James Spenceley, the founder of telecommunication provider Vocus who resigned last month, has tipped Amaysim and NextDC as the two companies he thinks will most benefit from the National Broadband Network.
Spenceley, who is now CEO of small cap asset management fund MHOR, used a memo to members to single out mobile virtual network operator Amaysim and co-location provider NextDC as the best investments off the back of the NBN.
Amaysim, Spenceley said, has an advantage over the country's biggest internet service providers – particularly Optus, TPG/iiNet and Vocus – because of the cost to churn their customers from ADSL to NBN. He also pointed to the reduced margin for carriers reselling NBN services, given that the NBN’s pricing model does not provide volume discounts.
"This increased cost will impact their short-term earnings. The question the incumbent four face is whether to delay that impact to earnings or proactively migrate users (active migrations). If a telco wants to avoid the transfer costs, they face the real risk that one of their competitors (or the new entrants) will do the migration (new activation) for them.
"The notable exception here is Telstra, who is astonishingly paid to migrate users to NBN," wrote Spenceley.
"All four face a reduction in margin. The case for not wanting to actively migrate users is not only about avoiding the costs to migrate but more importantly avoiding the negative impact to per-subscriber margin of the increased input cost under NBN. Not only are the incumbents (excluding Telstra) having to pay to migrate their users, their reward for this investment is lower margins."
Of the big four, Spenceley says Telstra and his former company, Vocus, have the edge – Vocus because it already operates on reseller margins – while TPG and Optus will "struggle", he told CRN.
In general, Spenceley claims new starters could have an advantage over traditional broadband leaders, as efficiency becomes more important than scale.
"Incumbency can be a great thing, it’s a blessing when the world tomorrow is the same as it was yesterday. If tomorrow is different, then incumbency shifts from advantage to disadvantage and that is typically when we see disruptive and nimble businesses enter the market (and typically do well)."
The fibre owners do have their own strengths, of course. "The question is whether the benefit of owning the infrastructure and historical complexity outweighs the positive of being very efficient."
For NextDC, a publicly listed data centre company that partnered with Spenceley's former business, the NBN will drive greater consumption of the public cloud, which can only benefit the companies that host these services.
"This means services from the likes of Microsoft, Apple, Dropbox and those using Amazon AWS will drive significant expansion in the amount of space required locally by those operators.
"NextDC as the leading national data centre operator and likely supplier to those names is the likely major beneficiary of that growth."
Spenceley claimed NextDC was growing at "2.5 to three times faster" than its publicly listed US competitors, which would include Equinix and Global Switch.
"We are at the early stages of the growth cycle of cloud adoption and faster, better and cheaper residential broadband will only drive demand from cloud providers for NextDC’s assets," he wrote.
"NextDC is the only pure way to play the cloud thematic and the increase in speed and take-up rate of NBN will only increase the pace of the cloud’s uptake across the country."
Spenceley also flagged newly arrived ISP MyRepublic as a market disrupter. "They are a successful and disruptive telco reseller who started in the Singapore market in 2011 and now have ~5% market share in their home market.
"Their recently announced plan is to launch NBN in Australia at the fastest NBN speed available of 100 Mbps plan at the cheapest price point in the market ($59.95). This compares to the existing discount operators offering 12 Mbps services for between $59.95 to $64.95.
"MyRepublic are a modern reseller with strong operational and IT systems, they exist on low margin in their existing markets. They have an over-riding desire to be disruptive on both speed and price (or another way to put it, they don’t seem as concerned about protecting margin as about gaining market share)," he wrote.