The clarity is all about what happens to Telstra’s operations once the National Broadband Network’s fibre starts connecting up homes and businesses progressively over the next eight to ten years.
The NBN was always intended to be a wholesale network, replacing Telstra’s “last mile” copper-wire telephone network. The government’s intention was always that retail fixed-wire telephone and internet service providers would move their customers’ services from copper to the NBN. Including Telstra itself.
This agreement means Telstra will indeed play ball. There will be no expensive duplication of fibre networks – unlike the hybrid fibre-coax (HFC) rollout of the 1990s.
As premises are connected to the fibre, customers will be invited to transfer to the wholesale NBN, choosing their own retail provider. For each customer that disconnects from copper, Telstra gets a one-off payment from NBN Co to compensate for the loss of wholesale income. The payment happens no matter which retail provider the customer currently uses, and even if the customer then chooses Telstra as their NBN provider.
Customers will be given some as-yet-unspecified time to make their choice before the copper network is finally turned off, a process that’ll happen area-by-area rather than house-by-house. For anyone still wanting nothing more than a plain old telephone service (POTS) using their existing analog handsets, the NBN’s customer premises equipment (CPE) will include a compatible socket.
To do all this, NBN Co will have access Telstra’s existing “passive network assets” – cable pits, pipes, ducts and exchange buildings – through a long-term lease. That saves NBN Co having to build their own, speeding up their rollout and creating a new permanent income stream for Telstra.
All together, that’s an estimated $9 billion for Telstra from NBN Co over the course of the NBN rollout, based on post-tax net present value.
Telstra also gets to dump its Universal Service Obligations – basic telephone services to anywhere in Australia, pay phones and 000 emergency calls. A new USO Co Ltd will be set up, taking over from 1 July 2012. And from 1 January 2011, the new wholesale provider of last resort to greenfields housing developments will be NBN Co, not Telstra.
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Telstra also gets an additional $2 billion from the government in exchange for various public policy reforms, and $100 million to retrain staff who might otherwise have been retrenched as a result of these changes
The uncertainty comes from the simple fact that this is a “non-binding Heads of Agreement”. Either Telstra or NBN Co can bail out any time they like.
A bailout by Telstra would involve significant loss of face, sure. But the company still has to get approval from its shareholders and the ACCC – and it doesn’t expect to have anything concrete to present to them until early 2011. To judge from this morning’s conference call for analysts and media, Telstra hasn’t even discussed this with its major investors yet.
A bailout by the government would be… well, that’s politics. Talk to m’learned colleague Bernard Keane about that. However the Opposition has already said they’d undo the deal.
Even if everything goes ahead without significant changes, there’s still the question of what Telstra will do in this new environment.
“Telstra has finally sealed its own doom,” reckons Delimiter’s Renai LeMay. I’m not so sure.
$11 billion more than covers a new 4G mobile broadband network, the so-called Long Term Evolution (LTE) – especially given that Telstra’s flagship Next G network cost “only” $1 billion. Prime Minister Rudd has already given Telstra a written guarantee that if this NBN deal goes through, they will retain the right to bid for 4G spectrum.
But Telstra has also signalled potential moves into content development, an area where its track record hasn’t been as strong.
To judge from this morning’s conference call for analysts and the media, Telstra simply hasn’t decided how it’ll spend that money. The devil will be in the detail.