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ACCC lets Telstra Corporation Ltd pass on internet tax to consumers

Source: Telstra presentation

This morning the Australian Consumer & Competition Commission (ACCC) announced that Australia’s major high-speed internet service providers will be able to pass on one of the NBN’s-related broadband taxes to consumers.

Ever since the reality of the NBN came on the horizon in 2016 telco analysts have been sharpening their pencils to downgrade their earnings per share forecasts for residential broadband services providers on the basis of predicted NBN-sponsored profit margin compression.

As a result the share prices of the likes of TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC) and Telstra Corporation Ltd (ASX: TLS) have tumbled over the past 9 months, although today’s decision to exempt them from the Regional Broadband Scheme (RBS) charge under limited circumstances is a small positive.

In fact the telcos and the NBN Company have been in dispute over other charges including the connectivity virtual circuit (CVC) price that the NBN Co charges internet service providers to use its network.

In February the NBN Co. announced it would move from an industry-based CVC charge discount model to a retailer-based model that calculates the effective charge on individual retailer averages, compared to the industry average discount.

The CVC pricing change is to come into effect from June 1 2017 and is expected to encourage individual retailers to differentiate their offerings, while promoting the uptake of higher speed internet services amongst consumers.

Overall though it seems the residential internet service providers are still taking a hit from the government-owned NBN Co as it takes advantage of its monopoly status.

Of the three telcos mentioned in this article, I would prefer TPG Telecom as an investment thanks to its founder-led nature, cost control and recent move into the mobile space. At $6.06 its shares look to be offering excellent long-term value to me.

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Motley Fool contributor Tom Richardson owns shares of TPG Telecom Limited and Vocus Communications Limited. The Motley Fool Australia owns shares of Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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