According to an independent expert report commissioned by Uniti Group, NBN Co will have to take advantage of rules that will allow it to overbuild in greenfield areas. This will leave a viable market for alternative fibre operators. The report also stated that the need to have a return on equity only led to fuller pricing in the market which generated a benchmark allowing operators to increase revenues.

Because of the changes to the Telecommunications Infrastructure in New Development rules in 2020, NBN Co has been allowed to overbuild independent greenfield operators.

According to the report by Lonergan Edwards & Associates, “these changes were intended to remove the commercial advantage held by alternative network providers for new developments and to enable NBN Co to become more competitive in the market for new developments.”

“However, we understand that to date this has not eventuated, in part due to the NBN Co’s current focus on upgrading existing technology such as HFC, FTTC, and FTTN to FTTP, which requires significant additional capital investment and is expected to increase NBN Co’s operating costs.”

The independent report also states that the core fibre business of Uniti is able to take advantage of “a high level of operating leverage, which has resulted in a significant expansion in gross and operating margins as the business has increased in scale.”

It should be noted that recent demand from customers for higher speeds has driven an increase in ARPU. According to the report, this contributed to higher gross margins.

According to LEA, the requirement of NBN Co to deliver a return of 3.2% on its assets has “resulted in higher wholesale and connectivity virtual   to RSPs.” 

“Whilst this has compressed margins for RSPs it has effectively determined the wholesale price and resulted in increased revenue for infrastructure providers (such as Uniti),” the report further stated. 

The broadband product set of Uniti is very similar in construct and price. The report then concluded that the takeover offer is “fair and reasonable and in the best interests of Uniti shareholders in the absence of a superior proposal.”

The scheme booklet states that the consortium intends to maintain the “current strategic direction with an investment case based on furthering its position as a market-leading constructor, owner, and vertically integrated operator of telecommunications βibre infrastructure in the greenfield residential sector, with a focus on technology infrastructure network ownership on a nationwide basis.”

The consortium is set to conduct a full review of the business as well as a revamp of the board. However, it has “no current intention to make substantial changes to Uniti’s business or employees.”