Axia & Cisco miss out on second Singapore NBN contract

Stuart Corner
Saturday, 04 April 2009 04:01

IT Industry - Strategy

Australian National Broadband Network hopeful, Axia Netmedia, has had it hopes of a second major role in Singapore's National Broadband Network dashed with selection of Singapore operator StarHub as the preferred bidder for the next generation OpCo contract.

StarHub's proposal was selected from four bids received for the Next Gen NBN OpCo RFP in December 2008: from IntelliNet Consortium (Axia NetMedia Cisco), MobileOne, SingTel and StarHub.

The Singapore Government spit its NBN into two parts: an OpCo and NetCo. Last December the Axia Networks-led OpenNet Consortium won the NetCo contract to design, build and operate the passive infrastructure. As the OpCo StarHub will use this infrastructure to design, build and operate the network that will provide wholesale broadband connectivity to other operating companies and retail service providers. OpenNet's other members are SingTel, Singapore Press Holdings and SP Telecommunications.

Commenting on Axia's missing out, Kris Thomson an analyst with National Bank Financial in Canada (Axia's home country) said: "The news may be viewed negatively since the company recently telegraphed a strong position to win this contract by raising $19 million in subscription receipts that would convert to shares contingent on this contract win...However, some investors were actually concerned that Axia was spreading its resources too thin by taking on so many contracts: so the stock could actually behave positively on this news. In our view, the stock remains undervalued regardless of this contract loss."

Thompson added: "We would view any weakness in the stock today as a buying opportunity ahead of the award out of Australia of $A4.7 billion government grant money towards the construction of the National Broadband Network where Axia is a contender...We continue to see Axia as an attractive investment opportunity based on its revenue visibility, strong free cash flow and balance sheet, and experienced management team. In our view, the current stock price ignores Axia's earnings power or monetisation value from international projects."

Structural separation mandated
In its approach to the NBN the Singapore Government as been strongly in favour of structural separation. As the OpCo StarHub will establish a separate company, called Nucleus Connect, to design, build and operate the active infrastructure. The Government will provide a grant of up to $US250 million to Nucleus Connect to support its deployment of this infrastructure. Together with the grant of up to $750 million the NetCo OpenNet, the Government is investing up to a total of $S1 billion to put in place the Next Gen NBN.

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