NBN BUZZ: Telstra's NBN sweetener

Telstra shareholders get a $300 million NBN surprise, while the government isn't quite ready to spill all the beans on the network.

NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions and the latest news visit our NBN Buzz page.

Telstra's early NBN payment

They say good things come to those who wait, and that was certainly the message from the federal government and NBN Co yesterday. Telstra finalised the $11 billion deal that clears the way for that precious Telstra infrastructure to become a part of the NBN. Telstra shareholders are probably thinking along the same lines given that the NBN cash flood gates are finally set to open wider and a little earlier than expected.   

Telstra is going to pick up a $300 million cash payment this year courtesy of the federal government. Telstra boss David Thodey informed the market yesterday that the money is coming as part of the government’s $190 million post-tax net present value (NPV) commitment to Telstra under the Information Campaign and Migration Deed. According to communications minister Stephen Conroy, the 190 million in post-tax 2010 dollars – which translates to $300 million today – is the cash component of the financial heads of agreement and is part of the originally agreed value of approximately $11 billion. Conroy has stressed that this is not an additional payment and has already been provisioned for in the budget, but for most Telstra shareholders this is a surprise sweetener that seals the deal.

A payment, which reconciles the difference in the value Telstra had assigned to the deal and what the federal government is paying, was always on the cards but the extent of it couldn’t be revealed until the definitive agreements had been reached. Under the terms of the deal, NBN Co is paying Telstra $9 billion, while the government is putting in $2 billion. As The Australian’s John Durie points out, Thodey had in the past articulated that the NBN deal was worth $11.2 billion so that could explain the payment and with Telstra set to retain its HFC network and its stake in Foxtel, it’s clear that the telco has profited handsomely from the deal.

After taking three years to get to this stage, the final hurdle to the full-scale rollout of the NBN has been surmounted and as far as NBN Co boss Mike Quigley it can’t come soon enough. The lengthy, but necessary, regulatory rigmarole that held back the Telstra deal has severely hampered the NBN rollout and Telstra will be hoping that Quigley can get his skates on. After all, the faster the rollout the quicker the money flows into the telco’s pocket.

For Telstra shareholders their focus will now shift to whether the telco’s management is willing to spread the love and announce a capital management program that rewards them. The news on that front looks good with analysts expecting Thodey to announce a capital management program in the coming weeks, with a share buy-back of up to $2 billion over the next three years a likely possibility.   

So it’s smiles all around and the only thing that can now rain on this parade is a change of government next year. We don’t know what Tony Abbott and Malcolm Turnbull have in store for the NBN, but it will still involve the structural separation of Telstra but if the NBN rollout is stopped in its tracks then the cash tap will be closed and the capital management plans put on hiatus. 

Committee matters

Moving to other matters, the joint committee investigating the roll-out of the NBN has told the Gillard government that it needs to provide more information and better engage with the Australian public on the fundamentals behind the network.  The comments from committee chairman Rob Oakeshott are exactly ground breaking and overall the committee seems pretty happy with the government's recent response to the committee's first report, handed down in August 2011.  That report made five recommendations, with particular attention on the provision of a comprehensive rollout timetable and further clarification on “the impacts on timing and cost of the NBN."

Unsurprisingly, the government agrees with all the points raised in the report. Although at this time it is only happy to ensure that NBN Co provides six-monthly reports on the progress of the roll out and that its agencies are ready for the NBN. It’s still not ready to spill the beans on the full details of the deals struck with Telstra and Optus citing issues of commercial sensitivity.

With the government facing a hefty defeat in the next election it doesn’t need any extra prodding from the committee to sell the NBN message to voters and as far as the full details on the Telstra and Optus deals are concerned it will take something pretty dramatic for the Gillard government to lift the veil on that information. But the focus right now will be on NBN Co’s three year rollout plan, due in the coming weeks, and with the Telstra deal now out of the way NBN Co doesn’t have too many excuses left if things don’t pick up pace.

Deals galore 

Elsewhere, NBN Co signing deals at a breakneck pace, which augurs well for the network overall, with the high profile satellite deal now followed up with an arrangement with Melbourne-based spatial technology company, Geomatic Technologies.

NBN Co has awarded Geomatic a multimillion dollar contract to provide a defect and maintenance management system for all components of the NBN infrastructure.

Speaking of the satellite deal, The Australian reports that NBN Co enlisted the help of German research institute Fraunhofer to consult in the development of the satellite component of the NBN. The link was reportedly revealed by Albert Heuberger, the director of the Fraunhofer Institute for Integrated Circuits at the CeBIT technology show in Hannover, Germany.

Finally, Attorney-General Nicola Roxon and Communications Minister Stephen Conroy have opened the first round of the $4 million national broadband network (NBN) regional legal assistance program to provide regional communities with access to legal services online.