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NBN Co may split to speed rollout

The new coalition government is considering splitting the National Broadband Network Company into two separate companies in an effort to speed up rollout of the network. One company would be responsible for construction of the $20 billion broadband network, while the other would focus on operations and commercial management.

The NBN rollout has missed several targets and is well behind schedule. NBN Co had forecasted that it would be available to 359,000 homes and businesses by the end of June of this year, but in fact only reached 207,500. The coalition is considering whether splitting the company in two would allow each division to specialise in one set of tasks – ultimately speeding up deployment.

Such a strategy has been successful internationally. Singapore split its “Next Generation NBN” out to two companies: OpenNet to build the network, and StarHub subsidiary Nucleus Connect to manage operations. The strategy has worked well in Singapore; construction of the network began in 2009 and now covers 95% of the country’s population. However, in comparing Australia with Singapore it’s important to consider Australia’s size and dispersed population – Singapore’s population of just over 5 million live in an area that’s less than half the size of Sydney.

Telstra (ASX: TLS) currently enjoys a dominant position in the industry thanks to its legacy copper line network. A faster rollout could benefit new challengers such as Singapore Telecommunications’ (ASX: SGT) Optus and Hutchison Australia’s (ASX: HTA) Vodafone. Both of these companies would like to make the transition away from using Telstra’s network as soon as possible.

However the coalition has also made clear that it favours a change to a ‘fibre to the node’ strategy for the NBN – which could complicate plans for competitors. A ‘fibre to the node’ rollout will see fibre laid for most of the core parts of the network, but will then use the existing copper lines for the remaining transit to the end user. Such a strategy could result in a much faster rollout, since less fibre needs to be laid, but it is also dependent on the quality of the last few kilometres of copper wire.

For Telstra’s competitors, ‘fibre to the node’ would mean that they are not free of Telstra’s grip entirely. While the core of the network would be independent, they would still rely on Telstra’s copper network to get from the node to the end customer. Optus has proposed that for customers signing up to a two-year contract they could be willing to lay the last section of fibre to the customer’s premises themselves. It is a costly proposition, but one that would allow Optus to have greater control over the network, and the relationship with the customer.

Foolish takeaway

The coalition’s plan to split the NBN Co into two should help to speed up deployment by allowing each company to focus on one task, construction or operations. A faster rollout could be a win for Telstra’s competitors who have been looking forward to the day when they can extricate themselves from Telstra’s network entirely.

However, with the government also considering a switch to a ‘fibre to the node’ strategy Telstra’s competitors may not have so much to look forward to. Unless they are able to find a way to challenge Telstra’s control of the last few kilometres of copper wire then it could be that the more things change the more they stay the same.

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Motley Fool contributor Matt Joass has no financial interest in any company mentioned in this article. You can follow him on Twitter @SoloThink.

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