Telstra to rollout low cost internet

Telco has big plans for junior Internet provider

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 24, 2012 3:59 pm AEDT

Telstra Corporation (ASX: TLS) appears to be making a play for low price internet customers, with its purchase today of budget internet provider, Adam Internet, for a reported $60 million.

Telstra plans to support Adam Internet to expand nationally, and the brand will be run as a stand-alone subsidiary of the company. Adam Internet currently has an estimated 90,000 broadband customers, and the acquisition meets Telstra's strategy of retaining and growing customers, while building growth businesses.

The purchase came as a surprise to many, with most of the mergers and acquisitions in the IT and telecommunications sector coming from second tier companies like TPG Telecom (ASX: TPM) and iiNet Limited (ASX: IIN). Yesterday, Telstra announced a new retail alliance with Boost Mobile, a provider of pre-paid mobile products and services. Boost Mobile will market its products on the Telstra network from early next year, after Optus – owned by Singapore Telecommunications (ASX: SGT) announced that it would no longer licence services to Boost Mobile.

The Australian has speculated that Telstra's acquisition may be a way for the company to hoover up smaller players, who may have been looking to exit the industry, before the National Broadband Network (NBN) becomes more widely spread.

iiNet chief Michael Malone has told The Australian that he didn't believe that Adam Internet customers would be all that happy becoming Telstra customers, and has moved aggressively to attract them with a broadband sales campaign. iiNet, through its subsidiary, Internode, is offering three months free broadband service and has waived setup fees to South Australians who signed up for 2 years.

Prior to Telstra's acquisition of Adam Internet, Australia's top four broadband providers, Telstra, Optus, iiNet and TPG held 91% of the market, with the remainder shared among many small providers, according to Deutsche Bank research.

The Foolish bottom line

It seems these four have become as dominant in their industry as the big four banks, although not as evenly shared. It will be interesting to see if Optus, TPG and iiNet can steal market share from Telstra, especially when Telstra is actively growing its business.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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