NetLink NBN Trust’s IPO: 2 Potential Threats Investors Should Know
Singapore Telecommunications Limited’s (SGX: Z74) associate, NetLink NBN Trust, kicked off its initial public offering (IPO) last Monday.
The IPO is set to be the largest IPO in Singapore since 2011 and the second largest IPO in Asia this year, after Korea’s NetMarble Games. In a previous article, I discussed the potential growth in NetLink NBN Trust’s largest business segment, residential connections. I also highlighted two key growth areas for the trust.
These are the potential upsides for NetLink NBN Trust. But every business has both strengths and weaknesses. Today, I will look into two threats to NetLink NBN Trust’s business.
Competition, competition, competition
For NetLink NBN Trust’s IPO, the business trust commissioned Media Partners Asia (MPA) to perform a SWOT analysis. MPA highlighted the following weakness at the business trust:
“There is potential competition in the non-residential and NBAP segments from players using existing infrastructure or newly laid infrastructure. These players may not be subject to the same tariffs, quality of service standards and cost structure of NetLink Trust.”
Info-communications Media Development Authority (IMDA) regulates the performance of telecommunications services in Singapore.
NetLink NBN Trust benefits from being the sole provider of nationwide residential broadband. But at the same time, IMDA sets quality of service (QoS) standards that the business trust has to meet. The regulator also sets the tariffs that the business trust can charge.
During the IPO briefing, Tong Yew Heng, the chief executive officer of the trustee manager, said that the business trust considers itself as a late entrant to the non-residential fibre space. NetLink NBN Trust began laying fibre networks in 2009, but Tong said that many commercial buildings were already served by Singtel or StarHub Ltd (SGX: CC3).
Will fibre be a long-term solution?
MPA highlighted another threat:
“Future wired or wireless technology may affect the reliance on and relevancy of fibre networks, but in the foreseeable future, fibre networks will remain the core infrastructure for high-speed data transmission.
While the development of new wired and wireless technologies is likely to increase the demand and use of fibre networks, one cannot rule out the possibility that a new technology may emerge in the future and reduce the relevancy of fibre technology.”
Fibre is replacing older wired broadband technologies such as asymmetric digital subscriber line (ADSL) and hybrid fibre coaxial (HFC). But there might come a time when a new technology will replace fibre as the primary means for connections.
NetLink NBN Trust’s revenue relies on fibre being the relevant way to provide connectivity.