Telstra to reap $11b from NBN deal

Companies sign Financial Heads of Agreement for the incumbent telco to take part in the NBN

One of the biggest challenges to the Federal Government's national broadband network (NBN) plan has been overcome with Telstra (ASX:TLS) and NBN Co reaching an agreement on the telco's involvement in the network rollout.

As part of a Financial Heads of Agreement deal, Telstra will migrate its voice and broadband customers to NBN Co, while decommissioning its copper network and cable broadband service.

NBN Co will also gain access to usable Telstra ducts, pits and conduits and a "right to acquire Telstra backhaul services and space in Telstra exchanges". It will also be required to take on the role of wholesale supplier of "last resort for fibre connections in greenfield developments from 1 January 2011".

The Government has also come to the party, agreeing to establish a new company called USO Co to the tune of $50 million in 2012-13 and 2013-14 (and $100 million per year thereafter), which will assume responsibility for Telstra's universal service obligations (USO) for "standard telephone services, payphones and emergency call handling from 1 July, 2012".

It will also provide funding of $100 million to enable the retraining or redeployment of Telstra staff affected by the deal.

In a statement Telstra also said it had been given a written guarantee from Prime Minister Kevin Rudd, that it would be able to bid for "Long Term Evolution (LTE) wireless spectrum should the transaction be completed and that sufficient regulatory certainty will be provided on a range of matters for NBN Co and Telstra to enable the transaction to proceed".

The telco had been threatened with exclusion from future wireless spectrum bids by the Government should it not come to the table with NBN Co and reach an agreement.

In total the deal is expected to provide $11 billion in after tax value to Telstra; $9 billion from the deal with NBN Co and an additional $2 billion from the Government's public policy changes. It will receive payments gradually over the years as the NBN is rolled out.

However, the agreement must still obtain approval from the Australian Competition and Consumer Commission (ACCC), is dependent on enabling legislation and Telstra will need to take it and definitive agreements - to be negotiated over the coming months - to its shareholders for approval. The latter agreements are expected to be taken to shareholders in the first half of 2011.

“We will continue to work with the Government and NBN Co on the detail required to implement the principles agreed today," Telstra CEO, David Thodey, said in a statement. "While today’s agreement is an important step, a very significant amount of work must still be done on many complex issues.”

(Read Computerworld Australia's NBN 101 series)

If ultimately successful the deal means Telstra will most likely become NBN Co's biggest customer.

“This is a sound outcome for NBN Co because when finalised it can maximise the use of existing infrastructure and accelerate the roll out of its network,” NBN Co chief executive, Mike Quigley, said in a statement.

“It also means Telstra is likely to become NBN Co’s largest customer as it progressively migrates its voice and broadband traffic to NBN Co’s wholesale-only, open-access network, providing greater certainty about future revenues.

“This Heads of Agreement represents more than nine months of detailed and complex negotiations and is a foundation for the work on specific binding terms and conditions that lies ahead."

As late as March Telstra told the market it believed there to be a significant gap between Telstra and NBN Co on what each party believed to be an acceptable financial outcome in their negotiations.

The NBN Implementation Study found the NBN could be “implemented within the $43 billion estimate of capital expenditure by deploying fibre to 93 percent, fixed-wireless from the 94th to 97th percentiles and satellite to the final 3 percent of premises” without Telstra's involvment.

However, Communications Minister, Stephen Conroy, has consistently said he wants a deal that involves Telstra as it would result in a cheaper roll out.

In contrast, the Opposition has said it will scrap the NBN should it gain power and has used the Senate Select Committee on the NBN, which it has a majority, to make the same calls.

The Telstra and NBN Co agreement now brings into question the Opposition's intention to cull the infrastructure plan should it win at the next federal election.

Three ISPs have already signed on to provide services in the first stage of the NBN in Tasmania.

More about: ACCC, Australian Competition and Consumer Commission, etwork, Federal Government, Quigley, Telstra
References show all

Comments

1

Colin

Mon 21/06/2010 - 09:09

I cannot recall how much the government received when they sold Telstra, have we (the long suffering tax payer) just refunded that money?

2

Leagal Eagle

Mon 21/06/2010 - 09:50

I find it more than interesting that a supplier (government) can threaten supply (restraint of trade) to Spectrum Wireless to negotiate a position?

Can anybody imagine, an oil refinery,banana growers,meat producers saying we are not going to allow you access to our products because you are being difficult.

Can you imagine G Samuel, 7.30 report and the other usual suspects screaming from the rooftops!

But then again, I now remember, G Samuel was receipient of a "GONG" from Rudd a few weeks ago!

Now, what was that for? Grocery watch? perhaps fuel watch? maybe it was for taking on the Banks? it certainly must have been for taking on a major player!

Perhaps my memory is just failing!

Perhaps this NBN thing will be the most embarrassing icon of all time!

3

Ian Dennis

Mon 21/06/2010 - 10:50

Congratulations to the Telstra Board and management, and to the Government, for negotiating a deal in everyones best interest. Amazing what can be done when people negotiate properly - what a contrast to Solly and the Amigos - Thank goodness that some mining companies, at least, have the good sense to negotiate Livingstone and Thodey style, rather than just rabidly opposing everything that might benefit Austrlians.

4

Dean Shannon

Mon 21/06/2010 - 11:40

Another dodgy deal sewn up just in time for the election. What's the long term impact of this short term thinking? Unfortunately, our guess is as good as theirs.

5

D Newman

Mon 21/06/2010 - 11:55

Leagal Eagle are you seriously that naive ?, your seriously blaming one side for blackmailing and brinkmanship.

Even if you discount the strong evidence of deals done a long time ago, and all this was a puppet show for the chattering masses, the fact remains Telstra attempted to grab the government by the hairy ones, then the government countered and a tit for tat followed.

Your opinions are yours and I have mine, but at least I try to temper mine with an all round cynical view of the entire muppet show that is Australian politics.

And I use the term muppet show, because next time you hear a polictician just Booing because he has to hide the fact they have no policy, just picture the balcony in the muppet show with the 2 grumpy men in it.

But to top it all off leagal I think your missing one blinding point, well I say one, I'm in a good mood, Telstra doesnt need no assistance from a couch legal team, considering they have just pulled of the biggest bait and switch in history, not only have they got out of replacing their life ex copper cable, they are getting government to pay out on top.

So i,m wondering, does the muppet show theme tune, bring a tear to your eye Leagal, does it hark back to happier, simplier times, where there wasnt any duplicity in polictics, somewhere around, pffft i'm guessing 3000BC.

6

Legal Eagle

Mon 21/06/2010 - 12:39

# 5 I was meerly pointing out the legal differences.
From the tone you use, my guess you are in part of the industry!
If so, consider this, Telstra has now become the biggest, major customer of NBN.
If you are in the industry, you therefore know what the biggest customer does to the supplier!
I actually do not give a Rats! about the industry,it is going be in great shape forever, my only point I have ever wanted to make is that the government of the day should stay out of "the Business" regulate it, sell the Spectrum, but, get out and stay out,if you grocery watch or fuel watch, you cannot run the nations communications.

Be more concerned about the deal that has been done between the US and Conroy in relation to ISP's having to retain the contyent of all NBN traffic,the US Congress is in the middle of passing their Bill, were are next

7

D Newman

Mon 21/06/2010 - 14:04

All internet traffic is subject to a key word over watch and has been for what nearly 2 decades, the face of the internet has changed further these last 4 years with advances in tracking, hence all the kiddie porn and extreme filth has all but gone underground invite only peer2peer, you have Interpol and the FBI to thank for that.
Hence why we are all complaining that the internet filter is at best useless.

I,m hoping that some of this move to censor the internet is polictician crawling into this decade and going AHHHHH something needs to be done now, think of the kiddies...

Thankfully the real world has already addressed the problem and was moving along quite nicely..

Your net activity is watched, played with and stats monitored in so many ways, some stupid government scheme will just fade into an already seething background, and will be attacked, bypassed and rendered useless even before it goes main stream.
I hold up Iran and China as examples of draconian internet practises that are bypassed with such ease, if you just ask around quietly, you will get a solution within a few hours, so worst case example we will teach everyone that wants to know how to run a proxy in Australia, and how to further mask themselves.
I hate internet filth, but I am also aware that the line at the stage you scream filth is a based on the person viewing, so yes the filter is wrong, more power and a modern overhaul to Australias censorship board would of been more productive.

But to ramble back to the point your making Legal Eagle, yes there is alot of worrying trends GLOBALY regards to personnel freedoms,so much of our information is already captured and heldunofficialy its all rather moot.
The terrorists should stop bombing now, because they have won, they have so changed the polictical landscape of one of fear and control, that we are rapidly becoming the very thing we once fought againest.
The old adage about being carefull staring into the Abssy springs to mind.

8

Legal Eagle

Mon 21/06/2010 - 15:56

# 7 You missed my point yet again, this will have nothing to do with Key Word...it is CONTENT all the CONTENT of ALL traffic

9

Legal Eagle

Mon 21/06/2010 - 16:10

Calm down peope, this is after all only a Heads of Agreement!
Won't happen at best late 2011 providing no change of government.......a very very big ask!

We can all go back to sleep and rest. The Fat Lady has not even sought the gargle, the Telstra shareholders have not voted,and the deal has not been signed, Thodey has not made any statements to the Exchange.

This is miles off!

10

RS

Mon 21/06/2010 - 17:05

Actually have to agree with Legal Eagle this time. It's a bit early to get carried away just yet.

But an announcement (as per ASX rules) has of course been made though, but not by Thodey... by the company secretary, which is protocol...

http://imagesignal.comsec.com.au/asxdata/20100621/pdf/01072763.pdf

It does of course mention within, that it's a "non-binding agreement" and also says, "if it goes ahead"...

But I think this has certainly set the foundation and if Telstra or their shareholders especially, were to veto this, they would be the architects of their own financial calamity.

Then of course to add further uncertainty, there's the impending election and let's not forget the ACCC, who will want it all done competitvely! So...

Yes it's still kilometres off, lol... but at least now, there's some light at the end of the tunnel

11

D Newman

Tue 22/06/2010 - 14:52

Legal Eagle
Mon 21/06/2010 - 15:56
# 7 You missed my point yet again, this will have nothing to do with Key Word...it is CONTENT all the CONTENT of ALL traffic

I have not missed anything, I was pointing out a progression of erosion of civil liberties, and pointing out we are far more along that path already, and what you pointed out is the apex of it, I never contridicted you, so read slower so the crux of the piece can be understood in the context it was done in.

Freedom is never removed in big chunks, its always nibbled at, till one day you wake up, with every one having to dress the same.

You do get rather over excited, so calm, deep breathing and continue the good fight, even if they do screw our freedom with the internet, the sun WILL come up the next day and not care one jot about the world wide trend to extremism .

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