NBN Co to buy Telstra network for $11 billion

By Brett Winterford on Jun 20, 2010 2:05 PM
Filed under Networking

NBN Co and Telstra sign historic agreement.

Telecommunications incumbent Telstra has agreed to migrate its copper and cable broadband networks to Government-owned NBN Co in a deal worth $11 billion.

The two parties have signed a financial heads of agreement, announced Sunday, that will provide NBN Co with access to Telstra's passive infrastructure (pits, ducts and backhaul fibre) and eliminate Telstra as a fixed-line wholesale competitor to the Government-owned entity.

Telstra, in turn, has been given assurance from Prime Minister Kevin Rudd that it can compete in auctions for 4G [LTE] mobile spectrum and face less regulation from the Federal Government.

The deal would need to be approved by both Telstra shareholders, the Federal Parliament and competition watchdog the ACCC.

The assets to be transferred as part of the deal were valued at $9 billion, whilst Telstra values the financial gain from "public policy reforms" signed as part of the agreement at $2 billion.

The $9 billion will be paid progressively as Telstra's copper network service is decommissioned and cable broadband network service deactivated. NBN Co will pay Telstra a fee for every customer migrated from these networks onto NBN Co's fibre network (upon which the figure of $9 billion was assumed).

"Telstra has received written confirmation from the Prime Minister that Telstra would be able to bid for Long Term Evolution (LTE) wireless spectrum should the transaction be completed and that sufficient regulatory certainty will be provided on a range of matters for NBN Co and Telstra to enable the transaction to proceed," the telco said in a statement.

Telstra will maintain its cable network exclusively for the purposes of its Pay TV joint venture, Foxtel.

USO changes

Should the deal go ahead, Telstra will no longer be required to meet most of its Universal Service Obligation costs.

The Federal Government plans to create a new entity called "USO Co" to ensure the needs of regional Australians continue to be served, which will take over the Universal Service Obligation from July 1, 2012.

USO Co will be provided $50 million of funding in 2012-13 and 2013-14, but will be granted $100 million per year in future years.

The Government indicated that the telecommunications industry may be required to also contribute to funding USO Co, "subject to industry and stakeholder consultation."

The Government will also provide Telstra $100 million for the "retraining and redeployment" of Telstra staff.

Further, the Government said NBN Co would be the "wholesale supplier of last resort" in Greenfield (new) housing estates from January 1, 2011.

More coverage:

- FAQ: Making sense of Telstra and NBN Co's agreement
- Telstra eyes astronomical pits and pipes lease
- Coalition vows to scrap $11bn Telstra-NBN deal

Barriers to overcome

Whilst describing the agreement as an "important step", Telstra chief executive David Thodey warned that there were significant conditions attached.

"A very significant amount of work must still be done on many complex issues," he said.

The two parties are yet to work out the finer details around "migration processes, taxation, the future of legacy regulations applying to Telstra and the consequences of any major changes to the NBN rollout schedule."

Further, the heads of agreement is conditional upon the Government passing legislation and the deal being approved by the Australian Competition and Consumer Commission (ACCC).

"Accordingly, there can be no guarantee at this time that the transaction will progress to completion," Telstra said in a statement.

NBN Co chief executive Mike Quigley described the deal as a "sound outcome" for the company charged with building a national fibre network.

"When finalised, it can maximise the use of existing infrastructure and accelerate the roll out of its network," he 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."

Source: NBN Co

Stay tuned for more...

NBN Co to buy Telstra network for $11 billion

21 comments in this discussion

""Do you really believe that the [millions] of mum and dad investors know anything about NPV's or the engineering of a telecommunications network ??? Buffet is just saying the obvious with him ..."

By imcleod

Tags

nbn co, national broadband network, telstra, sale, 11 billion, lte, copper, cable

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Comments: 21

Pilotyoda Jun 20, 2010 3:11 PM	I smell a big rat. So Telstra gets $11B for access to ducts, etc. They will also be paid per customer that is migrated. How much is this going to cost? They get LESS regulation (what parts of the regulations have been traded off?)and are relieved of most of their Universal Service Obligation. Will this new USO Co. become an unaccountable, non service guarantee obligation? What does "wholesale supplier of last resort" in new estates mean? That the NBN won't be providing the new infrastructure? What is the point if the NBN doesn't take responsibility for network expansion? And what is the point if the Government is going to sell off the NBN as soon as it is complete? To whom? Telstra would be the only (partial) Australian bidder and thus these reduced regulations will return us to the current situation that is already deemed to be uncompetitive. Or it will be sold to foreign business/equity groups, thus taking more of our balance of payments offshore, compromise Australia's security and further reduce accountability? (Remember, Singapore owns most of Victoria's power grid and Black Saturday disasters have been pointed at this group for lack of investment and maintenance.
peterh_oz Jun 20, 2010 3:26 PM	I think you'll find that the $11b is paid per customer, not PLUS per customer. I just hope that ALL providers can buy from NBNCo at the same price, otherwise we will still have the same problem we have now.
sydneyla Jun 20, 2010 4:19 PM	It is to be hoped that this deal between Government, Telstra and the NBN Co. will silence those who for years have called for regulation to disadvantage Telstra and to assist Telstra opponents. A level playing field has now been created so let the whinging stop and competition begin.
btone Jun 20, 2010 4:43 PM	What exactly does 'face less regulation from the Federal Government' mean? Happy endings for Conroy and Quigley really fill me with confidence and joy. Look forward to the fine print.
btone Jun 20, 2010 4:46 PM	Oh hi Sydney, back from tacoland?
sydneyla Jun 20, 2010 4:51 PM	tacoland? Please explain?
BrettWinterford Jun 20, 2010 5:24 PM	@Pilotyoda - we'll be working hard tomorrow to have some of your questions answered. Pretty tough on a Sunday! RE: your first question, the $11B calculation includes customer migration. NBN Co will pay that money progressively (as customers are migrated).
prepro Jun 20, 2010 7:54 PM	ok if i migrate who pays to re-wire my home with cat5 and coax to maintain my current configuration of outlets, what if i choose to stay with the copper network?
umbria Jun 20, 2010 8:32 PM	@Pilotyoda, the USO responsibility is to be taken over by a USO body that gets about two billion out of the eleven. SydneyLa I'm right with you on this one (I think btone's tacoland reference was a whimsical allusion to Telstra's Mexican wilderness period). And @prepro, I believe you can keep your existing copper setup and plug it into the ONT box's ATA port, in a similar way that you plug a conventional phone into the ATA port of a VoIP adaptor, according to the current proposal for the termination equipment. (This configuration may change if it is seen as detrimental to retail competition by VoIP service providers.) Thanks for the news on a Sunday, Brett!
umbria Jun 20, 2010 8:35 PM	@Pilotyoda "And what is the point if the Government is going to sell off the NBN as soon as it is complete?" The final report of the NBN senate committee last week recommends that we wait until the rollout is nearly done and then decide as a nation whether to sell it. +1 from me for that.
HubertCumberdale Jun 20, 2010 11:06 PM	I'd really like to be optimistic about this new development however talk of Internet filters, storing browsing history and DPI has already left a bad taste in my mouth, not to mention the pathetic plans that are currently available, I hope and assume that is one thing that will change as for the rest well you know our politicians we vote for.
Digger11 Jun 21, 2010 8:40 AM	"The deal has to be approved by Telstra shareholders " !!!! are you serious TELSTRA ??????? Isn't the Telstra managmeent team competent enough to make its own operational decisions nowadays ?????? My 87yr old grandmother who owns Telstra shares is clearly a telco competition expert and will be able to fully analyse this $11b offer before voting. Is Telstra really run by total morons who are trying to now handball the responsibiltiy of key decisions to their uninformed shareholders ??? This would have to be the biggest corporate joke of all time, except that it is true.
imcleod Jun 21, 2010 9:01 AM	Yes they are serious, any major decision should be approved by shareholders and people should not hold shares in industries they don't have some understanding of. That's how people lose money on shares. I have a few questions about the wisdom of embarking on this NBN project. I am pleased the government has resolved to extract another 10 or 20 billion from the Australian community to fund this, however I would like to see some more analysis of the benefits of a blanket roll out versus a targetted and strategic incremental upgrade. Also, no one ever seems to consider submarine cables. If most of our traffic continues to be international, then the NBN will just lead to congestion and higher prices, which can't be solved by just throwing more money at subsidies to distort the market even further. The real shareholders who should be 'consulted' are Australian taxpayers who are being asked to fund this, when our debt levels are already alarmingly high. Further details at ianpmcleod.com.
Speedy Jun 21, 2010 9:42 AM	So what happens with fibre to blocks of units which currently have copper? Are they going to recable all these with Fibre?
Digger11 Jun 21, 2010 9:48 AM	"Yes they are serious, any major decision should be approved by shareholders and people should not hold shares in industries they don't have some understanding of. That's how people lose money on shares." Thanks Ian for that fantastic opinion - I have now advised my grandmother to sell all of her shares - she wants to keep the BHP ones though - and as Grandad has a spade and is good at digging up dirt I advised her that she can keep them. When Grandad comes too old to dig, I will then advise him to sell his Mining shares, as per your excellent advice. Thanks again - you are clearly an expert in many fields and your wonderful advice will save me millions in my inheritance.
Donno Jun 21, 2010 10:57 AM	Digger, that's not just Ian's advice - Warren Buffett, one of the most successful investors in the world says "Never invest in a business you cannot understand". And if I was a Telstra shareholder I'd be pretty annoyed if they made a radical change to their business without consulting the owners of the company.
Bob Jun 21, 2010 11:03 AM	It's a great and logical decision for Australia. Unfortunately it's still a long way off final.
Tom Jun 21, 2010 12:02 PM	So what happens to POTs? If the copper is to be de-commissioned when fibre is available does that mean that all the voice only customers have to migrate and if so what will be their cost for retaining an equivalent service?
Digger11 Jun 21, 2010 12:56 PM	"And if I was a Telstra shareholder I'd be pretty annoyed if they made a radical change to their business without consulting the owners of the company." Do you really believe that the [millions] of mum and dad investors know anything about NPV's or the engineering of a telecommunications network ??? Buffet is just saying the obvious with him well knowing it is not practical. I invest in a company when I trust the board and management to make the correct informed decisions - with all of their highly paid management team and advisors. Hence I own no Telstra shares.
Ace Jun 21, 2010 2:32 PM	Ha, sometimes you're a hoot @Digger! But in respect to your Grandmother, Telstra did indeed target 'mum and dad' investors when selling shares. Should they be blamed for going for the sales pitch? I don't think so. Anybody and everybody was saying it was the thing to do. As far as voting goes however, I assume their votes don't really hold a lot of sway. Most mums and dads will vote the way they're told, and the institutions with large portfolios will provide the clout, which will be firmly aligned with financial outcomes.
imcleod Jun 21, 2010 4:33 PM	"Do you really believe that the [millions] of mum and dad investors know anything about NPV's or the engineering of a telecommunications network ??? Buffet is just saying the obvious with him well knowing it is not practical." It is actually quite sound advice. Investors who do not understand the business may wisht to consider managed funds, as that is what they are paid to do, to understand the businesses they invest in and act on your behalf. This removes the need to understand the business. One form of managed fund is superannuation.