Telecommunications
Telstra and NBN Co reach agreement
(6 July 2010) On 20 June, an in-principle agreement was announced between Telstra and NBN Co which, if implemented, will radically re-shape the telecommunications industry.
The key elements of the agreement involve NBN Co paying $9 billion to Telstra for use of its infrastructure and for the company to migrate its fixed line voice and data traffic (including that from its HFC network) to NBN Co as the latter’s network is rolled out.
As traffic is switched to NBN Co, the copper Customer Access Network will be decommissioned.
Telstra will also be relieved of the Universal Service Obligation (USO), a move which is estimated to benefit the company to the tune of $2 billion.
This makes the total value of the agreement to Telstra $11 billion post tax, or around $14 billion pre-tax. This is close to the sum that industry analysts had estimated as representing a fair deal for Telstra shareholders.
The deal will also remove the threats to Telstra’s operations contained in the Government’s separation bill. As part of the overall agreement, Telstra will retain ownership of its HFC network and its half ownership of Foxtel. It will also be free to participate in future spectrum auctions.
The agreement is non-binding and will have to be approved by Telstra shareholders before it can proceed. Approval will also be required from the Australian Competition and Consumer Council. But if these hurdles can be surmounted – and Labor re-elected – final arrangements can be expected to be in place by mid-2012.
USO arrangements
Apart from the $9 billion cash transfer, the shifting of the USO obligation from Telstra is also a major win for the company, although it will introduce new uncertainties for the taxpayers and industry participants who will in future jointly fund the USO through a new entity, USO Co, from the beginning of 2012.
The CEPU has always argued that the way USO costs were calculated meant that the USO provider was undercompensated. The transfer of the obligation should provide the catalyst for a realistic assessment of USO costs.
This could mean that both government and industry find themselves up for larger sums than they have anticipated – a situation that will be extremely unwelcome in both quarters.
Meanwhile it is not expected that USO Co will itself directly provide USO services. This role will be contracted out.
Telstra however will continue to be responsible for USO delivery until the cut-over to NBN occurs. It will also be contracted for at least 10 years to provide the USO in areas beyond the NBN footprint (expected to be the last 3% of households).
For more information, contact the CEPU via feedback@cepu.asn.au