While we don’t expect the overall size of the Telco market to change materially, we do expect product share to change over the next five years. We expect Fixed Voice to decline to 7% of the overall market from 15% currently driven by challengers offering VOIP style plans to take share from Telstra. We are in the midst of a material change in how Telco products are delivered and consumed, this report assesses these changes and provides our market outlook.

Household spends – share of wallet is shifting: We don’t expect an increase in household spending on Telco. In fact, we expect a marginal contraction in spending per household driven by the deflationary shift from Fixed Voice as a consequence of the NBN.

NBN – game changer for the Fixed Voice market: Based on capacity constraints and current rollout trends, we believe the NBN will only reach 72% of its targeted rollout by 2020, which effectively means the rollout is about 2-3 years behind schedule. We expect the NBN to drive significant shift in the economics for the Fixed Voice market. Within Fixed Voice, we believe Telstra has the most to lose with challengers looking to gain share by bundling Voice (VOIP style plans) with Broadband. We expect Fixed Voice revenue to decline sharply (-10% CAGR) through to 2020.

Fixed Broadband – households driving growth but… : We expect Fixed Broadband revenues to grow (4% CAGR) driven by household growth (2% CAGR) and penetration growth (85% in 2020 from 75% currently). We highlight that while OTT video is driving traffic growth, revenues have failed to keep up. We believe that the current NBN pricing policy (CVC charges) is unsustainable for ISPs and therefore believe CVC charges will need to reduce and/or ISPs will need to shift to tiered data plans in order to maintain margins.

Mobile – steady with Hardware driving growth: We expect Mobile revenues to increase marginally (2.6% CAGR) through to 2020 driven mainly by increasing Hardware revenues. Hardware revenues account for 72% of our forecast total Mobile revenue growth through to 2020. We believe these revenues will face greater competitive intensity in coming years. We forecast Service revenues to be stagnant given saturated penetration coupled with ARPU pressure.