Telstra has signed an $11 billion deal with the Federal Government’s National Broadband Network Co (NBN Co) that will set in train an Australia wide high speed broadband internet link.
The deal, under negotiation for at least 8 months, will see Telstra’s customers move from the Telco’s copper network onto the National Broadband Network’s fibre network and share Telstra’s infrastructure.
The deal was announced in Canberra yesterday afternoon by Prime Minister Kevin Rudd and Telstra CEO David Thodey.
Telstra shares can be expected to rise strongly when trading starts today.
The shares closed at $3.23 on Friday, having risen 34c, or more than 11% since the most recent low of $2.89 on May 25.
In the same time the stockmarket is up just 6.7%.
Telstra will receive $9 billion over several years to compensate for NBN Co using its infrastructure and the loss of future income from fixed-line customers.
A further $2 billion of government money will be used to set up a new company called USO Co, to look after Telstra’s Universal Service Obligations, retrain Telstra staff, and make NBN Co a wholesale supplier of fibre for new housing developments from January 1, next year. Details of that here.
The government had been seeking negotiating a commercial arrangement with Telstra to avoid the need for a duplication of infrastructure for the national rollout of its planned $43 billion broadband network.
The deal wills see Telstra quit its poorly performing cooper wire network which has seen a slump in revenue and profits as more and more customers have opted for wireless communications.
Under the deal, NBN Co will have access to Telstra’s network of pits, ducts and wires.
As part of the deal, Telstra will migrate customers onto the fibre network as the NBN is rolled out around the country.
Telstra will keep its HFC cable network, and will be allowed to expand it, subject to certain conditions, and will be allowed to bid for wireless spectrum in the future.
Telstra also gets to keep its 50% stake in Foxtel, the country’s dominant Pay TV platform, and will be allowed to expand deeper into content and other products for the internet/broadband future.
The government says the deal will reduce the overall cost of building the network and will also result in higher take-up rates and revenue.
The deal means a greater proportion of the NBN network will be underground, with less need for overhead cabling than initially planned.
"This is a sound outcome for NBN Co because, when finalised, it can maximise the use of existing infrastructure and accelerate the rollout of its network," NBN Co chief executive, Mike Quigley, said in a statement issued yesterday.
"It also means Telstra is likely to become NBN Co’s largest customer as it progressively migrates its voice and broadband traffic to NBN Co’s wholesale-only, open-access network, providing greater certainty about future revenues.”
The agreement still requires shareholder approval and ACCC approval.
Telstra, NBN Co and the Commonwealth agencies will now move to negotiate detailed Definitive Agreements, which is expected to take some months.
When these negotiations are concluded the Definitive Agreements will be put to Telstra’s shareholders and the Government, for final approval.
Telstra expects shareholders to vote on the deal early next year.
