 premises planned or already under construction.”

“Under the agreement, iiNet will receive $9 million cash for the existing premises passed. Additional equivalent per premise consideration will be received as the remaining premises are passed or connected. The transaction is not expected to result in a material net impact to the iiNet Limited income statement in FY13 or FY14.”

iiNet noted that under the agreement, TransACT would complete construction of pit-and pipe infrastructure in some new estates where agreements were in place until 2017, and transfer ownership to NBN Co for no additional charge. The agreement also provides NBN Co with long term access to additional underground duct infrastructure within the ACT, according to iiNet.

iiNet Chief Executive Officer, Michael Malone, said the deal is a positive one for iiNet and for TransACT’s customers. “This agreement means that TransACT’s FTTP customers will soon be able to experience the benefits that come from being on the NBN. We’ll be communicating with our FTTP customers throughout the process to ensure a smooth transition over the next twelve months,” he said.

The execution of the deal is subject to a number of conditions precedent, including ACCC clearance, and is expected to complete in the next two months, according to iiNet. It appears as though iiNet will retain TransACT’s retail customers on the network, and that it is likely that NBN Co will open the network up further for use by rival telcos. It also appears that NBN Co has not agreed to buy the HFC cable networks which TransACT operates in Geelong, Mildura and Ballarat.

iiNet bought TransACT in November 2011 for $60 million. At that point and since, debate has existed within the telecommunications industry as to the potential for NBN Co to overbuild the TransACT infrastructure in the ACT.

In November last year, Malone reportedly (according to ZDNet Australia) challenged NBN Co to either buy the TransACT infrastructure, or be prepared to compete with a rival telecommunications offering that had half the cost base of NBN Co’s own planned infrastructure in Canberra. At the time, Malone put the cost of buying iiNet’s infrastructure at $1,050 per premise.


Update: NBN Co’s statement is as follows (omitting some common paragraphs with iiNet’s statement):

NBN Co CEO Mike Quigley said: “This is a good deal for iiNet, for NBN Co and for residents passed by the TransACT network in the ACT. For our part, it brings forward NBN Co’s ability to earn revenues, reduces construction costs and limits community disruption.”

NBN Co plans to integrate the TransACT FTTP network with the NBN. Residents’ in-premises equipment will be swapped over when a home or business owner orders an NBN-enabled service through their preferred service provider. TransACT will continue to complete construction of pit-and-pipe infrastructure in a number of new estates where developer agreements are in place until 2017, and transfer ownership to NBN Co at no charge, for the installation of fibre.

TransACT will also provide technical support to assist the integration of their FTTP network with the NBN and work with its customers to achieve a smooth transition. The execution of the deal is subject to a number of conditions precedent, including ACCC clearance.

opinion/analysis
Likely a very good move for NBN Co; although this doesn’t look like a very good deal for iiNet, at only $9 million for an initial payment (remember, iiNet bought TransACT initially for $60 million). I wonder when or whether NBN Co is planning to buy out Telstra’s South Brisbane fibre area in a similar deal.

The Coalition will spin this deal as artificially increasing NBN Co’s rollout figures; the Government will spin this as a worthwhile investment that will stop NBN Co having to overbuild an already existing FTTP network in Canberra. Personally, I don’t really think this will mean much for those people who actually matter — that is, the existing customers of TransACT’s fibre in the ACT. Those customers already had access to fibre to their premises and will continue to have that access — albeit probably with more competing retail players eventually.

From my point of view, it’s all very logical. I kind of expected that wise heads in NBN Co would eventually see that this was a sensible move.

Image credit: iiNet

38 COMMENTS

  1. ” although this doesn’t look like a very good deal for iiNet, at only $9 million for an initial payment (remember, iiNet bought TransACT initially for $60 million)”

    Would need to check this with IInet but my understanding is they paid somewhere around $0 for the last mile access networks (vdsl, hfc, fibre).

    So $9million isnt too bad a profit (Transacts value has always been in its canberra backhaul/corporate network and data centres).

    • “my understanding is they paid somewhere around $0 for the last mile access networks (vdsl, hfc, fibre)”

      I don’t see how that can be accurate — can you say where you got this information from?

    • Apparently, they sold it for what it’s worth on their balance sheets:

      Overall, Malone was pleased with the deal with NBN Co. He said the value of the deal was equal to the value of the network asset on iiNet’s balance sheet.

      and that iiNet is “not an infrastructure company”

      http://www.zdnet.com/au/iinet-open-to-coalition-nbn-offers-7000015714/?s_cid=e551&ttag=e551

      There are a couple of other interesting titbits in the article, like the fact that the only commercially built FTTN in Australia has it’s nodes set at 300mtrs from the premises…

  2. It would be good if NBNCo offered to buy the entire Telstra Velocity network as well as South Brisbane. That would give a serious boost to NBNCo and would allow those customers to get some competition.

    Telstra might not go for it though.

    • Telstra would happily go for it, provided NBNCo was willing to pay much more than what it cost Telstra to build it.

  3. this is how nbn co can provide a massive boost to its numbers.

    buying out existing fttp networks.

    next target….

    opticomm and it’s 150,000 premises.

    that might cost them slightly more than $9 million though.

  4. “At the time, Malone put the cost of buying iiNet’s infrastructure at $1,050 per premise.”

    8,500 premises currently passed @ $1,050 = total value of $8,925,000.

    So it would appear that a $9m price tag sounds right, given that the remaining 4,500 premises are subject to the additional income provided under the “additional equivalent per premise consideration will be received as the remaining premises are passed or connected”.

  5. In November last year, Malone reportedly (according to ZDNet Australia) challenged NBN Co to either buy the TransACT infrastructure, or be prepared to compete with a rival telecommunications offering that had half the cost base of NBN Co’s own planned infrastructure in Canberra.

    I don’t really think this will mean much for those people who actually matter — that is, the existing customers of TransACT’s fibre in the ACT.

    So, uniform wholesale pricing is suspended in Canberra?

    ERROR_ERROR_DOES_NOT_COMPUTE!

    • No, it does compute.

      TransACT had a special dispensation from the ‘non-compete’ ruling as the network was already in existence prior to NBNCo, thus they would have been unfairly affected by the rule if not paid fair and just compensation. $9m is about the right amount.

      The cost base comparison is due to the fact that TransACT didnt have to support WiFi and satellite customers, nor any customers any farther than 20km from Canberra.

      • In which case, why not use that advantage and hang onto it? Why would anyone sell out of such a great position, and sell so cheap?

        It does not compute.

    • Deep
      It aint necessarily so

      http://www.itnews.com.au/News/320656,iinet-lays-path-to-reverse-transact-customer-animosity.aspx

      http://www.itnews.com.au/News/344171,nbn-co-buys-transact-fibre-network.aspx

      “As far back as the acquisition of the TransACT assets in 2011, iiNet CEO Michael Malone had raised the prospect of NBN Co potentially emerging as a buyer in future.

      He noted it would not make sense for NBN Co to overbuild in areas where the TransACT fibre-to-the-premises network existed.

      iiNet’s acquisition of the TransACT network also saddled it with ongoing problems over service pricing on the network, an issue that could be settled by the change of ownership.

      Malone told iTnews last year the animosity level was in a different ballpark to anything that iiNet had previously faced in bedding down other acquisitions.”

      http://www.theaustralian.com.au/australian-it/telecommunications/iinet-sells-canberra-based-fibre-network-to-nbn-for-14m/story-fn4iyzsr-1226648518068

      Originally this was a one page article, in that Michael Malone indicated inability to compete with the NBN due to difference in cost of capital. Now cut back to a 1/3 page and missing that quote, and now also behind the pay wall

      • Sorry wrong article
        http://www.theaustralian.com.au/business/in-depth/iinet-deal-a-win-for-nbn/story-e6frgaif-1226648737220

        iiNet had been looking to sell TransACT’s network to NBN Co since it acquired the Canberra-based telco.

        That transaction also saw iiNet pick up a fibre-to-the-node network that passes more than 100,000 premises in Canberra and a cable network in Geelong, Mildura and Ballarat in Victoria.

        Michael Malone, managing director of iiNet, yesterday said the telco was looking for buyers of those assets, and pointed to the Coalition as a potential purchaser if it were to gain power in the September election.

      • “Given our cost of capital versus NBN Co’s cost of capital, we shouldn’t be
        in the business of building fibre networks.

  6. Putting the FTTP investment aside, if you look at the other services they’ve invested in around Canberra, NSW, and Victoria $9M out of $60M doesn’t seem to bad. I think their Metro Ethernet network, dark fibre, Data Center upgrades, VDSL, Digital TV and existing customer base (business, government and residental) would add up.

  7. Great that MM got the price he was after, but wasn’t it the price Optus were getting paid to transfer customers from HFC? NBNCo still have to build the fibre network to put the Optus customers on, so I would have thought iiNet could ask for more.

    • Optus is much bigger so could actually compete.

      Also its unspecified how much Transact/iinet will get for renting the ducts. As that is an ongoing payment it could be quite lucrative.

      I think its more interesting that they came to no arrangement about the VDSL network. Iinet seem to be actually investing in this network (upgrading it all to vdsl2) so maybe they intend to retain it and compete.

  8. >> It appears as though iiNet will retain TransACT’s retail customers on the network

    Yes, they will.
    NBN Co is not permitted to offer retail services which means the retail services were never part of the deal. We’ve simply sold some FTTP infrastructure assets and agreed access to others.

    • Yes, they will.
      NBN Co is not permitted to offer retail services which means the retail services were never part of the deal. We’ve simply sold some FTTP infrastructure assets and agreed access to others.

      of course now though the transact customers will be free to change to which ever RSP they like.

      a bit of a gamble, but i’m betting iinet is prepared to risk losing a small handful of customers in exchange for $9 million.

      • a bit of a gamble, but i’m betting iinet is prepared to risk losing a small handful of customers in exchange for $9 million.

        $9M and not having the hassle of owning the network infrastructure :o)

          • It it well known that building fixed infrastructure networks, specifically for residential customers, only give very small margins.

            This is why infrastructure providers will cherry high demand/low cost areas and why NBNCo is only projected to make 7%. iiNet believes, and I agree, that they will make more profit trying to value add with products like BoB and FetchTV rather than rolling their own infrastructure.

          • “Let the NBN Co wear the hassle eh?”

            Exactly, they have already said they don’t want to be in the infrastructure business, there’s no margin in it for “proper” company profits, and a third player in this area always gets shafted in Australia anyway.

            The next thing that they’ll be looking for is the Liberals buying their VDSL/HFC business off them.

    • Thanks for the input Steve
      Just a query
      I have had discussions re FTTH with I assume a unhappy transact customer, from her descriptions it would appear that rather than 32 splits per node they may be running 128 or more and may be a high contention implementation, just a tad skimpy on feeder capacity and transit capacity, operational systems etc
      NBN may have a bit of work to do to bring it up to standard, but still a good buy, the hard bit to the premises is done

  9. I recall Malcolm Turnbull in a radio interview rudely talking over and talking down to someone from iiNet (Steve?) and telling him to put his money where his mouth is when it comes to contributing ‘a single cent’ to rolling out the NBN. I wonder if this counts, in a round-about sort of way.

    Ah yes, it was this: http://www.abc.net.au/triplej/hack/stories/s3733936.htm

    • Of course not. MT simply gets rude, aggressive and talks over people to detract from points that punch holes in his alternate plan.

  10. $9000000 / ( 8500 + 4500 ) = $692.30

    That’s way too cheap, under any current estimate of the cost of a fiber connection.

    Was something broken about this product? Is there something missing here?

    • You must have missed the news that they didn’t want to be in the infrastructure business? The nine mill is what it owed them on their books, so getting rid of something they didn’t want to be in, and getting nine mill, seems like an OK deal to me. Who else would buy it?

      They’ll probably do the same with their xDSL business there if/when the Libs get in…

      • The concern is there is always going to be only one buyer of fixed line infrastructure the Government fed NBN Co, no one not even Telstra is interested.

        The NBN Co wants as many active residences as possible to prop up the paltry average currently sitting at 35%, if it has to buy active connections so be it, the Government coffers have deep pockets and a very rubbery NBN budget.

        Of course this $9 million won’t appear as CAPEX or OPEX in the 2012 Business plan, so it all looks good and on ‘target’.

        • First off the NBN isn’t the only potential buyer of Infrastructure under the new regulatory framework, just a logical choice for anyone selling.

          Second, even if NBN is the only one who buys infrastructure in future, why precisely is it a concern? Being a regulated monopoly the ACCC doesn’t have to worry about price gouging or other anticompetitive behaviour.

          • “just a logical choice for anyone selling.’

            No one else is buying, the Telco’s who might are concentrating on wireless so it’s not the logical choice it’s the ONLY choice.

            “Second, even if NBN is the only one who buys infrastructure in future, why precisely is it a concern?”

            So where is the TransAct purchase budgeted and outlined in the 2012-2015 NBN Business plan or is the $9 million coming out of petty cash under the category ‘miscellaneous’?

            It’s smart, you keep making CAPEX asset acquisitions like this, instantly boost your premises passed and active connections but it doesn’t appear in the Business plan, then Conroy can wave a piece of paper around and say the NBN is back on target.

          • No one else is buying, the Telco’s who might are concentrating on wireless so it’s not the logical choice it’s the ONLY choice.

            So, the only major transaction we have had of infrastructure changing hands is from iiNet to NBNCo, and you therefore conclude that based upon this sample that no other providers would even consider buying infrastruture? Your logic amuses me.

            So where is the TransAct purchase budgeted and outlined in the 2012-2015 NBN Business plan or is the $9 million coming out of petty cash under the category ‘miscellaneous’?

            So NBNCo has to plan for every possible situation now do they? They have to follow their business plan to the letter now do they? Again, your logic amuses me.

            It’s smart, you keep making CAPEX asset acquisitions like this, instantly boost your premises passed and active connections but it doesn’t appear in the Business plan, then Conroy can wave a piece of paper around and say the NBN is back on target.

            I don’t know if you’re aware of the numbers we’re talking about here, but that isn’t going to work, because the EFY2013 target for Fibre connections is approximately 10x the amount of non NBN controlled home Fibre connections in Australia.

            There isn’t enough infrastruture in Australia too boost the numbers the way you are suggesting. And seriously, you’re complaining that a section of Canberra will get the NBN eariler than orignally planned?

            Your position here doesn’t make any sense. It’s becoming increasily obvious you’re not interested in evidence, only in bad mouthing the NBN wherever you can.

        • Actually, the real concern is you think iiNet should keep running a part of the business that they don’t want to be in to suit your favoured agenda.

          Will you be as outraged if Malcolm buys their (also unwanted) VDSL and HFC services off them?

Comments are closed.