Perth-based broadband and mobile provider iiNet (ASX: IIN) has revealed plans to expand its capital city WiFi networks to Melbourne and Sydney following the completion of networks in Adelaide and Perth in 2014.
A novel idea
The novel WiFi networks are created using an array of Cisco outdoor wireless access points connected to a fibre-optic backend. The first network to be operational will be the AdelaideFree network. It has been under construction since August by iiNet subsidiary Internode, after it was awarded a $1.5 million tender from the Government of South Australia. The network uses 200 connection points around the Adelaide CBD to create a continuous WiFi network which iiNet plans to allow iiNet broadband and mobile customers to connect to for free.
It is the connection to capital city networks that iiNet believes will spur residential and business customers to move from larger rivals Telstra (ASX: TLS) and Singtel (ASX: SGT) owned Optus.
Organic growth required
In recent years the telecommunications sector has undergone a period of consolidation with larger players M2 Telecommunications (ASX: MTU) and iiNet snapping up smaller companies including Dodo, Commander, iPrimus, Internode, AAPT, Netspace and Adam Internet. The consolidation has slowed for now and the companies will have to rely on organic growth to spur subscriber numbers.
Threat to Telstra and Optus
As the nation's number three internet provider, iiNet is aiming to take subscribers from Telstra and Optus in the battle for the mobile data use market. Some analysts have noted that the networks may be make-or-break for iiNet after it failed to acquire the infrastructure assets of AAPT in 2013. If iiNet can find co-investors and successfully get the networks up and running in the next 12 to 24 months it will likely have a profound impact on the mobile data and broadband industries, especially for high-margin business customers.
Foolish takeaway
Competitors are coming for the profits of Telstra and Optus. The latest idea from iiNet follows details about a trial being conducted in Tasmania by Google to provide WiFi internet access to remote areas via weather satellites. There's also a new fibre network being constructed by TPG Telecom (ASX: TPM) to service 500,000 apartments in late 2014, and competitors such as BigAir (ASX: BGL), whose novel internet solutions in CBDs are gaining traction.
The sector's big names have so far been able to develop innovative solutions to challenges from rivals, and management will have be on their toes in the years to come to maintain their subscriber numbers and profit margins.
