Analysts say TPG may consider buying AAPT to build scale

The telecommunications industry is buzzing with speculation that second-tier firm TPG could acquire AAPT, in just another sign the market will continue to consolidate ahead of the rollout of the National Broadband Network.

But the move could also be a sign that TPG co-owner David Teoh is after iiNet, with AAPT holding an 18% stake in the Perth-based business. Analysts also say Teoh is eyeing Amcom Telecommunications, which holds a 20% stake in iiNet.

Telsyte research director Foad Fadaghi says the industry suspects a move will occur, and would make complete sense ahead of the construction of the National Broadband Network.

“Among the analyst community, everybody is talking about it. We certainly expect more consolidation in the sector, and these companies will be looking to take on more market share for the NBN.”

“It wouldn’t be just the TPGs or iiNets though, Telstra is also going to be quite reactionary due to the changes in the industry. It’s actually more likely they will price competitively to maintain market share, while other, smaller players will certainly look to acquire others.”

The IT sector has been in consolidation mode for quite some time, following the onset of the global financial crisis. As the industry struggles to recover, larger firms have sought to snatch up smaller, more niche-based offerings to gain new customers and grow their revenue.

However, acquisitions in the telecommunications sector will be more prominent as the NBN shakes up retail offerings. As speed becomes a secondary issue, companies will have to compete on price and customer service.

Telstra in particular is expected to change its approach to the market, given that it has relied on infrastructure dominance for quite some time. Chief executive David Thodey said earlier this week the company would be looking for new revenue streams.

Ovum research director David Kennedy says while he cannot comment on the matter specifically, such an acquisition would make sense.

“We have seen a lot of moves in the industry to consolidate second tier operators. If this rumour turns out to be true, it would be consistent with what’s happening in the industry.”

“These second-tier operators are being snatched up due to the need to build scale. In some cases this is also done to build assets like backbone networks to create a more vertically-integrated structure.”

Analysts say that if TPG went for AAPT, the deal would sit in well with subsidiary Pipe Networks as the company holds some comprehensive infrastructure, including the intercapital cable on lease from Optus.

Additionally, it is suspected TPG could help AAPT out with customer service issues, which Kennedy says will become a key factor for telcos once the NBN rolls out.

“I think once the NBN is operating, it’s going to be, not impossible, but harder for people to differentiate on their broadband access prices.”

“I think what that means is that price becomes important as a competitive differentiator, and it’ll be easier to compete on price if you’ve got scale.”

TPG’s suspected acquisition comes just weeks after rumours suggested Telecom New Zealand is looking to offload AAPT.