Telstra seals $11b NBN Co deal

Telstra has finalised an $11 billion agreement with NBN Co and the Federal Government that would see the incumbent telco decommission its copper network and move fixed line broadband customers to the National Broadband Network as it is rolled out.

The agreement, finalised in an ASX announcement from Telstra this morning, comes a year after initially announced and following several delays in negotiations between the two broadband companies.

It is expected to go to a vote of Telstra shareholders at the telco's annual general meeting on 18 October.

It must also be approved by the Australian Competition and Consumer Commission before being ratified.

The companies agreed to a final cut-off date of 20 December 2011 for the deal's approval.

Payment breakdown

• $4 billion in net present value for disconnection of broadband customers from the copper and hybrid-fibre coaxial networks, as well as the sale of Telstra-constructed lead-in conduits to NBN Co.
• $5 billion in net present value for NBN Co access to Telstra infrastructure, including dark fibre, exchange space and ducts “at prices based on committed large volume levels of usage and availability”.
• $700 million from the Government to relieve Telstra of its universal service obligations.
• $300 million from the Government for relieving Telstra of fibre provision obligations in larger developments.
• $1 billion from the Government for other USO-related activities, including staff re-training.

Infrastructure access

NBN Co would gain immediate access to Telstra infrastructure under interim arrangements.

Long-term arrangements would provide NBN Co with access to Telstra infrastructure over a minimum of 35 years with two 10-year extension options.

About 60 percent of Telstra's infrastructure would be made available to NBN Co in the first three-and-a-half years of the deal.

Telstra also had until December 2014 to complete outstanding builds of dark fibre rings that NBN Co may need for transit services.

Steady wholesale rates

Telstra will exclusively use the NBN for fixed line services for at least 20 years, provided the NBN continued to roll-out fibre to 93 percent of premises as currently forecast.

It had also reached agreement that NBN Co would not raise the price of its base 12/1 Mbps service beyond $24 a subscriber a month.

Break fees

Should the NBN cease to be rolled out under a future government, a one-off break fee of a maximum $500 million would be payable by NBN Co if the network had reached more than 20 percent of premises.

In such a circumstance, Telstra would be able to reconnect broadband customers over its hybrid fibre coaxial network either temporarily or permanently.

Costs to Telstra

The incumbent said it expected the cost of disconnecting customers from the copper network would likely increase with the rollout until at least 2014, after which it would remain consistent.

Overall, Telstra expected to incur $2 billion in post-tax costs as a result of the deal including:

• $900 million for infrastructure and customer migration, offset through legacy and IT savings.
• $600 million for other infrastructure and maintenance activities, covered by operational expenses.
• $500 million in incremental operational expenses spread over the next decade.

NBN participation

"The decision to participate was made on the basis that the proposed transaction is expected to provide us with the ability to recover more value for the business than the available alternatives, given the loss of value after the NBN policy announcements," she said in a statement.

"After rigorously assessing the options before it, including the regulatory and commercial implications of each, the Telstra Board expects to recommend the shareholders approve a proposal to participate in the NBN rollout, subject to the conditions precedent being satisfied."