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Vocus-Nextgen Networks AU$861m acquisition cleared by regulator

Finding Nextgen Networks and Vocus services to be 'largely complementary' with limited impact on competition, the ACCC has said it will not oppose the acquisition.
Written by Corinne Reichert, Contributor

The Australian Competition and Consumer Commission (ACCC) has announced that it will not oppose Vocus Communications' acquisition of Nextgen Networks for AU$700 million, along with the North West Cable System (NWCS) for AU$134 million and the Australia Singapore Cable (ASC) project for AU$27 million.

The regulator decided not to oppose the acquisition, finding Vocus' and Nextgen's services to be "largely complementary". It also said the competition provided by wholesalers Telstra, TPG, and Optus would limit any potential harmful effects on the market.

"In assessing this potential transaction, we took into account that Nextgen is the only remaining significant supplier of wholesale transmission services that isn't vertically integrated. This possible acquisition has come under close scrutiny due to that fact, as I have said in the past that it would," ACCC Chairman Rod Sims said.

"There was very little concern raised by market participants. Small broadband providers say they are not generally reliant on Nextgen to be able to compete. In addition, excess capacity in the wholesale transmission market provides an incentive for providers of wholesale transmission to sell that capacity, even if they are vertically integrated."

The ACCC added that it would continue keeping "a close watch" on further telco consolidation -- a comment it also made when approving TPG's AU$1.5 billion iiNet acquisition last year.

Vocus said it expects the Nextgen acquisition to complete in October.

"We are extremely pleased with the announcement from the ACCC, and will move as quickly as possible to close the transaction and integrate the business under the Vocus umbrella," Vocus CEO Geoff Horth said.

"We will be working to ensure that we leverage the benefits of our expanded infrastructure platform and increased scale across our customer base."

Vocus in June announced its acquisition of Nextgen Networks, which it said would put it "in a class with Optus" in terms of both fibre infrastructure and access to almost double the National Broadband Network (NBN) points of presence (POIs).

The 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 blackspots program.

"The Nextgen Networks national fibre network is a world-class asset that brings to Vocus fibre access to 70 datacentres, fibre access to more than 1,100 buildings, and requires only AU$11.5 million of additional capital expenditure to bring our combined points of interconnect (POIs) to 112 of 121," Vocus executive director James Spenceley said at the time.

The NWCS, a $139 million, 2,100km fibre-optic submarine cable between Darwin and Port Hedland for the purpose of servicing the mining and offshore oil and gas industries in Western Australia, was switched on last week by Nextgen Group and Alcatel-Lucent Submarine Networks.

Nextgen said it installed additional capability within the subsea cable that will provide greater resilience for telecommunications services in the Northern Territory, with the cable also able to be extended in future to the Pilbara region and to other offshore locations including the Tiwi Islands.

The deal will lastly see Vocus pay AU$27 million to acquire 100 percent of the 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.

Vocus' acquisition is being partially funded by AU$652 million that was raised through a retail entitlement offer and an institutional offer.

Last month, Vocus reported a full-year net profit of AU$64.1 million, up 223 percent from the AU$19.9 million recorded a year earlier thanks largely to the addition of M2 and Amcom to its business.

Statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) were AU$195 million, up 273 percent year on year from AU$52.2 million, while underlying EBITDA -- excluding acquisition, integration, and other costs -- was AU$215.6 million, up 318.1 percent from AU$51.6 million.

Vocus' revenue was AU$830.8 million, up a substantial 454.6 percent from AU$149.8 million.

During the financial year, Vocus merged with M2 to form the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia, worth more than AU$3 billion.

Vocus spent AU$440.4 million on network and service delivery over the year, while acquisition and integration costs in relation to its AU$1.2 billion Amcom acquisition last June and merger with Vocus amounted to AU$40.7 million for FY16, up almost four-fold from the AU$10.4 million spent a year earlier.

Vocus' NBN market share was 6.4 percent, up 1.3 percentage points from last year's 5.1 percent.

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