Axia NetMedia flexes business model to attract broadband stimulus spending

Calgary-headquartered Axia NetMedia Corp. is negotiating with Newfoundland and Labrador to build an Alberta Supernet-type network in the province, as part of the government’s efforts to rollout an advanced broadband network for government, commercial and residential customers across the province. Meanwhile, Axia continues to pursue a nation-wide rollout in Australia, adjusting its business model to suit global broadband stimulus spending requirements. Axia provides broadband IP services and solutions through planning, designing and operating what it calls “no conflict open access next generation networks”. The company has networks in Alberta, France and Singapore, but has struggled of late to land new deals – though it looks like that’s about to change. “In Newfoundland Axia is the favoured son, but this is not huge dollars. For that you would need a larger population,” says Duncan Stewart, director of research for Deloitte Canada covering technology, media and telecommunication. “And in Australia no one won the initial bid – now Axia is going back and saying that they can deliver a lot cheaper than the incumbent.” Negotiations with Newfoundland and Labrador will be conducted over the coming months, with construction expected to begin in April 2010. When completed, the Government Broadband Initiative (GBI) will connect more than 1,000 government facilities, and should enhance the ability of retail service providers to offer similar services to local residential and business customers. The business model looks much like Alberta’s SuperNet, which was built by Axia. “In Alberta the government subsidized half of the roll-out,” David Lambert, an analyst at Canaccord Adams, tells Network Letter. Lambert believes Axia may be angling for a similar deal with Newfoundland and Labrador. “Bell Canada Enterprise paid for the other half of SuperNet,” he says, adding that this information was not made public by any of the participants. “And why would Bell pay? Because in twenty years they get the network back. Meanwhile, Axia gets about $10 million a year to operate it, and if they want to add services on top of that they are allowed, with Bell sharing in some of that revenue.” Lambert imagines that the Newfoundland deal, which has no announced financial details, will operate in much the same way, with EastLink Communications functioning as a partner in the network’s build-out and management. However, Axia has implied that the two companies have very separate arrangements with the province. “We are in the negotiation stage, which is why nothing on financial side has been finalized,” says Dawn Tinling, Axia’s VP of investor relations and communications. “There was an RFP process that began in December 2007, and the province decided to take the next step to negotiate with us and EastLink. These are separate bids with different roles and responsibilities.” Meanwhile, in early August the Australian press was abuzz that Axia had made a “startling re-entry” into the debate down under, with aggressive pricing for a nationwide FTTP network. Axia’s CEO Art Price went before Australia’s senate select committee, and said Axia’s total rollout cost would come to only $27 billion Australian dollars. That’s $16 billion less than the government’s own number of $43 billion. “Australia is interesting because they still have the dollars and they still want to do something,” says Stewart. “From a corporate perspective for Axia this would be a big win.” Axia has proposed that Australia’s national broadband network have two stages, beginning with a community interconnect grid, followed by an FTTP rollout on a town-by-town basis. The catch? Axia wants committed revenue from Australian government agencies, and maybe even financial grants from regions. “Axia can build the core in Australia and then get other people to do the last mile or two,” says Stewart, suggesting that this is more feasible for the company than the original Australian proposal, which was “to bring fibre optic cable to each table.” Nonetheless, in his submission to the Australian senate committee CEO Price said that “if it’s run really efficiently” then Axia could build fibre to the premise for $20 billion, and deliver the interconnect grid for between $5 billion and $7 billion, with commercial viability of an FTTP rollout at 70% penetration. This is a lower risk model than in Axia’s network in France, where Axia owns the network with partners and has to build revenue without government contracts in a competitive environment. “In France they have to drive revenue from their network from scratch,” says Lambert. “It’s a deregulated market. This is not like the other markets where there are guaranteed revenues.” The guaranteed revenue model allows Axia to offer Australia and Newfoundland and Labrador what, on the surface, looks like a cheap deal: less money out the gate, but secure revenue for the long term.

Axia NetMedia flexes business model to attract broadband stimulus spending

News | August 13, 2009

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