Telstra-NBN Co deal: Telstra share prices on the up

Telstra’s share price has risen over four per cent as a result of an $11 billion deal with NBN Co and the Federal Government on the telco’s participation in the national broadband network (NBN).

At time of publication Telstra (ASX:TLS) was trading at between $3.36 to $3.46 a share, with the high point coming not too long after chief executive officer, David Thodey, gave a press conference.

Over 128 million shares had also been traded before midday, more than one and a half times the volume of traded shares on any day in the previous week.

Over the weekend, Telstra (ASX:TLS) and NBN Co reached 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".

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.

Further, equity analysts have said the deal provides much-needed regulatory certainty to the telco and has helped drive up the share price.

In October last year, leading telecommunications analysts predicted a rosy future for Telstra , despite the telco claiming the Federal Government's attempts to force it to separate would hurt the business.

In September the Federal Government announced it would use regulatory changes to urge the structural separation of the telco. Since then, Telstra has said the proposed bill would harm consumers, particularly in remote areas, and "potentially destroy value for the approximately 1.4 million Australian shareholders who purchased Telstra shares from the Government over the past 12 years and have a significant detrimental impact on our employees".

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