Telstra flags NBN, regulatory concerns

Lack of transparency around NBN Co negotiations anger investors

Telstra has pointed to government regulatory measures and continuing negotiations surrounding the telco’s participation in the National Broadband Network (NBN) as key causes for concern for the company’s ability to strive financially.

In its annual Debt Issuance Program Prospectus (PDF) delivered to the ASX this week, Telstra identified the Labor party’s agreement with independent MPs last week - and inherent changes to the NBN rollout as part of the agreement - could affect negotiations around the non-binding Financial Heads of Agreement between the telco and wholesaler NBN Co. The agreement between the two companies is yet to be finalised - and is still on track for shareholder approval early next year - but the telco said it was yet to determine whether the reprioritisation of rural regions in the network’s rollout, as well as the accelerated rollout of wireless and satellite solutions under the program, would adversely affect negotiations and its own business.

NBN Co was asked for comment on the negotiations but Computerworld Australia did not receive a response at time of writing.

However, it remained unsure of the impacts the NBN could have on Telstra’s future, and continued to foreshadow the potential for NBN Co to deliver retail services as a private company, as stipulated in draft exposure legislation.

“We welcome the NBN as an important nation building initiative, however, there is a risk that the NBN may negatively impact on our business over the long term,” ASX documents from the telco read. “The exact extent of that impact and of our participation in the NBN is unlikely to become clear before the conclusion of those negotiations. Telstra has made it clear that any deal with the Government in relation to Telstra’ participation in the NBN must be in the best interests of the company and its investors.”

The Financial Heads of Agreement, signed in June, will see NBN Co progressively deliver $9 billion to Telstra as the incumbent telco shuts down its copper access network, for access to both its customer base and use of existing infrastructure. The telco has already begun participating in the network, helping to establish the NBN in the Melbourne suburb of Brunswick, however it remains uncertain how far the agreement will reach. It could potentially open up six million kilometres of Telstra’s fibre, significantly bringing down the total cost of the network’s construction.

Uncertainty around the deal has led one of Telstra’s largest shareholders to criticise the lack of transparency. David Murray, chairman of the Future Fund, told The Australia Financial Review the company was deeply unhappy with the negotiations and what effect they might have on Telstra’s business, and inherently its share prices.

Communications minister, Stephen Conroy, told ABC Radio National’s Breakfast program that the details of the agreement would be made available ahead of the telco’s annual general meeting later this year, but that the election campaign had delayed required legal proceedings and paperwork by eight weeks. Telstra is already understood to have signed a long form agreement around the negotiations, allowing the material to be published for shareholders.

ACCC woes continue

Telstra also used its prospectus to outline the risks associated with regulation within the telecommunications industry. Those risks include access pricing, industry conduct, potential further separation, constrained investment opportunities and release of information, much of which is handled by the Australian Competition and Consumer Commission (ACCC).

“Telstra believes that regulation is the most significant ongoing risk to the company,” the prospectus reads. “There can be no assurances as to future policies, ministerial decisions or regulatory outcomes. These may be significantly adverse to our business.”

While Telstra submitted to separation in exchange for regulatory certainty as part of its agreement with NBN Co, it called forced separation enacted under the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill “intrusive” on potential investment opportunities in the future.

Among potential risk factors, Telstra raised the possibility it would be forced to wholesale access to its Next G mobile and wireless network as part of the ACCC’s regulation, a practice it currently does not do but one the telco said could adversely affect earnings and future financial performance.

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