The Telstra-NBN deal: FAQs

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The Telstra-NBN deal: FAQs

Key questions behind the $11 billion deal.

A year almost to the date since Telstra, NBN Co and the Australian Government announced an $11 billion financial heads of agreement, the two parties have announced that negotiations are complete and the contracts have been signed.

Here's what it means:

Is it a done deal?

 Not yet. The deal requires Telstra shareholder approval at an AGM on October 18, plus approval from the Australian Competition and Consumer Commission (ACCC) of Telstra's structural separation plan. The deal also requires a private tax ruling from the Australian Tax Office.

When will the deal commence?

ACCC and Telstra shareholder approval is expected by October 18 but the agreement stipulates a final cut-off date of December 20, 2011 as a formality. In the meantime, NBN Co and Telstra have agreed to "interim arrangements" for immediate access to Telstra infrastructure in NBN early release sites.

What does Telstra provide NBN Co?

Telstra has agreed to progressively decommission its copper access network and migrate fixed line broadband customers from its copper and hybrid-fibre coaxial (HFC) cable networks within the 93 percent of Australian premises being connected to fibre under the National Broadband Network plan.

Telstra has also agreed to sell lead-in conduits used by NBN Co for the network and lease its passive network infrastructure – rack space in telephone exchanges, dark fibre, and ducts - to NBN Co for a minimum period of 35 years, unless there are significant delays in the rollout of the fibre network. NBN Co will also have the right to exercise two ten year extensions on this lease.

Telstra will retain ownership and maintenance of infrastructure but has agreed to hand over ownership of lead-in conduits. NBN Co will also be allowed to sub-lease this rack space to access seekers.

How much Telstra infrastructure is involved?

Neither company has revealed exactly how much of Telstra's infrastructure will be used as part of the agreement, but it has been reported that some 100,000 kilometres of dark fibre is likely to be leased from Telstra.

Many of the 121 points of interconnect NBN Co intends to establish to operate the network would likely be housed in Telstra exchanges as well.

What does NBN Co provide Telstra?

NBN Co and the Australian Government have not revealed how much cash the deal will involve, but it has been announced as worth $11 billion in post-tax net profit value to Telstra. The real cash value is unknown, but it will not be an up-front cash payment. Instead it will be delivered to Telstra progressively as the NBN is rolled out and as the telco migrates its customers to the network.

The Australian Government will also progressively hand over the involved value of the deal as Telstra's universal service obligations are dissolved, including $100 million in costs for staff re-training.

It is expected the majority of these costs will be incurred in the first three years as NBN Co acquires leases for duct and exchange space as well as dark fibre.

NBN Co chief executive Mike Quigley also claims the deal will be of positive net profit value for the wholesaler.

Will Telstra compete with NBN Co?

Telstra will become a retailer on NBN Co's fibre network and will use it as its exclusive fixed line service for new and migrated customers for at least 20 years.

NBN Co insisted in its press statement that "there will be no special pricing or volume discounts for wholesale services included in the agreement with Telstra".

But the statement today does make reference to commitments on pricing between Telstra and NBN Co, which suggests that the Government remains concerned about Telstra's ability to undercut the price of its services.

Telstra also has the right to reconnect services to premises where there has been long delays in NBN service, or if NBN Co becomes insolvent or is wound up.

Telstra can continue to services existing "point to point" fibre services to business and roll out its own networks - whether fibre, copper or wireless - to greenfields housing estates with under 100 premises.

Telstra chief David Thodey said the contract also stipulates the telco will not offer wireless broadband as a "direct substitution" to the NBN in fibre-serving areas as part of the agreement, but he said the telco intends to continue marketing its Next G services as a supplementary technology to consumers.

When do Telstra shareholders get their money?

Telstra expects the $5 billion in infrastructure lease payments to be relatively consistent annual payments over thirty years.

But today's long-suffering Telstra shareholder will benefit from most of the disconnection payments in the short to medium term, with most of the dollars flowing between 2012 and 2014. Payments for the sale of lead-in conduits to NBN Co will occur progressively during the roll-out.

What happens when the NBN rolls into my neighbourhood?

The deal discloses that NBN Co's core network is expected to be completed by December 2014.

NBN Co must then provide Telstra and the rest of the industry 12-month and three-month forecasts before it declares a rollout region ready for service, or when over 90 percent of premises in that region are passed by fibre. At that point, Telstra has 18 months to disconnect copper and HFC broadband services.

Will I pay for an NBN connection?

Only if you neglect to take a free connection when NBN Co's contractors pass your premises. Users will only be charged to connect to the NBN should they refuse on multiple occasions during the fibre rollout in the area.

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