A closed telco commercial model for the planned National Broadband Network would leave just a handful of existing operators able to cost-effectively differentiate themselves, according to Southern Cross Equities. Analyst Daniel Blair singled out Telstra and iiNet as two of the likely winners in an NBN environment of this kind, their prospects strengthened respectively by large existing scale and strong customer service values – but also tipped Austar as a promising contender in regional Australia.

While acknowledging that much of the detail around the NBN’s design and operation is still cloudy, Blair anticipated that the commercial model for the network will likely be ‘closed’ – a three-tier structure where network service providers supply wholesale services to retail service providers, who in turn provide end user services. Requiring wholesalers with core network reach to link into the NBN network, this would generate a significant wholesale market supplying backbone carriage to retail providers and shift focus away from the last mile, leaving operators compelled to differentiate on grounds other than the strength of their last-mile services.

In this context, said the analyst, Telstra was set to stay competitive, despite concern about the risks posed by the planned NBN for the telco. “We believe TLS is well placed to compete post-NBN with retail distribution and core network strength supported by a strong balance sheet,” he said. And he also cited iiNet’s emphasis on customer service and innovation, combined with its existing scale, as factors that could ensure the Perth-based ISP’s ongoing success – with any negative impact of the firm’s current copyright court clash eclipsed by its performance and growth potential.

Blair also singled out Austar as a likely NBN winner in the regions, even suggesting that a merger between the firm and Foxtel could be “highly synergistic.” “We view AUN as uniquely placed to grow in regional Australia, by providing both STV and Telco services. AUN is second to TLS in terms of scale, brands, and channel distribution in regional Australia,” said the analyst. “We foresee a period of strong near term performance for AUN as its customer proposition (including recent HD launch) translates to strong subscriber, earnings and free-cash growth...a compelling growth story which is at the forefront of the structural change from old media to new.”