By Raymond Chan

There has been a lot of talk about the National Broadband Network (NBN) and its potential impact on Australian Telco companies.

Our analyst, Nick Harris, provides us with a great update on the progress of the NBN.

NBN market share trends

Looking at Fixed Line NBN connections for the March 2017 quarter, Telstra (TLS) tracked at 53% of NBN net adds from December 2016 to March 2017. This was down ~200bps on the Dec-16 quarter, but still above their legacy market share of ~48% (albeit below their regional market share).

TPG Telecom (TPM) tracked at 21% (up 25bps on Dec 16, but still down on their legacy market share of ~27%). Optus tracked at 13%, which was down 20bps on the Dec 16 quarter and still below their legacy market share of ~15%. Vocus Group (VOC) tracked at 9.4%, which was up 110bps on the Dec 16 quarter and above their legacy market share of ~7%. Market share from others (not the big four Telcos) continues to expand slowly.

Telco shopper: Plan pricing continues to decline

The average NBN Fixed Line pricing for both entry level (25mbps) and premium connections (100mbps) continues to decline, with the average plan pricing falling 13% since Aug-16. Premium plan pricing has fallen more severely (-20% in the same timeframe), showing that customers are not willing to pay more for higher speeds.

Belong (Telstra’s challenger brand) and Optus have the cheapest plans in the market. They aggressively dropped prices over the last six months, and raised them in May, but still offer the cheapest 25mbps plans in the market. We continue to take a view that until the NBN rollout is completed (and the once-in-a-lifetime forced churn event finalised), Telcos will compete aggressively on headline prices.

Overall, we think investors should underweight stocks with “legacy Fixed Line” business. 

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.