Telcos call for NBN ownership cap

Several Australian telecommunications companies have called on the Federal Government to cap how much of the National Broadband Network Company (NBN Co) one shareholder can own.

In submissions to the Federal Government's NBN legislative framework, several telcos recommended that ownership of NBN Co by any telecommunications carrier be capped as low as five percent.

A submission by Optus said that "telecommunications companies will very likely take a stake in the NBN in the near future ... either through the direct investment of cash or by vending assets to the venture in return for equity."

"This immediately raises issues around the potential for those interests to be used in a manner which undermines the objective of structural separation."

Optus' submission said that whilst the Federal Government would own a 51 percent stake in the company, it would not always be the case once the company was sold.

Optus feared that this sell-down of NBNCo after its first five years of operating under the Commonwealth would "heighten the risk" for telecommunication companies to use their interests unfairly.

"In general corporate law, an ownership share above 20 percent is recognised to raise the very real prospect that the owning entity will gain effective control of the company," the carrier's submission said.

"... Optus suggests that any investment by a retail telecommunications provider in the form of voting equity should be capped at 20 percent."

Wireless broadband provider Unwired suggested a much lower figure.

"An absolute limit of 5 percent for any one shareholder should assure this," Unwired said in its submission. "[This] is a level below which an individual shareholder could express a "right" to Board representation," Unwired's submission read.

Unwired said a business that is not active in the telecommunications sector should be able to invest a higher amount - up to 15 percent as it would "provide some potential governance discipline."

Unwired's manager of regulatory and corporate affairs, David Havyatt, told iTnews that a more sophisticated model was required than to simply allow Telstra to "sell NBN Co a pile of assets for a share of NBN Co and then Telstra winds up owning x percent."

He suggested Telstra be split prior to the sale - with Telstra shareholders being given both a share in Telstra's retail company and a share in a new infrastructure company (lets call it 'InfrastructureCo') that vends assets into NBN Co.

"[Then] you'd get a share in NBN Co for your share in "Infrastructure Co," Havyatt said. "All the Telstra shareholders would then wind up with shares in NBN Co which they'd then be free to sell, buy and trade in the marketplace. The big pile of assets can transfer, but the shareholders take their share of those assets directly rather than through the ownership of Telstra."

Vodafone Hutchison Australia (VHA) also stressed ownership issues in its submission.

"There will need to be some limit on the ability of a carrier or a carriage service provider to control NBN Co, otherwise there will be no fetter on a retail telecommunications provider selecting the majority of directors on the Board of NBN Co," VHA's submission said.

"It will be difficult to deal with this situation even with strict ring fencing arrangements, particularly in circumstances where the Government will be looking to sell down its interest.

"For example, if Telstra acquires a minority interest in NBN Co now, there may be no breach of s50 of the TPA because the Government will have a controlling interest.

"However, if the Government sells down its interest in five years, Telstra may then hold a controlling interest. Telstra will then be in a position to select the majority of the Board."

Telstra's submission re-emphasised its desire to work with the Government, suggesting no investment caps.

"Ownership arrangements should minimise the scope for conflicts of interest between the Commonwealth's role as shareholder and investor and its role as policy-maker and include a clear and predictable path to sell-down of the Commonwealth's stake," Telstra's submission read.

Minister for Broadband, Communications and the Digital Economy, Senator Conroy, said the Government was "giving careful consideration to the submissions, which, along with the advice of the Implementation Study Lead Advisor, will help shape the legislative arrangements for the National Broadband Network".