Vocus splits operations into three businesses after two failed takeover bids

Company admits it has underinvested for the past two years as it now seeks to streamline its product set.

Vocus announced at its strategy briefing on Wednesday that it has split operations into three independent divisions as part of its three-year turnaround strategy, after two potential buyers walked away from acquiring the telco last month.
 
The three businesses will be Vocus Network Services, Vocus New Zealand, and Vocus Retail. Vocus Retail is a low-cost retail business that will resell broadband, mobile, and energy services.
 
In its strategy briefing, Vocus told investors that it currently has 4.5%, 11.5%, and 8.5% of market share of the enterprise, government, and wholesale markets, respectively. When these markets are combined, Vocus has around 6% of market share, it said.

Vocus said it would gain market share through a network and systems modernisation program, which it hopes will grow the business and contribute significant annual operating cost and capital expenditure reductions within the next 3 years. 
 
According to Vocus chief executive of enterprise and government Andrew Wildblood, Vocus had "underinvested the past two years", but the new program will simplify around 90 products and remove around 50 products to improve customer experience. 

Investment will be put into network operations centre (NOC) consolidation; consolidating networks to Supercore; stabilising delivery; voice consolidation; and developing an isolated secure network and secure gateway.  

The company will also be taking a targeted approach to gaining market share as part of its three-year turnaround strategy, Wildblood said.

With this targeted approach, Wildblood told investors that the company is focusing on government and special projects; enterprise products, which includes constructing new networks and providing ethernet support services for customers in banking and financial services; and working with partners that will sell Vocus equipment to small-to-mid sized businesses on the company's behalf.

The telco currently has 5,300 enterprise customers that use 1.84 Vocus products on average, in addition to 200 government customers that use 3.06 Vocus products on average.
 
Vocus' average customer tenure is 31 months.  

See also: Vocus getting out of NBN land grab to focus on fibre links and wireless  
 
"We will win market share by playing where we are strong, having a highly targeted approach to market, and investing in the right products and people," Vocus CEO Kevin Russell said.
 
"We will target industry verticals across enterprise, government, and wholesale. We also see opportunities to partner with the NBN to enable us to win complex multi-site businesses in the enterprise and government segments," he added.

Vocus also said it believes the National Broadband Network (NBN) complements the telco's long-haul fibre network as it sees NBN as an alternative to the wholesale networks it currently provides. The company in February had said the variable nature of the CVC pricing model used by the NBN was incompatible with the fixed rates paid by consumers, and that the economics did not stack up.  

Vocus also reaffirmed its outlook for FY19, with underlying earnings before interest, tax, depreciation, and amortisation EBITDA expected to be between AU$350 million and AU$370 million. 
 
For its FY20 outlook, Vocus is expected to produce the same EBITDA of between AU$350 million and AU$370 million, but expects its core Vocus Network Services business to increase earnings by around AU$20 million to AU$30 million while there will be a similar decline in Vocus Retail.
 
Vocus' strategy briefing, along with its decision to split its business into three parts, comes after EQT and AGL both walked away from their respective takeover bids to acquire Vocus over the past month.
 
"We believe there will be material opportunities for AGL as energy and data value streams continue to converge and the traditional energy sector accelerates its transformation," AGL told the ASX at the time.
 
"However, we are no longer confident that an acquisition of Vocus at the proposed terms would represent sufficient certainty of creating value for AGL shareholders."

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