Telstra values NBN deal at $16 billion

Telstra has revealed a pre-tax price tag of $16 billion on its draft financial heads of agreement with NBN Co - a figure made public as the telco attempts to win an argument with Australia's competition watchdog over the value of its copper network.

Telstra has accused the ACCC or "incorrectly attempting to derive a valuation of Telstra's [copper] network" by reverse-engineering figures in the NBN Co deal.

Telstra and NBN Co came to the financial heads of agreement in June 2010. The deal value was said to be worth $11 billion - $9 billion for access to Telstra pits and pipes and for the closure of the copper access network (CAN), and $2 billion in financial gains from "public policy reforms" and cost avoidance.

The ACCC has subsequently valued Telstra's copper network at $7.5 billion, and sought to justify its calculation against figures in the draft agreement, saying that the $9 billion payment from NBN Co "could be viewed as a good indication of Telstra's valuation of its copper network".

But Telstra believes its copper network is worth more than a $7.5 billion figure, concerned about the impact such a low valuation would have on wholesale price determinations. The ACCC's assumption affects the wholesale prices the incumbent carrier is able to charge access seekers such as ISPs.

The ACCC proposed new draft wholesale prices in September [PDF] that would be paid by ISPs seeking access to Telstra's copper network.

A 'misintepretation' 

In a submission [PDF] to the ACCC's wholesale price review, Telstra said that the $11 billion figure in the draft NBN Co deal was a post-tax amount, leading to an error in the regulator's calculations.

"When the full $11 billion amount agreed under the [financial heads of agreement] is scaled up to reflect this, it alone increases the value of the non-binding [agreement] payment to approximately $16 billion," Telstra said.

The carrier also said the $11 billion excluded "pre-migration net cash flows", which it said would "add to the value of the CAN [copper network] for the period over which the ACCC proposes to set indicative prices".

But Telstra believed it was an error to try to "reverse engineer a CAN value from the payment proposed to be made by NBN Co to Telstra" and said that a value derived using this method would not be "reasonable and robust."

"The financial heads of agreement is not - and was never treated as - an asset purchase," Telstra said.

"The amount agreed under the [agreement] is one element of the terms on which Telstra was prepared to "settle" a global and multi-faceted deal with NBN Co and the Government.

"This incorporated a wide range of factors, including other valuable concessions from the Commonwealth, the value of the right to participate in the 4G spectrum auctions (and conversely the adverse impacts on Telstra's wireless business if it could not), the avoided costs of more extensive regulation (such as functional separation) and the value of stability and predictability in prices for legacy regulated services in the transition period to the NBN.

"The amount in the [agreement] was also a post tax amount - a factor not taken into account in the ACCC's analysis, which adopted... pre-tax values."