Telstra wants “quick” NBN negotiations



news Telstra chief executive David Thodey has congratulated the Coalition on its Federal Election weekend over the weekend and noted that the telco wanted to finalise negotiations over planned changes to its agreements with NBN Co “quickly” with a view to minimising “uncertainty”.

Labor’s previous National Broadband Network policy had seen the Government and NBN Co sign an $11 billion deal with Telstra through which Telstra agreed to migrate its customers onto the NBN infrastructure as it was rolled out, as well as giving NBN Co access to Telstra’s ducting, pits and pipes infrastructure, with a view to deploying its own fibre cables.

However, the Coalition’s revised policy will see NBN Co focus on a more limited fibre to the node rollout, which will see parts of Telstra’s existing copper network reused instead of shut down, and its HFC cable network maintained and possibly opened to wholesale competition, instead of the telco halting the provision of broadband services over the network.

Shadow Communications Minister Malcolm Turnbull, who is expected to take over the portfolio for the Coalition, has stated that he believes Telstra would give a Coalition Federal Government its copper network for nothing under its existing contract with NBN Co, casting skepticism on critics of the plan who believe the telco could charge billions for the infrastructure.

In response to the Coalition’s election win on Saturday, Thodey issued a statement this morning noting that Telstra congratulated the Coalition on the win and looked forward to working with the new Government on a number of important policy areas.

“The NBN will obviously be a focus for us, but we’re also interested in engaging on telecommunications more broadly as well as innovation, regional economic development, trade and digital economy policies among others,” said Thodey. “We will engage constructively with the Coalition Government on how we can best help them deliver their NBN policy commitments.”

“The new Government has committed that they will seek to renegotiate our NBN agreements and keep Telstra shareholders whole. We will look to help facilitate this quickly with a view to minimize uncertainty. While any negotiation takes place – our priority will remain to be focussed on meeting our existing commitments and winning customers on the NBN where it is available.”

The previous agreement between Telstra and NBN Co took substantial time to negotiate. NBN Co was formed in April 2009, but it was not until June 2010 that the pair signed a heads of agreement deal on the big issues related to their relationship, and it wasn’t until March 2012 that the deal was finalised.

The Coalition does not have a great deal of time to kickstart its rival NBN policy. Turnbull has consistently stated that he expects it to take around nine months to a year to turn around NBN Co to the extent that it could start deploying fibre to the node throughout Australia.

Turnbull’s frequently asked questions document on the matter states: “The Coalition will not stop the NBN rollout. The NBN Co has signed a number of construction contracts which cannot simply be cancelled. We will honour those contracts and seek to maximize value from them. The Coalition will also conduct a cost-benefit analysis and an audit of the current rollout to establish how long it will really take and how much it will really cost to complete the rollout on Labor’s current policy. We will also conduct a similar analysis to show what savings in time and money can be achieved if the network is redesigned along the lines of our policy document.”

“It is forecast that the large scale rollout of any changes to the network design – such as implementing fibre to the node – would commence in mid 2014. We will however endeavor to get under way sooner than that.”

I really wouldn’t read too much into Thodey’s comments this morning, apart from the fact that neither the Telstra CEO nor Turnbull himself want there to be obvious public tensions between them. I would expect that behind the scenes, when the negotiations kick off, there will be fierce arguments on both sides, and that it won’t take less than six to nine months for things to get finalised. This is one of the most complex corporate agreements in Australia’s history, after all, with tens of billions of dollars at stake. The headline statements by Thodey on the issue don’t really indicate much about the whole deal.

There is also the issue of whether Telstra will actually want more than $11 billion for its copper network. Turnbull doesn’t think so, but most other people do. As I wrote several weeks ago:

Will Turnbull turn out to be correct? … While it’s hard to know, I personally suspect that the Shadow Minister’s comments here will turn out to be quite naive. I’ve reported on Telstra for a decade now, and I’ve never yet seen the company roll over when someone wanted something for something it had. Gentleman’s agreement or not, I think Telstra will play hard ball on this one. It has a responsibility to ensure it gets value for money for its shareholders. The Coalition NBN plan clearly goes beyond Labor’s current vision in terms of the use of Telstra’s network. And I very strongly suspect the Federal Government will need to pay something for that.

In addition, we must also remember that Turnbull does not have access to the text of the extremely complex agreement between the Government, NBN Co and Telstra. It was never released publicly, despite the best attempts of Simon Hackett. Turnbull has given no signal that he has had access to the document under the Caretaker Conventions, or via any other method. Without such access to the legal contract here, Turnbull’s comments can represent nothing more than informed speculation — even if he does have a gentleman’s agreement with Telstra on the issue.

Image credit: Telstra


  1. Quick? Unlikely. Telstra isn’t referred to as Australia’s biggest law firm for nothing

    • I think it’ll be quicker than the negotiations with Labor, Labor has already done a lot of the hard yards on many of the points.

      The discussions with Malcolm will mainly revolve around the actual copper and possibly a couple of other odds and sods (maintenance, etc).

      He’d do well to leave the HFC side as a separate negotiation though, that may well take at least as long as the pits did.

      • I thought Malcolm had it as a promise? He probably doesn’t want to leave himself open to tactics he used against Labor either…

      • The Coalition has promised to conduct three NBN reviews

        1) a snap 60-day NBN strategic review,
        2) an independent audit into looking at the process that led to NBN Co’s establishment, and why their was no CBA
        3) and a CBA

      • A CBA was promised and part of that was to show the best way to proceed, by comparing FTTN and FTTH costs. It was one of the things he complained strongly and often about the Labor FTTH plan, and it had a lot more consultation and planning before it decided FTTH was the best solution.
        He is going to be a hypocrit and just unilaterally decide he is correct and go ahead and make a deal with Telstra?

        • Exactly…who knows, it may come back and say something along the lines of “As you don’t own the copper, it makes more economic sense to run fibre the last 400m”.

          Until it’s done, we wont really know.

          • I suspect, if it isn’t given limited scope to get the outcome he wants, it will say that in the long term (10-20+ years) it would be cheaper to go straight to FTTH.

  2. I have to agree, i doubt it will be as quick as they expect it to be. For Thodey and Turnbull it might seem quick, it might take a month to do there stuff, but then the proposed deal has to be brought to a shareholders meeting and discussed, and all that stuff.

    At the end of the day, although Turnbull expects Telstra to just simply hand it over for nothing, and Thodey might like that idea, the shareholders may demand more for it, since once it has been handed over, they will immediately lose all the money that would have come from an incremental shutdown.

    But that’s just my take on the whole thing.

  3. I actually disagree. Not because Telstra aren’t going to want to maximise their profits and benefit from the deal; of course they are. But having looked at the FTTN economics and the altered competition arrangements, Telstra is set to benefit massively from the LNP plan, and the quicker the come on board the sooner things can kick off for them. The biggest threat to Telstra is a delayed negotiation resulting in a returned ALP Government in 2016 before enough of the FTTN plan has been implemented to lock Telstra’s position into legislative and infrastructure immovability. Telstra aren’t going to delay on this, they want to move as quickly as possible. They may even do it for no more than the initial $11bn – it will be a great fund to pay for their own FTTP overbuild network.

      • it’s not about rushing, most of the hard work has already been done, it should be a doddle for Malcolm to just organise the copper…

        • What i meant was why would telstra rush into a deal, they know that the liberals aren’t going anywhere and so can take their time extracting maximum value for their shareholders

          Also I would presume that the original deal has been written in a way that would make it hard to unravel(that would have been in the ALP’s interests)

          • Yeah, but it’s not being unravelled, just added to, so it’s more like an addendum.

          • Because three years isn’t very long and they need the competition and uniform pricing legislation changed and locked in, they need FTTN deployed to make changing it again too difficult and costly, they want as much of their own FTTP built and collecting customers as they can to argue that a future Government is being deliberately destructive to a commercially successful company employing thousands of Australians if they then try to roll things back. Telstra want a dominant if not monopoly position in future telecommunications infrastructure so they can lock in profits indefinitely. If they can manage to do this only in the most profitable areas and leave the costly, commercially unviable areas and customers to NBN Co all the better. This is what the LNP plan is going to give them, at tremendous cost to tax payers.

            Telstra may have six or nine years to put this into place, but they may only have three. The next three years are crucial to pull this off. They will want to move as fast as possible and won’t delay introduction of that legislation by a day by dragging out negotiations.

    • I tend to agree.

      However unless TA and MT adopt the IPA’s idea to scrap the ACCC, they may be the said spanner…

  4. The legislation changes for Telstra have to go through a hostile senate. The technology changes do not. If I was the opposition I would block the changes to stop the coalition removing the uniform pricing and the competition laws.

    Of everything in the NBN this is the most important thing and thankfully is legislated. I can handle being on FTTN but can’t handle non uniform pricing and the ability for other providers to overbuild as that creates a situation similar to what we have had in the past which does not work for the majority of Australia.

    Thankfully the legislation changes will most likely get blocked in the senate. This could even cause a double dissolution trigger depending on how the different parties go with this.

    Theres a lot of unknowns though.

    • I agree Nick, FTTN is a terrible idea but at least not a crippling one for future telecommunications if the competition and pricing clauses are left intact. Again, this is where expediency plays in Telstra’s favour – the sooner a double dissolution is held the better the outcome for the LNP. Once they have had time in power and either not improved anything or actively cocked things up, a lot of the swinging voters will have pause for thought.

  5. Telstra has two choices, basically.

    They can either negotiate for another cash injection, or they may decide to action a deal quickly, to gain a non-trivial (and likely non-reversable) position whereby they regain control of a large portion of the NBN.

    If Telstra is playing the long game, they may well decide to bank on the immovable market share, rather than a fast buck.

    The trick is working out which it’s likely to be; the latter is probably the expedient path Theoday is perhaps angling for. “You can have the CAN, we’ll take market control”.

    Which is all fine and dandy, until the ACCC steps in. Which it is almost certainly going to do, given the fundamental change in competition this will induce.

    As much as it’d be nice to believe Turnbull will have a change of heart, he’s more stubborn than Abbott (which is saying rather a lot).

    • They don’t need to be given any of the NBN, if the pricing controls are relaxed so they’re allowed to charge whatever they like for overbuilt FTTP connections they will successfully steal most of NBN Co’s high value customers in cherry picked FTTN areas. Eventually NBN Co will collapse once the government gets tired of pumping bllions of dollars into propping it up every year and it will be sold off for a fraction of its construction cost. Telstra gets to make amazing profits and then ends up being the monopoly wholesale supplier anyway, all while appearing to be operating in an unrestrained free market where ‘anyone is free to compete in the same level’. Except no one else is being given an $11bn grant to overbuild the FTTN network and no one else has unrestricted access to the only existing pits and ducts with which to deploy such a network.

      • I’m not sure there’s financial advantage in overbuilding if you can simply be the builder.

        This isn’t a duplicate of the cable wars. Telstra has already suggested it could help build the network, prior to election. That’s a signal to Turnbull, really, that they’re ready to talk.

        Telstra isn’t the same place that Sol Trujilio left, infrastructure competition only works for Telstra if they get a virtual guaranteed monopoly position. Otherwise, even cherry picking locations will only get you so far.

        This is what killed the overbuild of cable; both parties realised they were haemorrhaging funds to directly compete & stopped; there’s no profit in it. The same would happen with NBNco, whom is in a far stronger position that Optus ever was.

        No, I think it’s more likely that Telstra would seek to be a build partner for NBNco. They get to cherry pick, without the risk of overbuild costs taxing the company to death.

        I personally think the ACCC will be investigating the entire post-election outcome if the agreements that stand are substantively changed. They were the arbiters of the final POI count, remember.

  6. Telstra would have to structurally separate I believe for it to be legal for them to take market control. That was the point of the NBN legislation to block providers being wholesale and retail.

    Getting those changes through a hostile senate will be nigh on impossible.

    What we have to watch out for is the murdoch media if the senate is hostile to such a change as they may spin it to the coalitions favour in a double dissolution.

    As I said technology isn’t our greatest advantage in all this its the legislation that went along with it and that requires the whole government to change it :D. While for most in tech land it might have been a negative outcome for Australia overall the hostile senate is probably one of the best outcomes we could have hoped for.

    • No, structural separation is not necessary. Infrastructure competition has been possible under the FTTP NBN, just with prices pegged to the same level of those set by NBN Co and connecting to the same POIs. By just removing pricing controls and changing it to FTTN you suddenly open the market up with huge unmet demand for FTTP offerings (and all the premium performance plans possible on that) while allowing them to charge whatever exorbitant rate they choose for the service. Expect the cost of plans equivalent to NBN FTTP tiers to be more than double on a Telstra owned network, with higher performance options released far more slowly.

  7. Surely the Libs will not be so stupid to make the same mistakes that honest Johnny did? But then???

    • No, this one will be worse – fibre is essentially infinitely upgradable. The only thing that might technically be better is a superconductor, but physics dictates that this will not be a feasible medium due to the ridiculous costs of manufacturing and operation, particularly when compared to the trivial costs to manufacture and largely passive operation.

      But the point is, when Telstra was given away *cough*sold, their copper network only had another thirty to fifty years of useful life. Even though it still works, even back in the 90s it was technically inferior to fibre. Tell me what comms medium is in use today that is superior to fibre? Precisely.

      Howard screwed us for a couple of decades. This could last a couple of centuries…

  8. Of course they want it to be quick. Muggers don’t linger at the scene of their crimes.

  9. Murdoch’s problem is he doesn’t own the internet, what if he purchases NBN Co?

    • Murdoch doesn’t understand the internet (not even slightly). (remember, he wants google to pay him so that google can send customers to him).

      It is a poor investor that buys something he doesn’t understand.

  10. I wonder if Telstra is going to ask the government for a a couple of hundred million to upgrade the cable tv network to perform much needed maintenance and open it up for wholesale access.

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