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A proposal by a group of Australian telecoms companies to build a A$4.1bn (US$3.1bn) high-speed broadband network as an alternative to similar plans by Telstra, the country’s biggest operator, has met with a cool response from analysts and potential investors.

The group of nine companies, led by SingTel Optus, Australia’s second-largest telecoms company, on Monday unveiled a plan for a fibre-to-the-node network (FTTN), which would be controlled by an independent management company that would give wholesale access to all telcos on equal terms.

It invited Telstra to participate and, seeking to tap into Australia’s booming private equity and infrastructure investment sectors, also said it would solicit interest from financial investors.

But analysts said the projected returns were too low, that there were significant technology risks and that the network would be unlikely to attract enough traffic to be commercially viable without Telstra’s participation. Telstra, the former monopoly led by Sol Trujillo, which continues to dominate the local telecoms sector, has ruled out joining the consortium.

“I don’t think they can compete with Telstra,” said Rob Topfer, an executive director at Babcock & Brown, the Australian investment and advisory firm that is leading a €2.4bn ($3bn) bid for Eircom, the Irish telecoms company.

Analysts said financial investors would likely require returns of 15 per cent or more, well above the 8-10 per cent mooted by the group of nine, based on returns generated by infrastructure assets that they said were comparable.

“This is not a simple infrastructure asset like a pipeline or a toll road,” said a Sydney-based analyst. “This is a piece of risky technology.”

There were also alternative technologies available to Telstra, making it hard to forecast usage of the planned network, Mr Topfer added.

Rather than a viable alternative to Telstra’s broadband ambitions, the group of nine’s plan is being seen as an attempt to influence the outcome of difficult negotiations between the former monopoly and the regulator over the terms and price of access for competitors to a FTTN network that it intends to build on its own.

“This is all part of the game. There is a lot of posturing going on,” said a
Sydney-based analyst.

Telstra, which has threatened to abandon its FTTN investment if it cannot reach agreement with the regulator, has yet to release final estimates of the cost of building its network.

But its aim is to reach 4m Australians rather than the 5m targeted under the Optus-backed plan.

Copyright The Financial Times Limited 2017. All rights reserved.
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