Telstra optimistic for a less-constrained NBN Co

Telstra is optimistic that NBN Co will soon be freed of some of the constraints that prevent it from breaking from its current pricing and service standards.

In his last full-year results as CEO, Andrew Penn indicated the telco is hopeful that recent intervention by the new federal government into the NBN special access undertaking (SAU) process will result in a meaningful change in direction.

The SAU revision - which sets price and non-price terms through to 2040 - is an all-or-nothing process for NBN Co and the ACCC, which can only improve or reject a proposed variation outright, not try to change or - as Penn put it - “finesse” it.

That limits options in the process and has caused it to become prolonged.

The ACCC does have an option to directly intervene and set price and service standards itself - an option that top retail service providers (RSPs) backed in late May as a kind of circuit-breaker.

But, as Penn noted in Telstra’s FY22 results briefing, the ACCC had so far declined to exercise that option.

The recent government intervention provides hope of a third option emerging: the issuance of a new statement of expectations (SOE) that RSPs hope will free NBN Co from constraints that are seen to be forcing the company to submit SAU variations that keep getting rejected or withdrawn.

“What you have been seeing over the last period of time is NBN submitting an SAU to the ACCC regarding updating pricing and service structures, and the ACCC rejecting it,” Penn said.

“That’s been done at the same time weve gone through a change in government, and you’ve seen the new government take a different approach with the NBN and effectively guide NBN Co towards perhaps a different set of expectations. 

“What that means is we’ve seen NBN Co withdraw their SAU and we would hope and expect to see a proposed wholesale set of arrangements which will provide for a more effective pricing structure and more effective service standards structure.”

RSPs may get a sense of what that looks like from NBN Co’s side as soon as this week; NBN Co indicated in its own FY22 results that a fresh discussion paper may be circulated with retailers as early as this week.

The ACCC has also previously indicated that it will convene industry meetings to chart a new path forward on the SAU from the middle of this month.

Penn said the regulatory structure around NBN Co was important, but that a broader lens needed to be applied in the circumstances.

“For a long time, I’ve been making the point that ultimately government policy in relation to the NBN should be set in the context of an aspiration for Australia to have a world leading digital economy,” Penn said.

To achieve that aspiration, Australia “neeed world-leading digital infrastructure”, Penn said, which he defined more specifically as telecommunications infrastructure, though “not just purely focused on the NBN.” 

“I think what we’re seeing is the Labor government and Communications Minister Michelle Rowland very much see NBN Co as part of that digital economy/telecommunications ecosystem and therefore have an interest in making sure the whole of that system is working viably.”

Telstra’s NBN margins

Telstra reported in its FY22 results that its reseller margin on consumer NBN services was five percent for the year, “including a two percentage point improvement from the first half to the second half,” CFO - soon-to-be-CEO - Vicki Brady said.

“We continue to target greater than eight percent in FY23 and mid-teens in FY25, with further benefits expected from price rises, mix and cost-out.”

Telstra also indicated there was some limited substitution of 5G fixed wireless in place of NBN fixed-line services occurring.

In particular, fibre-to-the-node customers on long copper lines had shown interest in switching to cellular fixed wireless-based internet services, the telco indicated.

NBN Co’s ongoing incursion into the business fibre market is, however, isn’t helping Telstra’s margins in that space.