Friday, 22 October 2021 12:32

Aussie Broadband 1Q FY22 update, continuing to steam ahead despite NBN CVC challenges Featured

Aussie Broadband managing director Phillip Britt Aussie Broadband managing director Phillip Britt

Aussie Broadband provided a trading update for the quarter ending 30 September 2021. Overall active broadband connections increased by 44,932 or 11% QoQ, business broadband connections increased by 4,639 or 13% QoQ, and mobile services increased by 3,841 or 15% QoQ.

Aussie Broadband says that revenue for the quarter was $111.4 million, an increase of $11.3 million or 11.3% QoQ. During the quarter, first-month-free promotions on broadband and two months’ free promotions for mobile services were expanded, driving new customer uptake and mobile customer migration. The gross value of promotional credits doubled QoQ.

“We’re extremely pleased with performance across all segments for the quarter,” said managing director Phillip Britt. “Momentum with residential connections increased due to updated marketing and promotional campaigns. We are continuing to see significant demand for our services, even though the migration onto the NBN is largely complete, demonstrating the appeal for our high-quality network with award-winning customer service.

“Our business segment has shown consistent growth and has increased by 85% in the last year. Demand has been strong around Australia, especially in regional areas. The value our regional business customers see in our offers and service quality has shown the resilience of our business when growth rates in Melbourne and Sydney have been lower during their lockdowns. We continue to expand our business product set and capabilities and, in this quarter, have added Fortinet as a key security and SD-WAN hardware vendor which will significantly increase the security products we can offer.

“The first quarter also saw the first of our white label customers connected with new services commencing on 19 July. This is an additional revenue stream, allowing other businesses to expand into telecommunications services or provide a higher quality customer experience that matches their brand promise by selling Aussie’s internet and VoIP services under their own brand. Our customer has seen increased demand for their broadband services since moving across to the Aussie Broadband network.”

NBN CVC update

Aussie Broadband reported that NBN CVC management during the quarter was extremely challenging due to the ongoing lockdowns in Victoria and New South Wales. National usage increased by 15% when compared to pre lockdown levels in May 2021.

The company reported that total CVC expense for the period was $3.3 million, an increase of 137% on the previous quarter after accounting for NBN relief and increased inclusion benefits from NBN’s focus on fast campaign. During the quarter the company received rebates of $0.8 million from NBN for increased CVC usage relating to the ongoing lockdowns.

As reported on 1 October 2021, NBN announced further changes to the lockdown CVC rebate scheme following ongoing appeals from Aussie Broadband and the industry that the rebates provided were insufficient to cover increased usage due to lockdowns. The updated scheme will apply from 1 October 2021 and will not be backdated to prior periods, when lockdowns were most prevalent.

Aussie Broadband contends that although NBN’s new rebate proposal will provide some additional relief, this modest increase doesn’t cover the true increase in costs due to lockdowns and will result in above expected CVC charges for 2Q as well. In essence, Aussie Broadband believes that retailers are bearing an unfair proportion of the COVID lockdown driven network costs, and NBN should be doing more to support Australians during this difficult period.

Early in 1Q FY22 the company said it migrated 51,000 broadband services onto NBN’s higher speed tiers to take advantage of the increased CVC inclusions under NBN’s focus on fast campaign. This action reduced the overall CVC expense for the quarter by an estimated $1 million, and will continue to reduce overage expense during 2Q.

Had the company not proactively migrated customers under the focus on fast campaign, and had NBN not provided relief during the period, total CVC expense for the quarter would have been an estimated $5.1 million, an increase of 264% on the previous quarter, the company said.

Aussie Broadband says it believes NBN is earning additional CVC overage revenue as a direct result of the lockdowns, whilst incurring little to no incremental cost for providing this additional capacity.

Despite these challenges Aussie Broadband seems to be mitigating the CVC risk as best as can be expected under the circumstances.

It's a shame that NBN isn't stepping up more and didn't make their 1 October arrangements retrospective.

An NBN Co spokesperson on seeing Aussie Broadband's 1Q FY22 results said, "Since the start of the pandemic, NBN Co has helped retailers provide Australian households more data than ever before during this difficult period, by absorbing more than $100 million in net revenue reduction and additional capacity-related network investment.

"NBN continues to support the industry during lockdown, and has so far offered COVID relief credits of around $11 million in total to help with the higher data demand (over and above the standard year on year data growth) during COVID lockdown. Earlier this month, NBN advised the industry that the company will continue to provide the COVID relief credit payments until 31 December 2021 but may consider extending the offer into 2022, if ‘Stay at Home’ Public Health Orders remain in effect," the spokesperson concluded.

The comment from NBN is a restating the information provided earlier, when they responsed to the open letter from the five RSP CEOs.

Now that Aussie Broadband has released actual CVC expense costs, it can be assume that the larger carriers have paid much more during the 1Q FY22, which has flowed into NBN as additional revenue. While NBN has probably brought forward some capital investment in capacity augmentation, I expect the variable cost of providing this additional capacity is relatively low. It is clear that NBN has benefited considerably during our collective confinement in Q1, and the RSPs seem to be bearing considerable incremental cost.

Aussie Broadband's 1Q FY22 update can be viewed in full here.

This first appeared in the subscription newsletter CommsWire on 20 October 2021.

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Chris Coughlan

A versatile technology executive with extensive experience in most disciplines and technologies in the Information and Communications Technologies sector. Roles have encompassed general management, product management, business development, sales management, industry marketing, operations management, research and development, business case development, market research and forecasting, regulatory, strategy management, solution development, major project construction, process design and management, technology and management consulting, and engineering.

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