Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Thematic (Sector/Industry)

Competition in fixed-line broadband is fierce, and likely to intensify as the industry migrates to National Broadband Network, or NBN. Demand for data is exploding, with average download volume for a fixed-line subscriber up more than four-fold in the past four years to 292 gigabytes in the June quarter of 2016 (anyone's guess what this has grown to since)! This is putting significant pressure on operating and capital expenditures.The latest figures from the Australian Competition and Consumer Commission show NBN wholesale subscriber market shares for operators outside the top four (that is, <a href="https://www.smartkarma.com/entities/690" target="_blank" data-smartkarma-citation="entities:690:1">Telstra Corp Ltd (TLS AU)</a>, <a href="https://www.smartkarma.com/entities/323" target="_blank" data-smartkarma-citation="entities:323:1">TPG Telecom Ltd (TPM AU)</a>, Optus and <a href="https://www.smartkarma.com/entities/71" target="_blank" data-smartkarma-citation="entities:71:1">Vocus Communications Ltd (VOC AU)</a>) ended December 2016 at 6.5%. This is up from 4.4% only three months ago, demonstrating the inroads made by new, smaller operators such as MyRepublic. The only 'big-four' operator that held its share in the three months to December 2016 was Vocus, at 7.1%. Telstra's share eased from 49.6% at September 2016 to 49.3% in December 2016, while TPG dropped from 25.6% to 24.2% and Optus fell from 13.3% to 12.8%.The pressure on the incumbents will only increase, with Vodafone Australia making no secret of its desire to launch on the NBN platform by the end of 2017. And why not? The company boasts a 5.5 million-strong smartphone subscriber base, ready to be leveraged with a fixed-line broadband offer. Indeed, an ability to allow Vodafone mobile customers to seamlessly transition from broadband access outside the home to broadband access inside the home (via the company's own fixed-line offering) is something we believe is a strategic 'must' in the NBN era.Analyst: Brian Han

Our advice for Australian and New Zealand telecom companies in light of AT&amp;T's proposed takeover of Time Warner is this: Don't do it.In theory, a distribution company buying a content entity makes strategic sense. However, operating synergies and cultural integration are much more difficult to achieve in practice than on spreadsheets and PowerPoint slides. Domestically, there are specific reasons why we would take a dim view of a telecom company following in AT&amp;T's footsteps.Analyst: Brian Han

Tel Pacific Ltd - TPC AU