TransACT deal an iiNet landgrab: analysts

iiNet's $60 million deal for ACT-based internet service provider (ISP) TransACT was spurred on by a rush to prepare for the new landscape that the National Broadband Network (NBN) will thrust upon ISPs, according to industry analysts.

"On the surface, this looks a good transaction and, strategically, it looks good for iiNet," says Chris Coughlan, director of Research Consulting with analyst firm, Telsyte. "It allows them to get customers in regional areas like regional Victoria and in the ACT; from that perspective, it does position them better as the NBN approaches."

Coughlan says that the buy represents a grab for more customers and more infrastructure in regional areas.

"iiNet has been growing quite inorganically. They have been buying up and expanding, so I think there's a bit of both there. Especially in regional areas, [iiNet] have been losing customers, because Telstra's Wholesale ... has up to 80 per cent of the rural regional broadband market, and Telstra Wholesale's ADSL products really don't provide the level of profitability that iiNet expects.

"TransACT passes 250,000-odd premises, so there's a good plan for iiNet to organically acquire more customers in advance of getting to those regions. There is some value in incumbency before NBN arrives, as customers are likely just to stay with [iiNet] as their provider.

"There's also a possibility of a deal to be done with NBN Co, at least with the fibre to the home infrastructure. There might be a possible deal to be done a la Optus with [its] HFC, or even by just selling the fibre assets to NBN Co," Coughlan said.

Telecommunications industry analyst Paul Budde believes that the infrastructure that iiNet will pick up as a result of the deal is merely ancillary to the real play, which is for TransACT's 40,000-strong customer base.

"We've got this NBN-based infrastructure that's going to provide a level playing field for all the players on the market, so there's no real interest in building up a large infrastructure competition, because everyone gets equal access to it," Budde said.

"In a situation like that, size does matter. If you then build up a large retail database, then you are more on an equal level with companies such as Telstra and Optus — that's exactly what iiNet is doing," Budde added.

Ant-ii-competitive?

Despite iiNet's recent ISP buying spree, industry analysts are resolute that the TransACT buy won't pique the interest of the competition watchdog — the Australian Competition and Consumer Commission (ACCC) — just yet.

"[It won't interest the ACCC] in the short term," Couglan said. He thinks iiNet "has a way to go before they start to [become anti-competitive] ... if, for example, Internode or one of those other players was to join forces with iiNet, that might create some scrutiny."

Budde believes that the TransACT acquisition is nothing but competitive.

"The major players in the market remain Telstra and Optus. I don't think that there is any anti-competitive sort of behaviour in iiNet growing in the way that it is growing at the moment. The ACCC and others will see that it is good for competition rather than bad for competition," he said.

IBRS analyst Guy Cranswick agreed, adding that the deal "is good for the industry, as consolidation oversighted by the ACCC allows for business to prosper, with consumers benefiting".

"There might be a watch by the ACCC, but there is no reason for alarm at this stage."

iiNet is set to hold a briefing at 3pm AEDST where the deal will be discussed in greater detail by the ISPs.