Thursday, August 1, 2019

The Future of the NBN (3); the business opportunity

The national NBN rollout is coming close to its finish, with now 11 months until expected completion. By 30.06.2020, all premises should be RTC (Ready to Connect), some 11.8M homes and businesses. But the Corporate Plan while targetting eventually some 75-80% users, expect activations to ramp up from:

When | Planned NBN Activations
30.06.19 | 5.5M
30.06.20 | 7.5M
31.12.20 | 8M
30.06.21 | 8.4M
30.06.22 | 8.7M
Source: NBN Corporate Plan 2019-2022.

Current NBN ARPU is around $44 per month (total revenue 2019;  $2.6B), with a expected rise to $54 in 2022 (total revenue 2022, $5.6B). These numbers update annually, with the Corporate Plan for 2020-2023 to be released shortly. What those ARPU numbers average out is the split between business and home revenue. Business services while much smaller in number, are substantially greater in revenue per premise.

For our home broadband service, for instance, I pay $60 per month  to retailer Exetel (which is about NBN $45 wholesale), for a 50Mbps unlimited data line. Plenty of speed for a small family, watching 4K video and a home office running low bandwidth applications. But what if I wanted to upgrade to gigabit service with business grade services?

What does Enterprise broadband cost? Enterprise NBN?

I can get a 200/200 Telstra fibre service through my current broadband provider, Exetel for $1000/mth, on a three year contract with $0 setup. I can get a gigabit service with a three year contract from TPG ($880/mth; $1100 setup), iinet ($880/mth; $1800 setup) or AussieBB ($770/mth; $0 setup). The AussieBB service is a TC4 best effort service (with 100/100mbps speed shaping during home video peak hours 6pm to 12am). AussieBB also offers a TC2 committed bandwidth service accessory at 50/50mbps for $440/mth extra. Support packages are an extra $220/mth (Silver support, 99% uptime) or $330/mth (Gold support, 99.95% uptime). All these services come with unlimited data.

It is clear that these business NBN / fibre services are significantly more expensive than my $60/mth home NBN service. But the NBN services are significantly cheaper than the Telstra product, which Exetel is offering. Up to five times faster (1000/400 vs 200/200) for a similar or slightly better price ($1000 vs $800 per month).

It is interesting to look at the prices for the business service. You need to leave your name, and contact details, so a salesperson can talk to you about the service. And then they send the prices to you. This was my experience with Exetel and AussieBB. TPG and iiNet did show the prices for Enterprise Broadband on their websites, and are 1000/1000 symmetric services. AussieBB is an up to 1000/400 Enterprise service on NBN.

Another NBN Business service is called Enterprise Ethernet (pdf) with speeds up to 1000/1000, $0 install on three year contract, and available as an upgrade anywhere in the NBN fixed line footprint. Downloading a brochure for the service requires providing your name, company name, and contact details (phone and email). The brochure doesn't seem to provide specific costs for Enterprise Ethernet, beyond the TC4 (best effort; 1000/400 at $770/mth) and TC2 (committed rates; 50/50 at $440/mth).

What is the potential revenue from the Business Internet market?

The ABS provides statistics of number of businesses in Australia by size. In total there are more than 2.3M active businesses in Australia, but most are small. There are 1.3M businesses with no employees. There are 0.8M businesses with some but less than 20 employees. Around 50,000 have between 20 and 200 employees. And only 4,000 have more than 200 employees.

Employees | Count of Businesses
0 | 1.3M
1-20 | 0.8M
20-200 | 50K
>200 | 4k

It is likely that the no-employee businesses (unless in a specifically technical industry, such as video editors) would likely use just home level NBN, particularly if they can access 100/40. NBN has promised that 90% of the fixed line footprint will get 50mbps and 25mbps for everyone else.  But businesses with multiple employees would likely need Enterprise NBN. If all of the 1-20 employee businesses took a $500/mth Enterprise Broadband service, that would generate around $5B revenue per year, equivalent to all the expected NBN revenue. Obviously, this revenue would be highly contested between those telcos with substantial fiber networks, such as Telstra, Optus, TPG, Vocus, who can reach many businesses. But NBN's advantage (opportunity) and weakness (who to target) is that NBN runs past every business.

Businesses with larger numbers of employees (over 20) would pay substantially more per business for internet. These businesses would be the site of substantial competition for their telecom expenses.

What NBN revenue might employee broadband generate?

AARNet generates $80M revenue (Annual Report 2018) for providing internet to the University (and education) sector, which employs 130,000 staff (excluding schools). This works out to about $50/mth per person. This is a little overstated, since there would be schools generating revenue whose staff are not counted, making the average a little high. Nevertheless, each employee is a potential roughly $50/mth NBN revenue source for internet costs. With 13M current employees (Labour Market Information Portal, May 2019), that equates to about $8B revenue per annum, in possible NBN revenue.
I can think of businesses with lots of staff but not much need for internet eg restaurants. I can think of businesses with few staff but lots of need for internet eg anything video related, software related, data related, research related.

Summary

The Business market is a substantial opportunity for the NBN, but with likely significant competition from the likes of Telstra, Optus, Vocus and TPG. There are billions of dollars in play. With likely costs per employee to fall to around $50/mth for internet (AARNet's cost for the University sector). How much of a premium telcos can extract from businesses for Enterprise quality NBN remains to be seen.

However, it is possible NBN could generate substantial ($billions) revenue from businesses. Even a 10% market share is close to $1B annually, which would reduce the ARPU for homes required for the NBN to break even and repay its debts. A 50% business market share could go close to double NBN's revenue and pay for substantial upgrades to the fixed line network.

The opportunity is there for NBN to seize, and for Telstra and competitors to lose.
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Update: 15/8/19 NBN Co reports their 2019 result includes Business Revenue of $388M up 54% on FY18 ($252M). This is 14% of total revenue $2.83B (up 43% FY 18 - $1.98B), and similar to FY18 business proportion (13%). ARPU increased from $44 to $46 per month.

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