New Zealand Telecoms Industry Report – 2020-2025

New Zealand Telecoms Industry Report – 2020-2025

The New Zealand Telecommunications Industry Report, 2020-2025 includes a comprehensive review of the New Zealand market dynamics, market sizing, market forecasts, analysis, insights and key trends.

EXECUTIVE SUMMARY

New Zealand Telecoms Industry Report at a Glance
The New Zealand telecommunications New Zealand is a stable mobile market with 3 network operators, a nationwide full-fibre wholesale broadband network and the overall market underpinned by strong economic fundamentals.

Idem Est Research forecasts that mobile subscriptions will continue to grow in the 2020-25 period and fixed broadband subscribers will also continue to grow and increase its household penetration over the same period. The ratio of the telecommunications sector revenue to GDP is declining from a peak in 2005, sliding down every year since then.

Idem Est Research forecasts 5G mobile subscribers will represent nearly 52% of all subscriptions by 2025, 4G will represent about 43% of all connections while 2G and 3G will account for the remainder, if not switched off earlier.

Mobile subscribers numbers and revenue are growing strongly and the back of population growth and the market shift to postpaid.

Idem Est Research expects the overall telecoms market to grow through to 2025 after a marked slow down in 2017 and 2018 due to legacy voice revenue pressure partially offset by mobile data growth.

Capex Investments
The Capex to GDP ratio remained relatively stable between 2014 and 2018 but is expected to remain at the same level through to 2025. Idem Est Research estimates that the ratio will settle back by 2023 peaking in 2020. Chorus is still investing heavily in fibre infrastructure until 2022 while Spark and Vodafone have more conservative investment profiles.

Mobile Subscribers and Revenue
Over the last five years, the market shifted to postpaid as subscribers move to Pay Monthly offerings (SIM-only plans) with increased data allowances. Overall, the number of prepaid subscribers continued to decrease slightly. Mobile network operators are facing competitive pressure with the market shifting to unlimited voice and text and data allowance increasingly becoming the sole offering differentiator.

According to our benchmark study of mobile data pricing, India has the lowest rate per GB at just a few cents per GB, while Australia and China had the biggest cost reduction per GB mostly due to increased data allowance in plans while Singapore remains expensive. New Zealand has the highest pricing per GB and Kiwis downloaded the least amount of data over their mobile phones.

Broadband Subscribers – FTTH Push and Fixed Wireless
The Ultra-Fast Broadband Initiative is a New Zealand Government program of building fibre-to-the-home networks covering 87% of the population by the end of 2022, FTTP will be deployed to 1.8 million households and businesses in 390 cities and towns. It is a public-private partnership of the government with four companies with a total government investment of NZ$1.7 billion.

The broadband market is now experiencing low growth mostly driven by new premises construction in greenfield developments or urban redevelopments. The UFB government project reached over 1.7m premises and connected 63% of them or 1.1m premises.

Households growth and a reduction of the number of underserved premises, previously not able to connect now served by UFB2, will drive up the fixed-broadband subscribers.

Thematics – Telecoms Infrastructure / 5G / M&A / Infrastructure
Infrastructure funds, pension funds and government funds are assigning high valuation multiples to telecommunications infrastructure assets such as mobile towers, data centres, submarine cable and fibre infrastructure.

In 2019, Morrisson & Co (Infratil) and Brookfield, both infrastructure funds, bought Vodafone NZ for NZ$3.4 billion (EV/EBITDA of .c7). Globally, many infrastructure funds are investing in mobile towers, FTTH, data centres, submarine cables while that trend is likely to continue over time with more proactive transactions.

All three operators are expected to explore mobile towers monetisation within the next 12 to 18 months taking the opportunity to realise cash from existing assets and focus on the core business of attracting and maintaining subscribers as well as potentially reducing overheads and depreciation charges. For infrastructure investors, the NZ towers would be a new investment opportunity based on long-term income streams and value creation.

Vodafone new owners (Infratil and Brookfield) which are both infrastructure funds are likely to explore a separation of its infrastructure and retail business in the mid-term once its reset of strategy is starting to pay off.

In 2021, both Spark and 2Degrees outlined plans to explore plans to monetise telecommunications assets following global trends.

Idem Est Research predicts the next wave of transactions is likely to continue being about “scale” among small ISPs and largely about infrastructure for Spark, Vodafone and 2degrees.

The arrival of 4G moved the Internet off our desktops into our palms and pockets, 5G could transform the network from something we carry around to something taking us around either virtually (augmented reality or virtual reality) or in reality (autonomous vehicles), the 5G outcome and benefits beyond fast connectivity remain largely unknown in terms of business models, investments required and timeline.

KEY COMPANIES MENTIONED IN THIS REPORT:
2degrees, Brookfield, Crown Infrastructure Partner, Crown Fibre Holding, Chorus, Enable Networks, Infratil, Northpower, Telecom NZ, Snap, Spark, TelstraClear, Trustpower, Ultra-Fast Fibre, Vocus, Vodafone WEL Networks.