Telstra’s free cash of $2-3 billion, which is expected to be generated over three years as the National Broadband Network rolls out, will not be impacted by a change in government following the 2013 federal election.
Speaking at an investor briefing, Telstra chief executive, David Thodey, outlined the company’s capital management strategy, which includes maximising returns to shareholders through dividends and capital growth, maintaining financial strength and financial flexibility. This includes the aim to maintain the dividend at 28c for fiscal 2012 and 2013.
Thodey said Telstra expected to generate in excess of $2-3 billion free cash over the next three years, a figure which is subject to the NBN rollout schedule and other market conditions. This figure encompasses infrastructure payments and PSAA payments, which refer to the payments the telco will receive each time a customer is disconnected from the copper network.
However, he noted that should the coalition win the next election, these figures would not be impacted, based on the current proposals made public by shadow communications minister, Malcolm Turnbull.
“If there’s a change of government, the current contracts give us a degree of protection — there’s the infrastructure services agreement, which is a 35-year contract, and depending how far we get, we get the payout on that or we get the revenues as they flow,” Thodey said.
“From what Malcolm has said publicly about policy and the current thinking coming from the opposition is that they would continue with a NBN but [with] a slightly different technology design which they believe would be faster and less expensive.
“Remember the structure of payments means there’s the infrastructure payments… and just because you have a node at the end of the street it’s still a migration from copper to fibre, so we still get those payments."
Delays to the NBN rollout could have an impact on the generated cash flow, Thodey said, but would mainly be in the area of the PSAA payments, not the infrastructure build, which makes up around 50 per cent.
“The expected free cash flows are dependent on the NBN rollout, but there are various aspects of those revenue flows.”
Thodey said the current contract with the government and NBN Co was based on fibre-to-the-premises, but that “his door was always open” to renegotiations should the government change.
While he would not speculate on which NBN plan was better in relation to both technology and cost, he said both have “pluses and minuses”.
“[Fibre-to-the-node] could be [better], but without knowing the details of what the proposal is I cannot commit to anything. Yes, if it went to fibre-to-the-node, subject to the negotiations, it could be a faster rollout and should it be a faster rollout one aspect of that would be that Telstra would receive the cash earlier.
“Fibre-to-the-node is a lower cost and faster deployment but it may have longer term consequences out over 30 or 40 years,”
Thodey reiterated that the company would do its best to avoid job cuts as a result of the rollout by retraining employees under the Retraining Fund Deed (RFD) and redeploying them to other areas within the company.
Under the RFD, Telstra received $100 million from the government to retrain specified employees to support the availability of appropriately trained workforce for the NBN and retain staff who may face redundancy as a result of the NBN.
“With the NBN rollout our workforce will change and if we have to do less work on the copper we will have less requirements for field technicians doing copper work,” he said.
Despite being busy with NBN commitments in the next three years, Thodey said he would still be looking at where the business would be in five or 10 years’ time in terms of alternatives to business structure and potential acquisitions.
“We’ve got to be very disciplined but we have to look at taking advantage of other things as we move forward," he said.
“There’s a group of about 13 key areas that we’re looking at… media is one of them, but not the only one. You’ve seen other telcos around the world move into some application areas [and] you’ve seen others move to adjacencies.”
Thodey said there was a need to find new revenue sources and Telstra was looking into Cloud computing, which followed on from the establishment of Telstra’s applications and ventures group and the decision to restructure its media division separately.
“We’ll still be active in the wholesale market to a degree but we are investing for retail differentiation. We’ll definitely provide service to wholesale clients on a resale basis but we’ll be looking to differentiate at the application layer [and] at the service management layer as much as we can.”
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