JUNE 21, 2010 By Stephen Hardy -- Telstra has moved closer to participating in Australia’s National Broadband Network (NBN) with the signing of a non-binding “Financial Heads of Agreement” with NBN Co., the company set up to construct and administer the NBN. If the transaction is completed, Telstra would receive a post-tax net present value of approximately AUS$11 billion to decommission its copper network and cable broadband service, allow use of its other infrastructure (including fiber), and migrate its voice and broadband traffic from its copper and cable networks to NBN Co.’s all-optical network as it rolls out.
The AUS$11 billion figure also includes the value to Telstra of avoiding costs, including certain Universal Service Obligation (USO) costs. Payments would be made progressively to Telstra. Telstra would continue to use its cable network to meet its pay TV contract with FOXTEL.
“This is a sound outcome for NBN Co. because when finalized it can maximize the use of existing infrastructure and accelerate the roll out of its network,” NBN Co-Chief Executive Mike Quigley said. “It also means Telstra is likely to become NBN Co.’s largest customer as it progressively migrates its voice and broadband traffic to NBN Co.’s wholesale-only, open-access network, providing greater certainty about future revenues.
Telstra CEO David Thodey said, “We will continue to work with the Government and NBN Co. on the detail required to implement the principles agreed today. While today’s agreement is an important step, a very significant amount of work must still be done on many complex issues.”
These issues include migration processes, taxation, the future of legacy regulations applying to Telstra, and the consequences of any major changes to the NBN rollout schedule, the carrier said.
“This agreement paves the way for a faster, cheaper, more efficient rollout of the National Broadband Network, with faster take-up,” read a statement on the website of the Australian Government. “This is an important step in the delivery of the single largest nation building infrastructure project in Australian history, which will increase national productivity and help build a stronger economy.”
To support of the agreement and Telstra’s participation in the NBN, the Australian Government also has laid out several regulatory reforms:
- Establish a new entity, USO Co. with Commonwealth funding of $50 million in 2012-13 and 2013-14, increasing to $100 million per year thereafter. USO Co. will assume responsibility for most of Telstra's universal service obligations for the delivery of standard telephone services, payphones, and emergency call handling beginning July 1, 2012.The remaining funding that USO Co. will require will be contributed by industry.
- Provide $100 million to Telstra to assist in the retraining and redeployment of Telstra staff.
- Require NBN Co. to be the wholesale supplier of last resort for fiber connections in greenfield developments beginning January 1, 2011.
The agreement faces several rounds of review and approval. In addition to approval from Telstra shareholders, the agreement has a range of conditions, including the passage of necessary enabling legislation and Australian Competition and Consumer Commission approval.
“Telstra, NBN Col, and the Commonwealth agencies will now move to negotiate detailed definitive agreements, which is expected to take some months,” added the Government’s statement.