The Big Three telcos, iiNet, and Optus will all face a combined $2.4 billion in savings over the next three years from the scrapping of the three-year-old “Time Warner” and “Sprint” contracts, with each of the companies receiving a cut of $1 billion, the Financial Review has learnt.
The “Big Three” telcos are already suffering financial pressures as their networks struggle with slow demand from online customers, while iiNet and Telstra are facing pressure from customers demanding better network performance.
The trio have also had to reduce the size of their networks, reducing the number of customers their networks can handle by around 70,000 and reducing the amount of data they can carry.
As a result, the three telcos will be spending more to maintain their networks.
The telcos’ total cash flow for the next financial year is expected to be $1.3 billion, down from $1bn a year ago, according to the Financial Times.
These figures are being revealed after a $1-billion financial review by financial firm Ernst & Young.
The three-part plan to trim the costs of the telcos has come to light after the Financial Report released by the Australian Competition and Consumer Commission last week.
The FT report also revealed that three-quarters of iiNet’s $2 billion cash flow last financial year was coming from its “network and broadband” business, which has been in decline for a number of years.
In September, iiNets chairman Paul White announced plans to reduce its cash flow by $2bn to $2-3 billion by 2019.
While White is aiming to hit the target, it will take several years before he has the cash flowing to pay off his debt.
However, the telco is still in talks with a number other potential buyers of its assets, including a Chinese telecommunications company.
“It’s about a year away, but the timing is not ideal,” Mr White said in September.
A deal could also be in the pipeline with an Australian company that is already looking to buy iiNet.
Last year, ii Net announced plans for a sale of its network and broadband assets, which include the majority of its Australian network and a substantial part of its iiNet fibre network.
But iiNet is still a relatively small player in Australia and has not been able to bring in the necessary cash to pay down its debt.
The Financial Review understands that the three big telcos have been trying to strike a deal with other potential purchasers of iiNots assets.
There is also speculation that some other potential buyer may be looking at the telcoms Australian network as a potential home.
As a consequence, some of the four major telcos may be reluctant to sell its network, leaving the four largest telcos with only one viable option.
The four telcos could also have to look at merging their networks in order to cut costs.
According to the FT, the four telcos are also in talks about combining their services under the “Triple Play” umbrella.
This would mean the telcops would provide a service to the big four telcs, iinet and Telstar, and the three small telcos under the triple play.
Given that the “triple play” would likely mean a merger of the big telcos’ networks and the four smaller telcos’, this would mean that some of ii’s network and fibre network could be merged with other telcos to bring more competition to the market.
Although the four biggest telcos would have to sell off some of their network, it could still be possible to sell the network to the “third party” and keep the rest of ii and Telnet’s networks intact.
These details are being kept under wraps.
Despite the uncertainty surrounding the three major telco companies, the FT report noted that the four will be forced to make some “hard choices”.
“While they can expect some cost savings in the next couple of years, the cost of keeping their networks is expected, as will the price of the spectrum they would need to upgrade to compete with each other,” the FT said.
Telstra is also expected to suffer losses in the near term, with its net revenue falling to $3.1 billion in the current financial year from $3 billion in 2013.
Its net revenue is expected fall to $1 million in the first quarter of 2019, down $800 million from the previous financial year.
When the three biggest telcopolises go under, the impact on the market will be devastating.
The loss of these two networks would be a blow to the competition in the sector, which would lead to a decrease in demand for Internet-based services.
Tanya Wright is the FT’s technology editor.