Telco giant Telstra has finally signed a multibillion-dollar agreement with the Government and its National Broadband Network Company regarding the handing over of infrastructure and the company’s eventual structural separation ahead of the network’s rollout.
Optus has also announced a major deal with the NBN which will see the company begin progressive migration of its services onto the NBN once the network is rolled out. It will provide services to customers currently connected to its HFC network.
The deal is estimated to be worth $800 million, with progressive payments to begin when migration starts.
The Telstra agreement, while still subject to shareholder approval – a vote is scheduled for October 18 – and approval from the Australian Competition and Consumer Commission, is the result of nearly two years of negotiations.
It is a landmark for Telstra and the Australian telecommunications industry.
The $11 billion deal will see Telstra disconnect its copper-based network and broadband services for premises connected to the NBN, then migrating those customers onto the NBN over the next 10 years.
Telstra will also provide the NBN with “large-scale access” to infrastructure including conduits, ducts, exchange space and dark fibre, eliminating the need for the NBN to construct its own infrastructure. The infrastructure agreement will last between 25 and 40 years. Telstra will maintain ownership of the assets.
The Government has also agreed to a package which will include more money for the delivery of universal service obligations, and “avoidance of certain costs” to Telstra though measures such as a public information campaign and employee retraining.
Telstra and the NBN Company have agreed on product features and pricing, although the details haven’t yet been announced and will be addressed in NBN Company’s full product terms.
Telstra says the deal won’t have any material effect on its finances in the 2012 year. However, the deal will represent $11 billion in replacement revenue due to disconnection payments and other payments for infrastructure access.
Telstra will receive $4 billion for new customers, $5 billion for leasing infrastructure, $700 million for universal service obligations, $500 million for greenfield deployment and $1 billion for other agreements.
“These agreements represent an important milestone in addressing much of the uncertainty for Telstra associated with the NBN and Government regulation and allow us to focus intently on our customer service and simplification strategy,” Telstra chief executive David Thodey says.
Telstra has also agreed to spend $0.9 billion for work on infrastructure and migration costs, $0.6 billion for maintenance activities and $0.5 billion for incremental operational expenses.
Telstra shares were placed under a trading halt shortly ahead of the announcement.
Chairman Catherine Livingstone said the agreement represented two years of work between the various entities involved.
“The government’s commitment to the NBN and other related policy changes meant that the Telstra board had to decide whether the company should participate in the NBN rollout or pursue other options,” she said.
“The decision to participate was made on the basis that the proposed transaction is expected to provide us with the ability to recover more value for the business than the available alternatives, given the loss of value after the NBN policy announcements.”
Meanwhile, the Optus deal will see the company begin shifting customers to NBN infrastructure in 2014. The process will take four years.
“Optus was born in competition,” chief executive Paul O’Sullivan said. “This deal supports the NBN to create a level playing field for all telcos. Australian consumers will be the winners.”
Both deals represent a critical point in the NBN timeline. With the agreements finally hammered out –– and if regulatory and shareholder approval is granted ¬– there is little else preventing the NBN rolling out across the rest of the country unhindered.
It also means the Government will be able to roll out its network much more cheaply. Instead of having to dig up new ducts and build new infrastructure, a significant amount will be leased.
However, the deals have already been criticised by opposition communications spokesman Malcolm Turnbull, who says the Government’s approach is “ineffective”.
“The way the Government is going about this is very ineffective in the sense that it is spending taxpayers’ money unwisely and without any regard to cost effectiveness,” he told the ABC this morning.
Turnbull says the Coalition wants to deliver the network at a lower cost, and that the new contracts would “make that more difficult”.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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