AGL revives telco play with $27.5 million offer for regional ISP

AGL Energy has made a $27.5 million offer for regional telecommunications provider Southern Phone Company, as the energy giant reinvigorates plans to expand the company into the communications space.

Southern Phone Company is headquartered in the NSW coastal town of Moruya, and was established in 2002 to specialise in providing communications services to customers living in regional areas.

Southern Phone Company is currently owned by a collective of 35 local councils, who will need to approve the sale but are expected to realise a substantial profit. AGL intends to maintain the company’s existing operations and it would continue to operate under the Southern Phone Company branding.

Southern Phone Company supplies internet and communications services to more than 100,000 regional customers, and would represent an expansion of AGL’s push into the telecommunications space. It welcomed the offer from AGL.

“Our company has grown to become one of the most successful providers of fixed line, mobile and Internet communications services across regional Australia,” Southern Phone Managing Director, David Joss said.

“Our unique Local Government ownership structure has created a community focused business that has achieved great success.  However, with the advent of the NBN the need for achieving a greater share of the market has significantly increased and the timing is now right for a new shareholding structure.”

South Phone Company was established under the federal government’s Networking the Nation scheme, and its current company constitution mandates that ownership can only reside with local government bodies, such as local councils. The company has indicated that it will be willing to restructure the company to facilitate the acquisition by AGL.

“Although community ownership has been a strong tenet of the business in the past, now is the right time to change the structure and establish the ability to leverage shareholder capital,” the company said in a statement.

AGL sees communications and data services as a natural complement to its energy retail business, and is pursuing an expansion of its business that would both strengthen the business and deliver an enhanced product offering to its customers.

“AGL’s first step into the broadband and data sector, which is part of our growth strategy, builds on our strong regional presence as an energy retailer and SPC’s telecommunication services and capabilities,” AGL CEO Brett Redman said.

“The acquisition allows us to create space for new products and services that meet the needs of increasingly connected customers as energy and data converge.”

While the company announced a $1 billion profit for the 2018/19 financial year, the company is facing challenging headwinds with electricity retailer margins coming under the spotlight of regulators, and ongoing issues with the operation of the Loy Yang power station.

“We are focused on responding to our customers’ evolving needs as we transform from a major energy retailer to a major, broader essential service provider,” Redman added.

“We believe the acquisition, as part of our broader strategy, will create significant value for our connected customers and also for our shareholders.”

In June, AGL made a play for telecommunications provide Vocus Group, announcing that it had made a $3 billion takeover offer for the company.

AGL subsequently abandoned those plans after completing a due diligence assessment of Vocus Group, suggesting that the company’s financials – or the assumed merger benefits – did not stack up.

AGL CEO Redman told AGL shareholders at the company’s AGM in September that the company believes customers would welcome the alignment of energy and data services.

“I am encouraged by our research that tells us people would trust AGL to provide their broadband and other data services and that, like us, they see a modern utility as a provider of a range of services,” Redman told the AGM.