Telco oligopoly points finger at NBN over speed claims

The $210m being paid for Citibank’s consumer loan book looks to be a good deal for NAB shareholders. Picture: NCA NewsWire/Dylan Coker

The telecoms oligopoly of Telstra, Optus and TPG are clearly the worst serial offenders when it comes to the competition rules set by the ACCC.

In August 2017 the regulator laid down how they could advertise broadband speeds, which on the ACCC’s reckoning they all clearly ignored, because by year’s end they were up before the plod offering enforceable undertakings to avoid legal action for misleading advertising.

Just three years after they promised to play ball, the ACCC is taking them to court for breaches of the undertakings.

The common villain, in the eyes of the industry, is the NBN which supposedly isn’t delivering the speeds promised to all customers.

Then again, it was the telephone oligopoly – not the NBN – which gave the undertakings, and the oligopoly is more than capable of checking speeds before putting its hands in people’s pockets to pay for the services.

The onus is on the industry to notify the customer of maximum attainable speeds, and in many cases NBN did not provide that information.

One commentator remarked: “It’s baffling that regulators have decided the industry must bear the cost of NBN Co’s failings.”

The ACCC action came on the same day the industry was united – at least on paper – in welcoming the federal government’s decision to increase the amount of spectrum up for auction, while at the same time imposing 40 per cent ownership limits in the city and 45 per cent in the country.

The rules mean Telstra will not be getting the spectrum it may have wanted. This may explain the kick in the tail of its response:

“We note part of the reasoning for the spectrum limits was to give Optus the opportunity to acquire additional spectrum to roll out 4G and 5G services across regional Australia. This rewards Optus for its failure to invest in previous low band spectrum auctions and really means it’s time for Optus to put its money where its mouth is.”

Optus rejects the claim.

Telstra boss Andy Penn noted: “The decision is a win for the people, businesses and communities of regional and rural Australia, and the regional stakeholders who advocated for it.”

Telstra is not shy about promoting its role in the community as shown by its telephone box spruiking, claiming credit for keeping the services when it’s the taxpayer and the other providers who pick up the tab.

Optus and NBN are pleased the government has imposed limits because it at least puts a break on Telstra’s claims.

The industry leader rightly markets its services as providing the most comprehensive network, due in part to its ability to invest in more spectrum, backed by taxpayer subsidies.

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Apple appeal

Apple has formally applied to the High Court appealing the full Federal Court ruling that Epic Games’ dispute with the company can be heard in Australia under local competition laws.

Justice Nye Perram had previously ruled that as the contract between the two was signed in California it should be heard first in the US under Australian law.

As Apple, Google et al source all contracts to the US, that would mean that if, say, CBA’s Matt Comyn wanted to sue Apple he would have to do so first in the US.

Google has also filed a motion in the Federal Court on the same issue.

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Citi success

Last month NAB boss Ross Mc­Ewan effectively torched $1bn or more in shareholder value with his $2.5bn buyback at around $25.77 a share, just a year after issuing $4.3bn of stock at $14.15.

Against this background the circa $210m being paid to Citibank for its consumer loan book looks a considerably better deal for shareholders.

Granted, last year’s share issue was at the beginning of the Covid pandemic and the criticism comes with the benefit of hindsight, and strategically the Citibank deal brings more positive upside, including $165m on a new consumer platform.

The headline value of the deal is $1.2bn at eight times earnings, which is a fair price so long as NAB can hang on to the $7.9bn mortgage book, $9bn in assets and $4.3bn in mainly credit card debt.

The latter is McEwan’s call that credit cards are not yet dinosaurs, which is a different view from that of Twitter founder Jack Dorsey, who as Square boss has just paid $39bn for Afterpay.

Citibank has made clear it is getting into the buy now, pay later market just like CBA, PayPal and indeed NAB.

McEwan says there is room for both, and given the $8.9bn in risk-weighted assets will leave him with a tier one capital ratio of 11.8 per cent, he can afford the welcome boost to his undersized consumer business.

In short, the deal is not a game-changer but a positive boost at the margin.

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Taking its toll

Transurban’s Scott Charlton on Monday confided that his $6.7bn West Gate Tunnel project in Melbourne could run over budget by at least $3.3bn, which sent his stock price down 1.9 per cent to nearly two-month lows of $14.03.

Charlton is in the midst of negotiating with constructor CIMIC and John Holland over just who should pay the extra costs, so his statement should be read in context, but it wasn’t what the market wanted to hear.

This earnings season is expected to be stellar, so good earnings will get a lukewarm response and bad ones taken to the cleaners. More detail on potential negatives is good governance but not likely to be rewarded.

The previously flagged sale of 50 per cent of the company’s Chesapeake Bay assets in the US, earning $2.7bn, was enough to put the company in the black for the half but Charlton also disclosed it was losing $24.5m a week on its three Australian toll road networks during Covid.

Despite this the company posted free cashflow of $1bn, which was enough to pay dividends. This company has stunning profit margins of 81 per cent in Sydney, 81.6 per cent in Melbourne and 74 per cent in Brisbane.

In short, when Covid lockdowns ease, business will bounce back and Transurban’s balance sheet is just fine, so the outlook is fundamentally good.

Charlton did say the looming bid for another 25 per cent of WestConnex in Sydney would be paid for in part with another equity raising.

No one could accuse Charlton of downplaying the negatives, and the good news is Transurban is in such good shape a short term splash of red is not a problem.

Leadership change emerges as another issue, with chair Lindsay Maxsted to step down by next year’s annual meeting. By then, having served 10 years in the job, Charlton too will be ready to hand over the reins.