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iiNet has its Telstra moment

Internet and telephone service provider iiNet  (ASX: IIN) has announced that it has reached agreement with NBN Co for the $9 million sale of its TransACT fibre-to-the-premise network, which runs through the ACT. Currently the network reaches 8,500 premises; however, by the time iiNet completes the network in 2017 it will reach 13,000 premises in total. The $9 million transaction includes the obligation of TransACT to complete this roll-out but provides for NBN Co to pay an additional equivalent per premise consideration.

It’s certainly not the multi-billion dollar agreement that Telstra (ASX: TLS) has reached with NBN Co but it is interesting to ponder what other infrastructure assets owned by smaller players NBN Co may be looking to acquire.

It’s tough based on the current announcement to determine just how good a deal iiNet is getting. iiNet paid $60 million in cash for Canberra-based TransACT Communications in 2011, which at the time had 40,000 broadband customers and a network which “spans 4500 kms, passing more than 250,000 premises”. Obviously iiNet keeps its customers and it also looks to be keeping TransACT infrastructure outside of the ACT; however reconciling what it paid in 2011 for the assets that NBN Co will acquire, is difficult to determine until further information is released.

The second-tier telecom companies have been doing a good job at growing their customer bases and expanding revenues. In iiNet’s case, this has been both organically and through acquisitions, including AAPT’s residential business in 2010 and Adelaide-based Internode in 2011. The second-tier telcos, with their bright futures in an economy constantly demanding greater and faster Internet services,  have certainly been on a tear recently. The share prices of Amcom (ASX: AMM), TPG Telecom (ASX: TPM) and iiNet are all up over 100% in the past 12 months and have significantly outperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

Foolish takeaway

Cloud computing and mobile devices are creating an enormous demand for data by consumers. It is a theme that is likely to be with us for some time yet, so investors could do well to keep an eye on innovative companies in this sector.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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