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  • Featured, News - Written by on Thursday, June 23, 2011 9:35 - 16 Comments

    IT’S DONE: Telstra inks $11bn NBN deal

    As expected, Telstra this morning revealed it had signed what it described as ‘Definitive Agreements’ with NBN Co and the Federal Government which will make its infrastructure available to the fledgling broadband company and its customers progressively migrated onto the growing NBN fibre network over the next decade, at a cost to NBN Co of $11 billion.

    The telco published an extensive statement to the Australian Stock Exchange (PDF) on the matter this morning, as well as a document summarising key aspects of the agreement. Telstra chief executive David Thodey and CFO John Stanhope will take questions from the media in a teleconference this morning.

    In her company’s statement, Telstra chairwoman Catherine Livingstone said the deal was still contingent on the approval of a majority of Telstra shareholders, with a vote currently scheduled to be held at Telstra’s annual general meeting in Sydney on 18 October. In addition, the competition regulator will need to approve Telstra’s related structural separation undertaking as well as its customer migration plan.

    However, the executive hailed the signing of the agreements as “another important step”, following two years of “complex” negotiations between the trio of parties. “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,” said Livingstone.

    “After rigorously assessing the options before it, including the regulatory and commercial implications of each, the Telstra Board expects to recommend that shareholders approve a proposal to participate in the NBN rollout, subject to the conditions precedent being satisfied.”

    The key components of the deal are as follows:

    • Telstra will progressively disconnect customers from its copper and HFC fibre networks as the NBN is rolled out (although it will still be able to provide cable TV services over HFC)
    • NBN Co will get access to certain Telstra infrastructure, such as dark fibre, telephone exchange space, lead-in conduits and ducts, in an infrastructure agreement with a term of between 35 and 40 years, plus two potential ten year extension options. The assumed average term for payments for this access will be 30 years. The lead-in conduits will eventually become NBN Co’s property.
    • Funding will be allocated towards the delivery of the Universal Service Obligation — which sees Telstra deliver remote services to regional Australia
    • In addition, Telstra and NBN Co have agreed to “key product feature and price commitments” with regards to NBN Co’s basic voice and data offering

    Telstra will itself incur substantial cash expenditure to support the deal — $0.9 billion in infrastructure and customer migration costs, $0.6 billion on infrastructure maintenance and $0.5 billion on incremental operational expenses. It appears that these costs will mainly be offset by other areas or come from existing Telstra budgets.

    The $11 billion value of the deal will not be paid to Telstra in one lump sum — but in amounts over “many years”. The figure is also subject to “a range of dependencies and assumptions over the life of the agreements”.

    Telstra CEO David Thodey also hailed the deal.

    “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,” he said this morning. “The Government will achieve its desired industry structure and the arrangements for the USO and associated social obligations will be reformed to ensure that funding for these public interest services is secured.

    “Within this new environment, we look forward to continuing to focus on customer service, content and innovation.”

    Further coverage to come throughout the day.

    Image credit: Telstra

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    16 Comments

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    1. Simon Reidy
      Posted 23/06/2011 at 11:19 am | Permalink |

      Awesome.

      • HC
        Posted 23/06/2011 at 12:55 pm | Permalink |

        +1

        This is great news! Bring on the fibre!

        But please spare a thought for the anti-NBN crusaders, to them this news must be devastating.

        • Simon Reidy
          Posted 23/06/2011 at 1:07 pm | Permalink |

          awww poor vision-less luddites. I wish them all the best using their 486 and Netscape Navigator to read the news ;)

    2. Douglas
      Posted 23/06/2011 at 11:20 am | Permalink |

      A momentous day in Australian telco history. Well done Telstra, you got a great deal from the Australian taxpayer. My TLS shares should do well out of this.

    3. alain
      Posted 23/06/2011 at 11:56 am | Permalink |

      The Telstra shareholders have got until October to work out if they have been screwed or not.

      • Reality Check
        Posted 24/06/2011 at 9:19 am | Permalink |

        Wow, Telstra agrees to not market wireless as a substitute for fixed for 20 years!
        According to Gillard / Conroy this is evidence of Telstra overwhelming endorsement of the NBN.

        I’ve got 3 questions.

        Question. Is Telstra suicidal, Is Thodey completely stupid, or does the govt have a legislatively Blackmailing gun pressed hard against Telstra head?

        Question. Has China taken over Australia or has Australia devolved to become like China?

        Question. Has Thodey’s kids been returned to him

        • alain
          Posted 24/06/2011 at 10:23 am | Permalink |

          Wow Conroy and the NBN Co must be shit scared of wireless, hmm I wonder why?, note the key word is ‘marketed’ which I assume means Telstra cannot use the words ‘ NexttG or LTE is a substitute for wireless’ doesn’t mean punters won’t buy it and use it for that just like they to today though does it?

          Telstra doesn’t actually market their wireless BB as a substitute for fixed line today and it does ok thanks very much.

          It also doesn’t stop Optus Vodafone and 3 marketing it as such, and the marketing flow through will go to Telstra anyway having the largest footprint and currently the highest speed.

          • Dean
            Posted 24/06/2011 at 10:27 am | Permalink |

            Thodey doesn’t seem too worried: http://delimiter.com.au/2011/06/24/wireless-clause-not-an-issue-says-thodey/

            As you say, they don’t market NextG as a substitute for fixed-line broadband today anyway.

          • Reality Check
            Posted 24/06/2011 at 10:47 am | Permalink |

            Hi Alain,

            All your points are right, but are actually beside the point.

            The point being telstra has agreed in a contract to not go to market a telecommunications service !

            For 20 Years !!

            Let alone 1 that as you point out already is a well established trend. Fixed to wireless migration.

            Let alone that THIS YEAR, by dec 2011 wireless will be nominally over 100 Mb/s. Real world faster than ADSL !

            Everyone in Regional Australia (where congestion wont be as much of a problem) would see an astronomical difference to what they currently have when it is rolled out to them. In a much much shorter time frame than the NBN fibre. And we still have 20 years of wireless improvement ahead of us !!!!

            This is a grossly anti competitive measure.

            This is a gross dereliction of duty by the management and board.

            And I would suggest ample evidence to sue to board and or Govt.

            Stay tuned lots of fireworks to fly between now and the AGM

            P.S. Great interview by BBY analyst this morning on business insider.

            have you seen Conroy and Quigley’s motto on their business card !

            Conroy and Quigley, engaged in anything but Blackmail and Bribery

        • Douglas
          Posted 24/06/2011 at 10:27 am | Permalink |

          In regards to not marketing wireless as a fixed replacement for 20 years – Telstra will only be bound by the terms as long as their competitors don’t market wireless as a fixed replacement. Thodey’s own words.

          • alain
            Posted 24/06/2011 at 10:38 am | Permalink |

            The fact that it even exists as a condition in the Telstra agreement shows that Conroy and the NBN Co are seriously worried about wireless data eating into their market.

            Telstra shareholders should ask for it to be removed as a condition, if the NBN Co cannot compete as the monopoly provider of fixed line (with all fixed line competitors eliminated) against wireless there is something wrong with the justification for the FTTH rollout in the first place.

            Oh that’s right I forgot, there is no justification.

            “– Telstra will only be bound by the terms as long as their competitors don’t market wireless as a fixed replacement. Thodey’s own words.”

            Well that’s easy that’s the ‘out’ anyway. LOL

          • Reality Check
            Posted 24/06/2011 at 10:50 am | Permalink |

            @ Douglas,

            Thats not what the contract states.

            Your a very bad liar Douglas. Thodey said no such thing.

    4. AM
      Posted 23/06/2011 at 12:45 pm | Permalink |

      Are we about to have another round of #nocleanfeed ????

    5. Brett Haydon
      Posted 23/06/2011 at 12:55 pm | Permalink |

      Some interesting points I picked up from reading the full document.

      - leaving foxtel alone as I expected

      - the 11 billion seems to be at roughly 10% discount. I don’t understand this. To me this means the face value of the deal has gone up by a billion to 12 but that they are saying the costs mean the actual value is roughly what was announced. This seems to me wriggle room that Telstra was looking for with face-saving for the government in sticking with the 11 billion figure, but I’m not an accountant.

      - After 20 years they can pretty much do what they like to compete with the NBN if they chose.

      - Up to 1/2 a billion in compensation even excluding broken contracts if the rollout is slowed or stopped, which says they think there is good money for them in the rollout, and makes it difficult to disrupt by the opposition even before you get to the issue of broken contracts.

      - Can promote wireless except as a direct replacement for fixed line services.

      Now they just have to sell it to the shareholders..

    6. JD
      Posted 23/06/2011 at 4:41 pm | Permalink |

      There are some odd calculations and ideas floating around … b ut if they are right, is it possible that NBN is almost debt free already?
      First John Durie in the Oz (of all places) writes that subtract the NBN from the Telstra sale and the Government is in front $18 billion.
      http://www.theaustralian.com.au/business/opinion/government-windfall-from-telstras-deal-with-nbn/story-e6frg9io-1226080534014
      And if you check out this from Crikey a few years back, it seems that Telstra has a huge dark fibre network just waiting to be switched on.
      http://www.crikey.com.au/2009/01/12/telstra-holds-back-broadband-speeds-again/
      If true, is that billions in unrealised savings?

      • alain
        Posted 24/06/2011 at 10:31 am | Permalink |

        Yeah that’s all nice and cosy if you say the proceeds of the sale of Telstra must go towards offsetting the NBN cost, so therefore we are now ahead.

        Nothing I have seen in Government budget papers indicates the sale of Telstra is targeted for paying off the NBN.




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