Telstra, NBN Co, Government sign off on $11b NBN deal

After two years of protracted negotiations Telstra, the Federal Government and the NBN Co have come to definitive agreements on the structural separation of Telstra and the use of its network assets in the National Broadband Network (NBN).

The agreements, which need the approval of a majority of Telstra shareholders at the telco’s 18 October annual general meeting, hinge on the Australian Consumer and Competition Commissions’ (ACCC) acceptance of Telstra’s structural separation undertaking and approval of its migration plan.

Explaining the agreements Telstra chairman, Catherine Livingstone, said in a statement that the Federal Government’s drive to secure the NBN’s future and other related policy changes had brought the telco to conclude that it should participate in the NBN rollout.

“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.

“After rigorously assessing the options before it, including the regulatory and commercial implications of each, the Telstra Board expects to recommend that shareholders approve a proposal to participate in the NBN rollout, subject to the conditions precedent being satisfied.”

Telstra chief executive officer, David Thodey, said in the same statement that the concluding the agreements would allow the company to focus on its customer service and simplification strategy.

“The Government will achieve its desired industry structure and the arrangements for the USO and associated social obligations will be reformed to ensure that funding for these public interest services is secured,” he said. “Within this new environment, we look forward to continuing to focus on customer service, content and innovation.”

According to Telstra the agreements provide replacement revenue, through disconnection payments as twill e 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,” an ASX statement on the deal reads.

“This value will not be in the form of an upfront payment, but is the present value of payments to be received over many years. This value is also subject to a range of dependencies and assumptions over the life of the agreements.”

The telco said it expected that the consideration for the disconnection of its relevant copper and HFC cable broadband services, as well as appropriate commercial terms for scale access to its infrastructure, together with benefits from associated Government policy commitments, would produce a net result superior to other options realistically available to the company.

Yesterday federal opposition communications spokesperson, Malcolm Turnbull, said the agreements will make it more difficult to deliver its alternative broadband plan for Australia.