TransACT fibre buy: Hush money or new NBN direction?

It's nothing new that Canberra-area telco TransACT, which was itself snapped up by expanding mega-ISP iiNet for $60 million late in 2011, had been feeling somewhat put out that NBN Co had negotiated to effectively buy Telstra and Optus out of the fixed-network game, but had ignored the country's most successful residential fibre developer.

Just six months ago, iiNet CEO Michael Malone was baring his teeth at the government, warning that the company would compete aggressively with the NBN in areas where its fibre network was run — unless the government instead wanted to take the fibre off its hands.

By choosing the latter option and just paying $9 million for the fibre, NBN Co has defanged a company that has shown its commitment to growth, to be matched only by its success in achieving it: iiNet has been utilising its license to print money in recent years as profits more than doubled for the first half of the current fiscal year, and its customer base grew to 837,000 customers and 1.61 million services.

Malone initially calculated his asking price for the TransACT network as being around $1050 per premises passed, in line with the government’s previous Telstra and Optus deals. He more or less got that – the deal will be worth around $14m if 4500 more planned sites are connected by the time the deal is complete – and in the process has managed to make a nice return on iiNet’s $60m splash.

And why wouldn't he? Apart from some specific network deployments, iiNet's long-term plan has always been around delivering strong customer service to customers over other companies' networks.

With its breakneck growth, iiNet probably wouldn't have wanted to be burdened by the cost and bother of maintaining a network like TransACT's. Even if it returns customers to the market by selling out its TransACT fibre assets, iiNet knows it can just as easily get them back once the NBN has passed their homes, too.

Motivations aside, however, the fact that the government was willing to shell out for a privately-built fibre network adds an interesting wrinkle to the expansion of NBN Co.

Many pundits have argued for some time that NBN Co could accelerate its rollout by acquiring extant fibre assets rather than building its own. It's a policy that seemingly makes outward sense, but would be complicated by the need to link those networks to the broader NBN that's being rolled out across the country; sometimes,\ a consistent architecture is just easier to manage than a Frankenstein network.

NBN Co knows this, which is why the threat of overbuilding TransACT's network had pushed Malone to bristle in the first place. Whether NBN Co now puts its shoulder against the task of integrating the TransACT fibre with its own — or it simply decommissions the existing fibre and runs its own through TransACT's ducts — that threat of overbuilding a private operator has been neutralised.

The deal does, however, set an interesting precedent: Now that NBN Co has caved in and bought the fibre network, one wonders what will become of TransACT's regional HFC networks in areas like Mildura, Ballarat, and Geelong, Victoria, which themselves came from the company's purchase of Neighbourhood Cable in 2007.

Because they are based on HFC — and NBN Co's policy regarding HFC has been to buy its customers and shut them down — one assumes they will not be as attractive to NBN Co as the TransACT fibre, whose composition is aligned with that of the NBN. Does that mean they will then be ignored, despite their promise of delivering 100Mbps if they are suitably upgraded using the DOCSIS 3 technology already in place on Telstra's and Optus' networks?

Probably — and indeed, that may be it for NBN Co, which needs to focus on continuing to build momentum on its own rollout, and may find it too complex and bothersome to negotiate deals with every private fibre operator that puts up its hand for a buyout.

If the Coalition comes into power on September 14, however, things could get very interesting, very quickly. Malcolm Turnbull's policy is based around a mix of technologies and this has meant HFC in many cases, specifically Telstra's HFC, since Turnbull has publicly dismissed the Optus network as being largely irrelevant.

Would the Coalition buy out iiNet's remaining HFC assets to boost its own network rollout? Or would it simply ignore the Neighbourhood Cable legacy, as NBN Co did, in favour of gifting an FttN monopoly for Telstra to service customers in those three cities?

In the wake of the TransACT buy, other private operators with tiny networks must be wondering whether they can offload their infrastructure to NBN Co, too — or whether the iiNet purchase represents the last of NBN Co's land-grab purchases. If the latter, then the real impact of NBN Co's move will be limited — but if it is the former, and NBN Co turns out to be willing to do similar deals with others, especially under a Coalition government, this could be the beginning of a new chapter for NBN Co.

What do you think? Is this a one-off? Or does it represent a new direction in NBN Co policy that could have even bigger implications under a Coalition government?

Update: Corrected figures for the final TransACT sale amount.