Telecommunications provider Vocus Communications Limited (ASX: VOC) is aiming to usurp Optus's position as the second-largest provider of telecoms services to corporates and government departments.
Thanks to a merger between Vocus and Amcom Communications Limited (ASX: AMM), the newly minted company will be worth roughly $1.2 billion and generate more than $307 million in sales.
That's still a fair way away from Optus's $1.5 billion in revenue reported by its Enterprise business, but shows the lofty goals Vocus CEO James Spenceley has set himself and the company. But the combined Vocus-Amcom group aims to be cheaper than rivals Telstra Corporation Ltd (ASX: TLS) and Optus – which is owned by Singapore Telecommunications Ltd (ASX: SGT).
Vocus is also aiming to offer a more complete corporate service compared to smaller rivals such as TPG Telecom Ltd (ASX: TPM) and M2 Group Ltd (ASX: MTU) – with TPG and M2 more focused on services to retail clients.
The combined Vocus-Amcom group will feature 4,200km of fibre optic cable in New Zealand, 20 data centres across Australasia, as well as 2,700 buildings connected to its fibre infrastructure in Australia. Over the past three years, the combined business has generated compound annual growth (CAGR) in revenue of 31% while earnings have climbed by an average of 27% each year over the same time.
The merger requires approval of 75% of Amcom shareholders plus regulatory and court approvals, but if all goes to plan, the deal is expected to be completed by mid-April 2015. Interestingly, TPG Telecom owns 6.7% (17.85 million shares) of Amcom, but we have yet to see what the telco aims to do with this holding. Will TPG increase its shareholding, or just hang on to it like it has its 6.3% holding in rival iiNet Limited (ASX: IIN)?
TPG's CEO David Teoh is a smart operator, and a small shareholding in its similarly-sized competitors gives it a potential seat at the table for any future takeovers.
Getting back to Vocus, given the growth the two separate companies have generated so far, I wouldn't put it beyond the merged company's ability to become Australia's number 2 corporate telco.
