Is NBN Co a serious threat to TPG Telecom Ltd’s fibre network?

NBN Co plans to accelerate the installation of its fibre network to apartments and office buildings

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Broadband provider TPG Telecom Ltd (ASX: TPM) announced last year that it was planning to roll out its own residential fibre network to around half a million apartments, in competition with the National Broadband Network (NBN).

Now NBN Co, the company building the NBN, is moving to cut off that threat by accelerating plans to connect apartments and office buildings in Australia’s capital cities to its fibre network.

NBN Co’s new chief executive, Bill Morrow, said, “the NBN levels the playing field for Australian telecommunications and creates real and vibrant competition. We can make this statement because the NBN doesn’t sell directly to consumers and is open to all retail service providers to use on equal terms“. He added, “a building signing up with TPG runs the risk of being left with only one retail service provider – TPG itself.

TPG’s competitor, Telstra Corporation Ltd (ASX: TLS) has also criticised the company’s plan, saying it would undermine the economics of the NBN. NBN Co’s plan was for metropolitan users to subsidise the costs of rolling out the fibre network in regional and remote areas. If other carriers follow TPG’s example, they appear to put the NBN at complete risk.

TPG’s CEO David Teoh has hit back at critics of the plan, saying that even with 500,000 connected apartments, the NBN is such a large project, what TPG is doing is quite small. The problem for the apartment blocks is that once there is one fibre provider in the building, it would be difficult for another provider to also offer fibre-based plans. One analyst suggests there would be technical problems that would limit apartment blocks to one provider only.

If TPG runs through with its plans, the company will likely become Australia’s second-largest network owner. Optus – owned by Singapore Telecommunications Ltd (ASX: SGT) is reportedly selling its cable network to NBN Co.

Foolish takeaway

TPG says it will offer its fibre network to other internet service providers like M2 Group Ltd (ASX: MTU) to re-sell data plans, while offering its own customers better broadband plans than if it used the NBN’s network. It’s a risky gamble, but if it pays off, could see TPG cast alongside Telstra as our two largest telcos.

Motley Fool writer/analyst Mike King owns shares in M2, TPG Telecom and Telstra. You can follow Mike on Twitter @TMFKinga

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