Expanding internet service provider Aussie Broadband is weighing its options after fibre infrastructure operator Superloop rejected as “opportunistic” a proposed acquisition that Aussie said would have created a serious market rival to “incumbents” Telstra and Optus.

A merger of the companies – which would have created a “scale player” providing a wider product offering to more than one million subscribers across Aussie Broadband, Superloop and Superloop-owned Exetel brands – offers “compelling strategic rationale”, Aussie said in lodging an indicative proposal for the merger.

The combined companies, Aussie said, would be able to reduce operating costs by removing redundant network infrastructure – as well as delivering end-to-end services required by high-value business customers that currently favour full-service giants Telstra and Optus.

Founded in 2014 by serial entrepreneur Bevan Slattery, Superloop has seen growing success selling to businesses such as utility giant AGL, which recently signed a five-year, $31 million contract to offer superfast NBN plans using Superloop’s wholesale network.

Superloop – whose network combines NBN services with high-speed connectivity to major Australian data centres and overseas networks – has also been working with property developers Mirvac and Investa on a range of ‘build to rent’ installations of Superloop broadband services, which will continue adding to customer numbers that surged by 34,100 new customers during the last half year to reach 408,000 in total.

The offer came just days after Superloop delivered first-half results including record revenues and net new customer growth – including a 32.7 per cent year-on-year revenue growth and a 38.9 per cent jump in gross margins – that CEO and managing director Paul Tyler said showed that the company was “tracking strongly against” its three-year ‘Double Down’ growth strategy.

Integration of the companies is far from over, however, with Aussie simultaneously spending $92.86 million to purchase 19.9 per cent of Superloop’s shares – meaning the company is now a ‘substantial holder’ of Superloop as major Superloop investors Regal Funds Management, Perennial Value Management, and Lennox Capital Partners all cashed out of the company.

The push for full service

Given its strong growth, Superloop’s board quickly rejected what it called the “conditional, unsolicited and incomplete” merger, arguing that Aussie’s proposal – which offered an 8.5 per cent premium on Superloop’s share price as at 23 February – was “opportunistic and fundamentally undervalues Superloop”.

Yet that’s likely to be the end of the dance, with the ball now in Aussie’s court to see if it can find sweeteners to convince Superloop’s board to sign on.

Either way, the deal marks an inflection point in a telecommunications market that has gained new energy as operators expand their high-speed broadband offerings and increasingly target business customers for profitable long-term deals that also bundle voice, video and other services.

Such services are proving crucial to finding a way for telecommunications companies to grow in a market whose overall revenues declined 1.8 per cent from 2018 to 2023, according to IBISWorld.

The combination of stricter regulations, competition from satellite and other technologies, escalating customer expectations, and competition between telcos and ‘hyperscale’ cloud providers will pressure telecommunications firms to reinvent themselves, a recent KPMG analysis notes in recommending strategies including ‘doubling down on core connectivity and network infrastructure’ and offering enhanced services for customers.

Superloop has played its own hand at acquisitions, including the acquisition of smart building provider VostroNet and a failed attempt that last year saw it outbid by Aussie to acquire cloud and phone service provider Symbio, which routes voice calls for the likes of Google, Zoom, and telecommunications providers like Vodafone.

Yet expanding into new areas also brings higher expectations from regulators such as ACMA, which formally warned the telco in 2022 for failing to investigate scam calls in breach of its obligations under the Reducing Scam Calls Industry Code.

Such issues aside, however, the acquisition “will fast track Aussie’s presence in the wholesale and Enterprise & Government market segments,” Aussie co-founder and group managing director Phillip Britt said in announcing a significant management reshuffle that will, he said, “allow me to better concentrate on strategic opportunities and growth.”