Telstra today signed the Definitive Agreements with NBN Co and the government covering its participation in the rollout of the National Broadband Network. It’s a complex deal comprising eight separate documents, with the details of those documents still hidden, thanks to commercial confidentiality.

The top-level points in the summary documents released this morning, though, are much as expected:

  • Telstra will disconnect services on its copper and HFC cable broadband networks once NBN fibre is rolled out, moving those services to the NBN. This will happen progressively over the expected 10-year NBN build. The copper must be disconnected within 18 months of NBN Co declaring a region completed, which in practice will be when 90% of premises are passed by fibre. In return, Telstra will be paid a disconnection fee for every wholesale customer it loses. For those who haven’t got their head around this yet, that includes telephone services — fixed voice lines will be delivered by NBN fibre — but pay TV on HFC will not be affected.
  • NBN gets access to Telstra’s exchange space, lead-in-conduits, ducts and dark fibre, paying volume rates for the privilege, for between 35 and 40 years depending on certain variables in NBN Co’s roll-out schedule, plus two 10-year options. NBN Co may sub-licence this access to companies seeking NBN access.
  • The government will increase Telstra’s funding for delivery of its Universal Service Obligation and clarify its role in new housing developments. A new government entity, the Telecommunications Universal Service Management Agency, will administer USO and other public interest services in new arrangements starting July 1, 2012. Additional funding was announced for this: $50 million per annum in 2012-13 and 2013-14, then $100 million per annum thereafter.
  • Telstra and NBN Co have agreed to certain product feature and price commitments, which will be addressed in NBN Co’s full product terms, still to be developed with industry consultation.

All this will deliver Telstra about $11 billion of revenue in post-tax net present value terms. The documents released this morning outline how that plays out over “many years”. “This value is also subject to a range of dependencies and assumptions over the life of the agreements,” Telstra said.

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Telstra will have to fork out about $2 billion (post-tax NPV) on various “necessary work on infrastructure” — that’s largely bringing its exchange spaces, ducts and fibre up to an agreed standard for NBN Co use — as well as customer migration costs, but expects all of this to be covered within existing budgets.

It’s not yet a done deal. All this needs the approval of a majority of Telstra shareholders in a vote currently scheduled for the AGM on October 18. One month before that, shareholders will receive an explanatory memorandum including an independent expert opinion in the context of alternative options. The ACCC must also smile. And there’s plenty of pre-conditions still to be fulfilled, most notably legislation being passed and tax rulings being confirmed.

The agreements also provide termination options and penalty payments for Telstra should the NBN be cancelled or roll out slower than planned.

But the Definitive Agreements are a vital step in ensuring certainty for Telstra and allowing the NBN project to move forward. Telstra says the agreements are NPV-positive and will produce a net result for the company that is “superior to other options realistically available”.

In a media conference this morning, Prime Minister Julia Gillard, Communications Minister Stephen Conroy, Finance Minister Penny Wong, Telstra CEO David Thodey and NBN Co chief Mike Quigley said many positive words that added nothing to our understanding, including the meaningless “super-fast”. Read the documents instead.

And remember, the choices for Telstra were stark. This is how the company explained those choices to analysts in a conference call late this morning …

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Peter Fray
Peter Fray
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