Vocus: Nextgen acquisition will put us 'in a class with Optus'

By combining with Nextgen Networks, the CEO and executive director of Vocus have said the company will be up with Optus in terms of infrastructure and access to POIs.

Vocus Communications has said its acquisition of Nextgen Networks for AU$700 million will place it in the second or third position in terms of both fibre infrastructure and access to almost double the points of presence (POIs).

In what CEO Geoff Horth called the "final piece of the puzzle", by taking ownership of Nextgen's extensive long-haul fibre network, Vocus will attain presence across regional areas as well as gaining 112 POIs.

"We think it would be highly unlikely that anyone would ever build a AU$1.2 billion inter-capital network around Australia again, so we sort of class this as a bit of an invaluable asset in that respect," executive director James Spenceley said during a call with media on Wednesday morning.

"And given its scale and reach, we put it in a class of Optus in terms of a comparison in infrastructure reach and breadth, and it really places us sort of in that -- give or take -- around the second infrastructure reach in the country now, combined with the Vocus business.

"We could be number two in terms of people connecting to POIs, maybe number three."

According to Horth, Vocus had access to between 50 and 60 POIs previously, but under the acquisition, it will get to 112. This will allow the company to service its residential and wholesale customers with "significantly more bandwidth", the chief executive said.

Vocus competes with Telstra, TPG, and Optus in the fixed-line space.

Spencely said Vocus looked at purchasing Nextgen Networks in 2013, but could not raise the money to do so at the time.

"This is something that we've been looking at, at Vocus, for a number of years. It's certainly something we've had in the back of our heads since listing the business; if you go back and look at the Vocus story, we made a small acquisition to get into dark fibre on the east coast, we built that out some hundred-fold, and we got a very good infrastructure base on the east coast.

"But our vision was always to move away from being a niche telecommunications provider, and into a real force in the Australian telecommunications market, so we set about a journey listing the business, and growing the business with a goal to expand geographically," Spenceley said.

"We did that via Amcom and FX Networks acquisitions for the west coast of Australia and New Zealand, we moved into datacentres very early on in the piece that gave us a great ability to cross-sell services, and with the merger of M2, we got the consumer base and the corporate [base] coupled on top of that infrastructure that we had previously been building.

"So this really was the last piece, it was the dream back in 2010, when we listed the business, and it does really bring all of those pieces together so we can now connect our very extensive fibre-optic cable network in Perth to our very extensive fibre-optic cable on the east coast, and we can do that now and have presences in not just in capital cities, but in regional and rural centres all around the country."

In regards to the North West Cable System (NWCS), which Vocus will also acquire for AU$134 million under the deal with Nextgen, Spencely said the company is further along in developing the subsea cable project than any competitors with similar routes.

"I think if you look at where all three projects are, I think the project seems to be most developed: We have a marine survey done, we have permitting, we have a partner in Indonesia, we have connective permitting, we've actually built some of the landing in Singapore, we got the last landing slot in Singapore that's cost effective to develop -- that project is very far down the path," the executive director said.

The NWCS, a proposed 2,000km subsea cable between Darwin and Port Hedland for the purpose of providing services to the mining and offshore oil and gas industries in Western Australia, is expected to commence construction at the end of this year, with Horth adding that Vocus will be talking to customer partners over the next couple of months.

The deal will lastly see Vocus pay AU$27 million to acquire 100 percent of the Australia Singapore Cable (ASC) project, which was originally a AU$170 million 50-50 joint-venture deal between Vocus and Nextgen Networks to construct a 100Gbps 4,600km subsea cable connecting Perth to Singapore and Indonesia.

The total acquisition will see Vocus expand its extensive fibre footprint in Australia: Nextgen owns a 17,000km fibre backhaul network in Australia, including operating and maintaining more than 6,000km of the federal government's Regional Backbone Blackspots Program.

Vocus has already connected 1,300 buildings to its 700km of fibre in Australia, as well as 4,200km of fibre in New Zealand.

Subject to clearance by the Australian Competition and Consumer Commission (ACCC), the acquisition is expected to be completed within three months, funded by a fully underwritten equity capital raising expected to raise AU$652 million, with the remainder of the purchase price to be funded through existing syndicated debt facilities.

The communications company said it expects to report revenue of between AU$820 million and AU$835 million on earnings before interest, tax, depreciation, and amortisation (EBITDA) of AU$213 million to AU$218 million for the 2015-16 financial year thanks to growth in its corporate and consumer divisions.

Earlier this year, shareholders of M2 also voted in favour of a merger with Vocus, with the two companies forming the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia, worth more than AU$3 billion.

The companies forecast combined revenues of AU$1.8 billion for FY16, as well as EBITDA of AU$370 million, with Vocus due to pay AU$8 million to implement the acquisition during the second half of FY16.

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