Telstra went to the NBN (national broadband network) renegotiation table with a strong hand -- and it shows.
Australia's national operator has, until now, been little more than an interested bystander in the next-generation access network project, which began in 2009. (See Australia Unveils $31B FTTP Plan.)
But the absence of Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) has likely been one of the biggest factors behind the mega-project's failings. With the fiber-to-the-premises (FTTP) project falling years behind on targets, the government and the state-owned wholesaler, NBN Co Ltd. , badly needed Telstra's heft and expertise to get the show back on the rails.
In the revised deal, Telstra has been granted the right to bid for design and construction contracts on the A$30 billion (US$24.5 billion) project. In addition, Telstra's HFC and copper networks are being transferred to NBN Co., which is now a multi-technology rather than FTTP-dominated project.
That much was expected, but Telstra has also managed to offload the repair and upgrade of its "last-mile" ducts and pits to NBN Co. Or, more likely, it will be Telstra carrying out the repairs on NBN's tab.
Under the original scheme, Telstra had been progressively shutting down its copper and HFC cable networks as fiber access plant was rolled out, with Telstra receiving a fee from NBN Co. in return as it retired its legacy access network infrastructure. Now NBN Co. will take over that infrastructure as it deploys a "multi-technology mix" (MTM) network in which the FTTP component will be cut to as little as 24% compared with the original 93%. (See NBN Digs a Hole for Itself.)
Telstra will still receive payments of approximately A$11 billion (US$9.1 billion) under the new scheme and, according to a statement from the operator, the net present value "remains broadly in the same proportions as the original agreements."
It blandly describes the payments for remediation of its conduits as "broadly neutral" compared with the original deal. Yet shucking off its aging sunk copper and 20-year-old HFC plant looks like something of a windfall. It has cut back on maintenance of those networks since the NBN began in earnest almost six years ago, and that it has only a ballpark estimate on remediation cost sounds ominous for NBN Co.
What's more, it has also won a promise from NBN Co. to pay for any "incremental costs" incurred in supporting the network rollout. And if NBN Co. terminates the rollout after passing between 75% and 92% of the premises, Telstra has won the right to claim compensation.
All in all, Telstra, with its new range of concessions, is coming out of this deal smiling, while Australia is left with what could arguably be described as a "second-rate version" of a national broadband network, veteran industry analyst Paul Budde writes in this column.
Investors seem to agree that this is good news for Telstra, as the operator's share price has gained more than 1% in value since the announcement and currently stands at A$5.76.
The agreements remain subject to the approval of the Australian Competition and Consumer Commission (ACCC). Telstra said it also awaited "acceptable rulings" from the Australian Taxation Office.
If approved, it should mean the rollout, which has been embroiled in politics since it was first announced in 2007, gets down to business.
Initially, the then government excluded Telstra from the project and formed the NBN Co. By the time the government changed in September 2013, NBN Co had hooked up just 284,000 premises, of which just 91,000 were active customers.
The new government promised to speed up the rollout by dialing back on fiber and taking advantage of fast DSL. It has also set a cap on government spending at A$29.5 billion.
Communications Minister Malcolm Turnbull said the target is to pass about 12 million premises by 2020, offering at least 25Mbit/s download and "proportionate" upload speeds for all premises, and with 90% of these having access to 50Mbit/s download.
He said since that since September 2013 the number of premises connected had more than doubled to 718,000 and that 309,000 now subscribed to NBN services.
— Robert Clark, contributing editor, special to Light Reading