Agreements signed affirm Telstra, NBN's $11B deal
Telstra (ASX: TLS) and NBN Company's definitive agreement spells a historic day for Australia's telecommunications industry, independent consultancy group Ovum said Thursday.
Ovum's consulting director Mr Nigel Pugh said in an emailed statement that the definitive agreement signed is a positive way to move forward for the telecom sector.
Mr Pugh said that if all major hurdles had been passed, including approvals from the ACCC and Telstra's shareholder vote, "the said agreement would have a clear strategic direction for operation of its retail and wholesale functions in the NBN world."
"This will also be a positive for NBN Co as the key hurdles to its nationwide rollout will have been overcome," he added.
Ovum further said that based on their assessment of the policy environment, a scenario of a change in government in the next election would not be futile for the deal.
"Although there has always been an overhang to the deal with regards to a change of government, our initial reading of the cessation clauses don't position this deal as a poison pill if there is a change of government at the next election. NBN Co will have to reach 20 percent fibre coverage for the compensation payment to occur and, based on our reading of NBNCo's three year corporate plan, we think this will be a stretch to achieve by 2013,"
Telstra has signed definitive agreements with NBN Co and the Commonwealth for its participation in the rollout of the National Broadband Network (NBN).
Under the deal, Telstra will disconnect, progressively, copper-based Customer Access Network services and broadband services on its HFC cable network (but not Pay TV services on the HFC) that are provided to premises in the NBN fibre footprint, and will migrate its services onto NBN-based services, over the expected 10 year build period of the NBN.
Telstra will also provide NBN Co with large scale access to certain infrastructure – dark fibre, exchange space, lead-in-conduits and ducts - at prices based on committed large volume levels of usage and availability. The term of the infrastructure agreement will be between 35 and 40 years from commencement, plus two 10 year options to extend exercisable by NBN Co.
Telstra Chairman Catherine Livingstone said the signing of these agreements is another important step following two years of complex negotiations between Telstra, NBN Co and the government.
"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.
The agreements provide Telstra with replacement revenue, through disconnection payments as the rollout of the NBN occurs, and new revenues, through access payments for the use of Telstra’s infrastructure over an assumed average 30 year period.
Consistent with the financial heads of agreement signed in June 2010, the arrangements under the definitive agreements and associated government policy commitments are expected to deliver approximately $11 billion in post-tax net present value over their long-term life.
Mike Quigley, NBN Co Chief Executive Officer, said today’s agreement has been worth the wait.
"It means we can build the NBN more cost effectively and with less disruption and greater certainty than had we duplicated Telstra’s existing infrastructure.
“This deal will bring about the efficient delivery of a standardised national broadband platform which will foster innovation in applications and services. Unquestionably it will be of lasting benefit to Australia,” he said.
The fibre optic network will deliver peak speeds of up to 1 gigabit per second to a potential 93 per cent of Australian premises. The remaining 7 per cent of premises in rural and regional Australia will be served by satellite and fixed-wireless services enabling peak speeds of up to 12 megabits per second.
The definitive agreements remain subject to the satisfaction of a number of conditions, including the critical step of ACCC acceptance of Telstra’s structural separation undertaking and approval of its migration plan and the approval of a majority of Telstra shareholders with the vote currently scheduled for the company’s annual general meeting (AGM) to be held in Sydney on 18 October 2011.