What: Telstra Corporation Ltd (ASX: TLS) and other major telecommunications companies like TPG Telecom Ltd (ASX: TPM) that want to build and expand high-speed broadband service networks may have an easier time doing it, judging from the comments of the ACCC chairman.
So what: In September the competition regulatory body gave its approval for TPG Telecom to continue with its fibre-to-the-building (FTTB) high-speed broadband plans. It also gave it permission to act as both a wholesale and retail service provider. That puts it in direct competition with the NBN Company, which will own and operate the national broadband network as it is rolled out over the coming years.
Rod Sims, the head of the ACCC, thinks that the rules for monopoly control of the NBN Co. basically have to be torn up before any sell-off of its assets. With TPG's foot in the door to add more business service, Telstra itself may be considering what it could also do to capture more broadband business for urban residences and businesses.
Now what: Telstra is negotiating an $11 billion agreement with the NBN Co. for the turnover of its phone copper line network, which will be the backbone of the NBN infrastructure. If Telstra can act as a wholesale service provider through its own network as well, that will create another income stream for the telco giant. Extra business can further fund its Asian expansion and help maintain revenue growth.
For TPG Telecom, it may have to split its business between wholesale and retail if it pursues its network expansion. It is allowed to extend its extensive network infrastructure under current NBN rules. However, if the monopoly rules are broken or greatly opened, that could make great business opportunities for network extensions.
For example, TPG has just bought up a 7% stake in Amcom Telecommunications Limited (ASX: AMM), a Perth-based telecom network service company just as Vocus Communications Limited (ASX: VOC) is attempting to take it over. Companies with network infrastructure will have more valuable assets if the NBN monopoly rules are radically altered. Could TPG be simply blocking Vocus, or does it want a part of Amcom's networks for extensions?
TPG may have a first mover advantage that could help it lock in city areas where broadband is most profitable, so I would at least put the stock on your watchlist. If Telstra sees a big opportunity to become an NBN wholesale service provider, it could put its vast funds to work quickly. That's why Telstra should also be in your portfolio as a longer-term tech play.
