NBN - Investor Update - 21 September 2011 - HotCopper
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NBN – Investor Update 21 September 2011
Today’s agenda
1 – NBN overview
2 – Competing in NBN world
3 – What NBN means for iiNet
4 – Roadmap to the future
5 – Summary
NBN Investor Update – September 2011 2
Our view of NBN
NBN delivers Ubiquitous, affordable, high speed broadband for all Australians,
with a transparent separation of wholesale and retail suppliers
• Access, speed, data volumes
• New products, applications & services
• More possibilities
better for customers
NBN is
• Access to new markets
• A level playing field
• Deeper relationships
with our customers
better for Australia better for iiNet • Improved margins
• Future proof
• Digital economy
• Driving innovation & development
NBN Investor Update – September 2011 3
Key aspects of NBN
• NBN Co: Created by the Federal Government to roll out a National Broadband
Structure Network to supply wholesale products to accredited retail service providers (RSP’s)
• Telstra’s structural separation provides level playing field for retailers to compete
• An open access network, comprising a mix of technologies
Network • 93% fibre, 3% satellite, 4% wireless
• NBN enables speeds up to 100Mbps; fibre provides scope for further upgrades
• Estimated total capital expenditure of $35.9b
Cost • ~$7b capex commitments announced as at July 2011
• Note: Excludes proposed payments to Telstra and Optus
• Out-to-in build – regional areas connected first
Delivery • Full deployment expected by FY2021
• 13m premises to be connected from start to finish
Sources: NBN Co Corporate Plan; analyst estimates NBN Investor Update – September 2011 4
NBN Co: Progress and plans
2009 2010 2011
Q2 - Q4 Q1 Q2 Q3 Q4 Q1 Q2
NBN Co formed Stage 1 rollout begins in Execute Heads Tasmania goes Corporate Plan Mainland goes live
Execs appointed Tasmania of Agreement live 2011-13 First RSPs sign on
First release sites announced with Telstra published Telstra/Optus deals executed
2011 2012 2013
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Network construction: Stage 1 and Stage 2 fibre rollout continues; Network construction continues… 1.7 m households passed by June
wireless and interim satellite ready for first commercial service 2013
Key support systems: Development of “business as usual” capability
Multicast capability
available
Voice (ATA) capability
available
October 2011
- Second release sites 18 month rolling site construction plans published and implemented
construction starts
Image and data sources: NBN Co website NBN Investor Update – September 2011 5
Current network infrastructure
Telstra ADSL 2+
iiNetwork Telstra Network
National and international transmission
AGVC
Telstra PoP Telstra Exchange
Port
iiNet PoP
Customer Service and Support,
Customers
Products and CPE
iiNetwork
Backhaul
Telstra Exchange
Port
iiNet PoP
iiNet LSS
NBN Investor Update – September 2011 6
National and international transmission Post-NBN network infrastructure
NBN network is only
“the last mile”
iiNetwork
NBN Network
Customer authentication Backhaul AVC
Connections to 124 POIs CVC
iiNet PoP
Customer Service and Support,
Products and CPE
NBN Investor Update – September 2011 7
Today’s agenda
1 – NBN overview
2 – Competing in NBN world
3 – What NBN means for iiNet
4 – Roadmap to the future
5 – Summary
NBN Investor Update – September 2011 8
NBN accreditation is required
To become a Retail Service Provider (RSP) proof of network interoperability with NBN is required
In April 2011, iiNet became the first ISP to achieve this accreditation
• Ensure the networks can work together to
deliver broadband services to end users
• Ensure appropriate ordering, provisioning
and activation processes are in place
• Ensure the RSP can respond to assurances
notifications in the event of network
outages
• Ensure appropriate wholesale and retail
billing systems are in place
• Ensure the RSP is able to implement new
processes when NBN Co releases new
products and services (eg. satellite)
Image Sources: NBN Co website NBN Investor Update – September 2011 9
Significant investment to enter NBN
~$20-$25m start up costs - scale is essential
Operating and business systems
interface with NBN
Retail Service Provider
• Ordering and provisioning
Customer service and support layer • Customer service and support
• Billing
• Content and applications
Access layer • Modems and other CPE
• Systems interface, IT infrastructure
• National and international transmission
Network infrastructure • Connections and backhaul to 124 POIs
• Customer authentication gateways
• CVCs and AVCs
NBN Investor Update – September 2011 10What the market looks like now
Estimated Telstra share of Services
• Wholesale “layer 2”
• Where competition is services currently
allowed to flourish, cheaper for retail
challengers have steadily customers than
increased market share wholesale customers
• Differentiation on service, • Price squeeze distorting
brand, values, and products regional competition
• NBN opens up new markets creating a level playing field for RSPs
• Out-to-in build ensures that distorted regional markets are opened up to competition first
• Equivalent wholesale pricing encourages competition on service, brand, value, and products
NBN Investor Update – September 2011 11What the market will look like in NBN world
• No incumbent – competition on a level playing field
National It’s all about
• Differentiation on service, brand, value and products
RSPs scale
• Consolidation of smaller RSPs
• Develop relationship with accredited RSP from whom they can Increasing
buy end-to-end wholesale services competition, but
Re-sellers
lack of
• More wholesale options may increase competition differentiation
• Smaller providers can succeed by focusing on specific locations Niche survivors,
Local RSPs • Limited POIs = Lower access costs but restricted scale ripe for
consolidation
• Others likely to be acquired or shift to re-seller business model
• Significant barriers to entry to becoming an RSP
Partners/ Opportunities for
Entrants • More likely to become re-sellers or form partnerships with partnerships
RSPs to leverage brand and distribution channels
NBN Investor Update – September 2011 12Competitive evolution (not revolution)
More customer
differentiation
National Retail
Service Providers
Local service
Partners/ entrants providers
Non-network Network providers
providers
Resellers
Wholesale Providers
Less customer
differentiation
Scale requirements lead to survival of national players, opportunities for niche local players and
the emergence of partnerships to grow value
NBN Investor Update – September 2011 13The keys to success are still the same
A differentiated, customer insight led, end to end approach, based on..
Innovative
Trusted, credible Insightful sales Awesome service
products and
Brand and setup and support
services
-Insight
-NPS -Segmented
-Bundling -Expertise
-Consideration -Choice
-Access +
NBN Investor Update – September 2011 14Today’s agenda
1 – NBN overview
2 – Competing in NBN world
3 – What NBN means for iiNet
4 – Roadmap to the future
5 – Summary
NBN Investor Update – September 2011 15Our new NBN plans
Plan Peak+Offpeak Speed Price
NBN-1 20GB+20GB 12/1Mbps $49.95
NBN-2 100GB+100GB 12/1Mbps $59.95 Simple
NBN-3 500GB+500GB 12/1Mbps $79.95
All your local and national calls for $9.95 Affordable
Add a Turbo pack to Boost your speed
25/5Mbps $5 50/20Mbps $15 100/40Mbps $20 Tailored
“Pay for what you need - simple flexible plans supported by great service”
NBN Investor Update – September 2011 16Key differentiators
• Offering attractive headline entry price points
• Removing the clutter, making the plans simple and flexible for our customers
• Implementing new “Turbo” speed packs
• to provide differentiation and drive innovation for customers
• Providing available additional bandwidth at low incremental cost to iiNet
• Investing to differentiate in regional areas for the first time
• Continued use of competitive advantages to differentiate and reduce exposure to
fixed phone legacy voice revenues
NBN Investor Update – September 2011 17What this means for customers
“Susan, an off-net customer with iiNet” ..on iiNet NBN Susan could..
Internet & phone
• Save $10 per month
Price $79.90
• Get double the quota
Speed 1500/256 Quota 50/50
• Get 8x the download speed
“Mike, a Naked customer with iiNet” ..on iiNet NBN Mike would..
Internet & VoIP
phone • Spend $5 more per month
Price $69.95 • Get double the quota
Speed ADSL 2+ Quota 50/50 • Access equivalent speed
“Danny, an on-net customer with iiNet” ..on iiNet NBN Danny could..
Internet & phone
• Save $5 per month
Price $79.90 • Get the same quota
Speed ADSL 2+ Quota 100/100 • Access equivalent speed
NBN Investor Update – September 2011 18NBN delivers significant margin improvement
Average cost per user ($) – current base mix Margin per customer ($) – current base mix
Base mix % 60% 40% Base mix % 60% 40%
-27%
+16%
61
46
36 34 35 32
28
17
On- Net Off-Net iiNet Group NBN On- Net Off-Net iiNet Group NBN
Blended Blended
Assumptions
• Current base mix of DSL and voice services, all brands are included. Margins include bundled voice products
• NBN calculations based on mapping of similar quota levels and current bundling rate for the calling pack
• NBN plan take up - 35% (NBN-1), 55% (NBN -2), 10% (NBN-3)
• NBN margin excludes additional product and services take up (IPTV etc)
NBN Investor Update – September 2011 19Out-to-in build improves margin upside
Evolving customer base over time (Customers %)
0% 3% Assumptions
13%
• NBN network rolls out in line with
29%
40% 15%
38% current government policy and continues
to completion in 2021
3%
71% • Assumed migration path to NBN with
regional, off-net customers first and
100% completed by FY19
71%
• On-net customers begin migrating in
68%
60% 59% 0%
FY16 with larger scale migrations
occurring in back end from FY18 to
29%
completion in FY21
0%
FY11 FY13F FY15F FY17F FY19F FY21F
NBN Off-Net On-Net
NBN Investor Update – September 2011 20Out-to-in build improves margin upside
Illustrative view of likely total gross margin progression
Off-net base migration and on-
net base growth deliver total
margin progression
FY11 FY12F FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F
NBN Off-Net On-Net
• The rollout plans will evolve over time, regional areas will occur first with iiNet capturing margin
improvement in the short to medium term
• As on-net customers begin to migrate in scale (~FY17/18+) - the total margin growth flattens off
NBN Investor Update – September 2011 21Short term investment plans continue
DSLAM investment cumulative cashflow
• DSLAM investment will continue based on
a disciplined business case approach
• Where payback hurdle rates < 2 years can
be achieved
• Recent reductions in backhaul pricing
helping to drive opportunities to expand
footprint 0 6 12 18 24 30 36 42 48 56
• Lower capex expected in NBN world
Average Capex ~$100k (location dependant)
NBN Investor Update – September 2011 22Today’s agenda
1 – NBN overview
2 – Competing in NBN world
3 – What NBN means for iiNet
4 – Roadmap to the future
5 – Summary
NBN Investor Update – September 2011 23iiNet is NBN ready
Building blocks in place, Customer focus supported by
Leadership -
Network Hardware Propositions &
National Scale product and
capability compatibility pricing
service
Plan Price
NBN-1 $49.95
NBN-2 $59.95
NBN-3 $79.95
Add a Turbo pack
and strengthened through medium term approach
• Strategic focus increasing products per household
• Ready for further acquisition opportunities
• Customer-led product development – iiNet labs
• Expansion of SoHo & SME
NBN Investor Update – September 2011 24Irrespective of political landscape
Essential Labor – Full
Labor Coalition*
Coalition –
Features NBN
NBNrollout
Plan NBN lite1 NBN - % premises connected
NBN Plan
High-speed Ubiquitous Ubiquitous 100 Labor – Full NBN
Distinguished by speed Distinguished by cost rollout
broadband
80
Mix of Fibre (93%), satellite Fibre, HFC, satellite,
technologies (3%), wireless (4%) wireless 60 Coalition -
NBN lite
Rollout plan Out-to-in build Use existing HFC 40
cable, more wireless
Regional areas first and satellite, fibre to 20
regional centres
0
Timetable Completed by First stage likely by FY11 FY13 FY15 FY17 FY19 FY21
FY 2021 2016
Sources – NBN Corporate plan & internal estimates
The destination is fundamentally the same, it’s only the path that is different...
Either way, increased access to high-speed broadband is a good thing for iiNet and our customers
* Technology mix, rollout plan etc to be determined based on advice from Productivity Commission NBN Investor Update – September 2011 25iiNet is ideally positioned for the future
To enable our Your trusted partner in the digital
new vision world
brilliant end to
end sales and Strengthen service capabilities • Field service capabilities
• Cross sell & up sell
service execution
deliver innovative
new products and • Differentiated bundles
Develop new offerings • New products and services
services
deeper more
meaningful
customer • Segmentation
Own the customer • Specific value propositions
relationships
• Growth in SoHo & SME
Solid foundation • Acquisitions
Service Brand Innovation Scale • Continue sector consolidation
for success
• Exploit NBN opportunities
NBN Investor Update – September 2011 26Today’s agenda
1 – NBN overview
2 – Competing in NBN world
3 – What NBN means for iiNet
4 – Roadmap to the future
5 – Summary
NBN Investor Update – September 2011 27In summary
NBN is coming
• Ubiquitous, affordable, high speed broadband with a transparent separation of wholesale and retail suppliers
• Labor or Coalition – different paths, but the destination is fundamentally the same
• Out-to-in build, rollout won’t be completed until 2021
Customer climate will evolve
• Substantial capital requirements to “switch on” national presence in NBN world – scale is essential to generate required
return on investment
• Smaller ISPs likely to be consolidated/ become niche local players
• Partnership opportunities available for a limited number of national RSPs
iiNet is ready
• April 2011: iiNet became the first accredited RSP
• Existing focus on service, brand, product and content – essential for NBN world
• Successful competition in metropolitan markets bodes well for regional market opportunities
Substantial growth opportunities for iiNet in NBN world
• Access to regional markets
• Lower capital investment required going forward
• Opportunities for wholesale and national partnerships
• Increased services per customer – new products and content
• Improved margins, even after substantial reinvestment in customer value propositions
NBN Investor Update – September 2011 28NBN
better for customers
NBN is
better for Australia better for iiNet
NBN Investor Update – September 2011 29Q&A
NBN Investor Update – September 2011 30Glossary of terms
Term Description
ARPU Average monthly revenue per user
ACPU Average monthly cost per user
ATA Analogue telephone adaptor
AVC Access virtual circuit is purchased by access seekers for customers and identifies customer traffic within the NBN
Connectivity virtual circuit is essentially a bandwidth pipe purchased by access seekers to the NBN for each area they would like to
CVC
cover
Digital Subscriber Line or xDSL, is a family of technologies that provides digital data transmission over the wires of a local telephone
DSL, DSL2+
network. DSL2+ extends the capability of the basic DSL in providing faster speeds
DSLAM Digital Subscriber Line Access Multiplexer is a device that connects a customer DSL line to iiNet’s infrastructure
Means File Transfer Protocol – a network protocol used to transfer data from one computer to another through a network such as
FTP
the internet
FTTH Means fibre to the home – this was the predecessor title for the now called National Broadband Network (NBN)
Hybrid fibre coaxial – industry term for a broadband network which combines optical fibre and coaxial cable. It has been commonly
HFC
employed globally by cable TV operators since the early 1990s
IPTV Internet Protocol Television is the provision of digital television over the Internet
Line Sharing Service. A wholesale product provided by Telstra which allows iiNet to transmit data across the copper telephone line
LSS
between the customer’s residence and the exchange
Multi Protocol Label Switching provides networks with a more efficient way to manage applications and move information between
MPLS
locations
NBN Investor Update – September 2011 31Glossary of terms
Term Description
Prior to its release, a customer would have to purchase a phone line and pay line rental in order to have an ADSL service active.
Naked DSL
Naked eliminates the need to pay line rental yet still have a VoIP telephone service as backup for making calls if required
Net Promoter A measure of customer recommendation levels that has a direct correlation with future customer growth. NPS is calculated by
Score asking a sample of customers how likely they are to recommend the brand to others.
Off-Net A customer that is provided a DSL service through another network (usually Telstra Wholesale)
On-Net A customer that is provided a DSL service through the iiNetwork
Public switched telephone network. The traditional copper network built to provide fixed line telephony in most developed
PSTN
countries
PoP Point of presence, an access point to the rest of the internet
Point of Interconnect - The connection point that allows retail service providers (RSPs) and wholesale service providers (WSPs) to
POI
connect to NBN Co access capability
A Remote Index Multiplexer provide links back to the main telephone exchange and are set up in suburbs which do not contain an
RIM
exchange for planning reasons. RIMs can provide ADSL but on very limited ports and do not support ADSL2+ connections
SoHo/ SME These are terms used to describe Small Office Home Office and Small and Medium Enterprises
VCC Virtual Call Centre – a call centre where the representatives are geographically dispersed.
VDSL2 Very high speed Digital Subscriber Line providing higher speeds over copper than ADSL2+ but over shorter distances
VoIP Voice over Internet Protocol – routing voice conversations over the Internet or any other IP based network
VPN Virtual Private Network
WLR Wholesale Line Rental – Telstra’s fixed telephone wholesale service
NBN Investor Update – September 2011 32Disclaimer
Some of the information contained in this presentation contains “forward-looking
statements” which may not directly or exclusively relate to historical facts. These forward-
looking statements reflect iiNet Limited current intentions, plans, expectations, assumptions
and beliefs about future events and are subject to risks, uncertainties and other factors,
many of which are outside the control of iiNet Limited.
Important factors that could cause actual results to differ materially from the expectations
expressed or implied in the forward-looking statements include known and unknown risks.
Because actual results could differ materially from iiNet Limited current intentions, plans,
expectations, assumptions and beliefs about the future, you are urged to view all forward-
looking statements contained herein with caution.
NBN Investor Update – September 2011 33You can also read
