NBN Co's enterprise push would boost competition among RSPs

NBN Co’s recent push into the enterprise connectivity market would drag down industry enterprise revenues in the next few years as the market becomes more competitive.

Research from Australian telco and media research firm Venture Insights revealed that NBN’s move into enterprise has changed competitive dynamics in the Australian telco industry.

The company forecast that Australian enterprise connectivity revenues will fall by a compound annual growth rate of 3.6 percent from FY 2019 and FY 2023.

Venture’s head of research David Kennedy said, “NBN Co has expanded its business grade network rapidly over the last three years, and it is now bigger than all other networks apart from Telstra’s.”

“This is putting new pressures on the established enterprise operators Telstra, Optus, Vocus and TPG.”

Before NBN Co moved into the enterprise market, Venture said the telco market suffered from a lack of competitive investment, with high barriers to entry, a low number of competitors in the market, and a lack of pricing transparency.

With this pivot, the industry has been changed in three ways:

Telcos now have the opportunity to buy rather than build enterprise access links, removing the cost barrier to entry into enterprise connectivity, and opening up the market to other enterprise-focused service providers. NBN Co’s open access model also encourages an unlimited number of new retail service provider entrants to compete with the more established telcos. In addition, NBN’s wholesale pricing has more transparency than before, setting a price benchmark that established operators should follow.

“NBN Co’s arrival has lifted competition to a new and permanently higher plateau,” Kennedy said.

“The result is a larger, more complex, and fragmented market with more wholesale options. Layer 2 enterprise fibre access market will be more (though not completely) commoditised. Mixed networks of on-net and NBN fibre will be commonplace, and layer 3 and above more important for differentiation.”

Kennedy also noted NBN Co’s new marketing strategy to avoid discrimination between different retail service providers, which came into effect after intervention by the ACCC last year. The network provider also pledged to stick to its wholesale-only remit and not to sign deals with end-users.

“But this will not stop NBN Co from disrupting the market. [The company] is not backing away from its network investment, as its recent $700 million Business Zones announcement shows,” Kennedy added.