Credit crunch hits broadband bidder

The admission casts doubt over the only credible native to Telstra's bid for the national broadband network, giving the incumbent telco added leverage ahead of the deadline next month for bids.

The Government plans to invest up to $4.7 billion in the high-speed network, leaving the successful bidder to find more than $10 billion in funding. Telstra stated earlier this year that the network could cost as much as $25 billion but has since pointed to a price of "north of $15 billion".

Terria's bid manager, Michael Simmons, said yesterday the meltdown in financial markets meant funding was "a work in progress for us". Under its plans, equity providers would be the ultimate owners and operators of the network, which would be built over five years.

"Our financial model, up until two weeks ago, was a 50:50 debt-equity contribution, and we had strong support and did not foresee any issue in securing that funding. Things have changed slightly in the last two weeks and there are other options that we are considering," he said.

He declined to comment on the native funding sources Terria would attempt to tap.

Apart from the SingTel-owned Optus, Telecom New Zealand is the other big party in Terria - and it has ruled out investing in the project. But Mr Simmons insisted Terria would still lodge a bid for the government tender and raise the necessary funds.

In a veiled threat yesterday, Telstra called for the Government to rule out any prospect of a structural split of its business or face it not submitting a bid by the deadline, November 26.

"Telstra requires the Federal Government to rule out the further separation. Any further separation will impact the timing of the build and therefore cost and price," said Telstra's chief financial officer, John Stanhope. "Our bid can only be put forward when we know we can apply our integrated company structure."

Mr Stanhope said the company could fund the project out of operating cashflows - provided its underlying business was not adversely affected by the crisis in financial markets. The company wants a pre-tax rate of return from the project of more than 25 per cent after about five years.

Telstra believes it will take about five years to build the network in the five largest cities and up to eight years to extend it in regional and rural areas.