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Telstra Bags $10B Broadband Deal

A breakthrough in the long-running negotiations over Australia's A$43 billion (US$38 billion) national broadband network (NBN) was finally achieved over the weekend as Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) agreed on terms to participate in the country's fiber-to-the-premises (FTTP) project. (See Telstra Signs $11B Broadband Deal.)

Telstra announced yesterday that it signed an agreement for a deal, worth an expected A$11 billion (US$9.6 billion), with NBN Co., which is the company set up by the Australian government to build and operate a national FTTP network. (See Australia Unveils $31B FTTP Plan and Quigley Named NBN Chief.)

According to the agreement, NBN Co. will pay Telstra A$9 billion (US$8 billion) for the decommissioning of Telstra's copper network and cable broadband service and for the use of Telstra's infrastructure, including pits, ducts, and backhaul fiber.

In addition, NBN Co. will pay Telstra A$2 billion (US$1.7 billion) to set up a new company to manage this transition and will assume responsibility for Telstra's universal service obligations.

The agreement also includes a commitment from Telstra to migrate its voice and broadband traffic from its copper and cable networks to NBN Co.'s fiber access network as it is rolled out.

Telstra estimates that the agreement with NBN Co. will deliver a post-tax net present value of approximately A$11 billion. NBN Co.'s payments to Telstra would be made as the FTTP network rollout progresses.

LTE guarantee
Another element of this agreement is that the Australian government has pledged that Telstra will be allowed to bid for spectrum that can be used for Long Term Evolution (LTE) in an upcoming auction. Telstra said in a statement that it had "written confirmation" of this from Australian Prime Minister Kevin Rudd.

The grand FTTP plan
Yesterday's agreement is significant because the fate of Australia's NBN project has hung in the balance for some time, and Telstra's role in the network was not certain. (See Telstra Dumped From FTTx Project, Telstra Puts AU$1B Price on Separation, Telstra Reacts to Split Proposal, and AsiaWatch: Upheaval at Telstra.)

The government plan is for NBN Co. to invest A$43 billion (US$38 billion) over the next eight years to build and operate an FTTP network -- which includes a mix of fiber-to-the-building (FTTB) and fiber-to-the-home (FTTH) deployments -- that will connect 90 percent of Australian homes and businesses with speeds up to 100 Mbit/s on the downstream.

The remaining 10 percent of homes, which would be in remote and rural areas, will be connected by wireless or satellite and receive broadband speeds of up to 12 Mbit/s.

Yesterday's agreement marks a major milestone in Australia's national broadband plan, but it is still subject to approval by the Australian Competition and Consumer Commission (ACCC) as well as Telstra's shareholders. A definitive agreement will be negotiated in the coming months, according to a Telstra statement, which, if finalized, could be put to shareholders in the first half of 2011.

— Michelle Donegan, European Editor, Light Reading Mobile

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Pete Baldwin 12/5/2012 | 4:31:44 PM
re: Telstra Bags $10B Broadband Deal

So, Australia basically just nationalized the phone network?


As Andrew Schmitt notes on Twitter, how soon before we hear the AT&T/Verizon outrage?

chook0 12/5/2012 | 4:31:43 PM
re: Telstra Bags $10B Broadband Deal

This is basically an attempt to redress the error made when the telephone network was privatised over the late 80s and early 90s. Privatisation is good when it frees up public money to invest in other things or it promotes competition. That privatisation had limited success with both these objectives.


First, as another poster has already pointed out, there just isn't the business for competing fibre networks that reach everyone, and Australians have been pretty pointed about telling their governments that coverage has to be as close to universal as possible. Second, it has become obvious that in order to get the fixed line network upgraded, the government is going to have to invest one way or the other.


So this deal essentially seems to be having another go at finding where to draw the line between the contestable part of the network and that part of the network which is analogous to the road or sewerage systems - there can only be one. Personally I think the effect will be to increase competition because it will lower the barriers to entry, but we'll see.


--chook

toastman 12/5/2012 | 4:31:43 PM
re: Telstra Bags $10B Broadband Deal

Americans are great fun aren’t they, always worried about reds under the bed.

Prior to this government buying back the telecommunications infrastructure the old government telco ran an infrastructure monopoly with prices for usage of the monopoly by other providers effectively set by the government through legislation and the so called "Universal Service Obligation". Needless to say this system did not work.

Since Americans seem confused about why the phone network will always be government controlled in Australia I will try to explain it in simple terms:

The United States has a population density of 32.147 people per square kilometre or 83.260 people per square mile making it viable for a private corporation to run a telecommunications system and recoup the investment whereas Australia has a population density of 2.906 people per square kilometre or 7.527 people per square mile meaning you need to lay about 40 times the distance in cable in Australia to provide the infrastructure that you would need in America for the same number of people. So i guess the government could try leaving it to corporations to develop a telecommunications system for the country but the result would be that either the company would go broke or large portions of the population would have no service.

On the second point, If AT&T or Verizon want to come and set up a system in Australia I think the government and the population would be happy that they would be footing the bill but I’m sure their shareholders would be crying as they lost vast amounts of money on the project which is why there is no "AT&T/Verizon outrage".

shygye75 12/5/2012 | 4:31:43 PM
re: Telstra Bags $10B Broadband Deal

In one way, this move addresses the issues regarding the unfair advantages held by the network owner in providing access to competitors. All wireline telecom competitors in Australia will become pure-play service providers. The next question is, who will be running the next-gen network that the government will build and own?

paolo.franzoi 12/5/2012 | 4:31:42 PM
re: Telstra Bags $10B Broadband Deal

 


mendyk,


I would put the following change to your statements.  Most of the rest of the 3rd world is doing wireless for rural.  I do not see this as true in Europe, the US, Canada, Japan, or Korea.


I do see it as true in India, China, South Africa where even if the city centers are first worldish the rural areas are often third worldish.


seven


 

shygye75 12/5/2012 | 4:31:42 PM
re: Telstra Bags $10B Broadband Deal

Most of the rest of the world is using broadband wireless to reach rural and sparsely popluated markets because it is significantly less expensive. The deal in question involves Telstra's existing network infrastructure, which is heavily weighted toward the more populated areas, so it's not clear what the government gains from this agreement aside from using Telstra's existing ducts and rights of way.  Building fiber networks that extend to the farthest reaches of the hinterlands is no doubt a noble goal. Whether it's a practical one given current and projected technology options is debatable.

paolo.franzoi 12/5/2012 | 4:31:41 PM
re: Telstra Bags $10B Broadband Deal

 


I agree with you.


One thing though, Australia sits on more of the first world side and in some ways it is easier to get fiber out to the home than DSL.  DSL is limited in reach to 18Kft, and a lot less for the longer reaches (the 12 Mb/s listed).  Fiber can do that at a lot longer reach (GPON for example can do 60 Km).  So, you end up having cable construction costs but it is easier to deploy the electronics in a lot of ways.  One of the problems in rural America (and probably in rural Australia) is that housing density is so low that you get 1 - 4 homes on a Pizza Box DSLAM.  So, even though your per port pricing is very low it does not actually end up cheaper than fiber.  Same thing with wireless.  The problem is that the cost models change a lot when you have 1 customer per cell site.


What I have seen is that the village centers are getting wireless broadband access.  Not so much the outlying farms.


seven


 

shygye75 12/5/2012 | 4:31:41 PM
re: Telstra Bags $10B Broadband Deal

Right -- national markets that don't already have a strong wireline infrastructure are moving decisively toward broadband wireless, rather than building out next-gen wireline networks. But even in developed markets within Europe, fiber deployments are happening more slowly than expected.

jepovic 12/5/2012 | 4:31:40 PM
re: Telstra Bags $10B Broadband Deal

"So, you end up having cable construction costs but it is easier to deploy the electronics in a lot of ways. "


Well, for anything above 10 meters of digging or 100 meters of poles the electronics part is absolutely negligble. To dig or hang a fiber 20 kft for a single customer is just ridiculously expensive.b


I dont know about Australia, but in Europe the rural areas are mostly inhabited by old people. Not your ideal triple play/ iPhone-fanatic customers. When the old people die, the houses often end up as summer cottages. It's just a lousy business case.

jepovic 12/5/2012 | 4:31:40 PM
re: Telstra Bags $10B Broadband Deal

" Most of the rest of the 3rd world is doing wireless for rural.  I do not see this as true in Europe, the US, Canada, Japan, or Korea."


Scandinavia might be atypical, but here there is a lot of wireless access for rural areas.


As a matter of fact, in Finland and Sweden TeliaSonera is in the process of closing down existing copper accesses for tens of thousands of households and replacing these with wireless solutions - just to cut the maintenance costs. As a bonus these customers get better uptimes and often higher internet access speeds (these are off DSLAM coverage).

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