Telstra in the box seat over NBN
That explains why the Coalition says it intends Telstra no harm if it wins power and switches from Labor's high-speed, high-price and labour-intensive fibre-to-the-home project to one that is slower but not fatally so, capable of being upgraded on a "user pays" basis, cheaper at the front-end, and easier to build because 71 per cent of the network will run to neighbourhood nodes. It also explains why Telstra isn't whingeing.
After years of brawling and arm-wrestling Telstra last year finalised an $11 billion NBN deal that would see it structurally separated from its copper wire network. That was a huge step and it will not be reversed, regardless of who is in power.
The pros and cons of the two NBN plans will be debated every which way in the lead-up to the election, but Telstra is basically committed. What it most needs to know is how its existing deal would be modified for a Coalition rollout - and the early signs are that it would not need to be modified very much: the Coalition's plan does not seem likely to deconstruct or seriously undermine the main financial elements of Telstra's compact with Labor and NBN Co, and might actually be more valuable to the telco.
Telstra's existing NBN deal leaves Telstra with ownership of a copper network, but it is an asset that is progressively shut down as the fibre-to-the-home broadband network rolls out. Telstra is paid progressively as that occurs, and is also paid over the life of the broadband network for allowing its copper wire ducts and conduits to be used by NBN fibre. Last year it put a net present value (NPV) of $9 billion on those arrangements, and side deals with the Labor government added another $2 billion of NPV.
The Coalition's NBN would stop seven times out of 10 at neighbourhood nodes: about 22 per cent of it would extend all the way to premises, but more than half of that would be in new housing developments where connections are new.
The Coalition would also focus on areas where broadband service upgrades are most needed and leave intact the existing urban hybrid fibre broadband cable networks that are owned by Telstra and Optus. In practice, that would mean that the Coalition's network would be developed "inside-out", from regions and outer suburbs built when dial-up connections were state-of-the-art in towards cities and urban areas where cable networks already offer relatively high broadband speeds.
Telstra would, however, still exact payments for either selling the "last mile" of its existing network to the NBN or allowing it to be used. And while delays in Labor's rollout are pushing the timing of payments out and reducing the net present value of Telstra's deal, a quicker Coalition NBN rollout would accelerate payments to the telco, boost the NPV of the deal and perhaps also accelerate "NBN bonus" cash returns to shareholders.
Citigroup estimates that Telstra would still generate value of $6.2 billion from making its infrastructure including the "last mile" of its copper network available to a Coalition NBN, and generate $4.5 billion of NPV from disconnection payments as its copper wire customers switch onto the NBN, most often via neighbourhood nodes.
There's lots of detail to be sorted. Telstra and Optus could offer wholesale broadband on their cable, or just be retailers. They could keep their cable running when the network arrives in cabled neighbourhoods, or decommission it as a broadband pipe, and be paid to do so.
Telstra would keep its cable open to pipe Foxtel pay TV programming to consumers, but Optus might consider selling the cable outright to a company that wants to wholesale broadband in competition with the NBN.
Telstra might make extra money as an NBN constructor in the Coalition's rollout. On the other side of the ledger, it might also need to spend money to upgrade the last mile of its copper network to make it ready for connection to neighbourhood nodes. Whatever happened, the Coalition plan would require new legislation, the NBN's role and its regulation would need to be redefined, and Telstra's structural separation undertaking might need revision.
The Coalition's hybrid plan does not appear to seriously undermine the economic rationale of Telstra's co-operation with an NBN rollout, however. It wouldn't be a love-in when the details were thrashed out, but it wouldn't be a cage fight either.
The Maiden family owns Telstra shares.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
Telstra owns the existing copper-wire communications backbone and so is a crucial player in any national broadband network build. Whether government policy favours fibre-to-the-home or a fibre-to-the-node/hybrid approach, Telstra can extract payments for use or replacement of its copper ducts, conduits and the “last mile.”
The Coalition’s hybrid plan stops most connections at neighbourhood nodes (about 71%), with roughly 22% extending all the way to premises, and focuses upgrades ‘inside-out’ from regions into cities. That approach is slower in last‑mile reach than fibre‑to‑the‑home but cheaper up front and upgradeable — and the article says it is unlikely to seriously undermine the financial elements of Telstra’s existing deal and might even be more valuable to the telco.
Telstra finalised an $11 billion NBN deal that included structural separation from its copper network. Under that deal Telstra keeps ownership of the copper network while it is progressively shut down as fibre rolls out, and it is paid progressively (including for allowing NBN fibre to use its ducts and conduits) over the life of the broadband network.
Telstra put a net present value (NPV) of about $9 billion on the arrangements with some side deals adding about $2 billion more. Citigroup estimated Telstra could still generate about $6.2 billion of value from making infrastructure (including the last mile) available to a Coalition NBN and about $4.5 billion of NPV from disconnection payments as customers switch onto the NBN.
Yes. Delays in a fibre‑to‑the‑home rollout push payments out and reduce the NPV of Telstra’s deal. By contrast, a quicker Coalition-style rollout would likely accelerate payments to Telstra, boost the NPV of the arrangements and could speed up so‑called “NBN bonus” cash returns to shareholders.
Telstra and Optus could either offer wholesale broadband over their cable networks or operate as retailers. They could keep cable running where it remains competitive, decommission it as a broadband pipe and be paid to do so, or sell it — the article notes Telstra might keep cable to pipe Foxtel pay TV, while Optus might consider selling its cable to a wholesaler.
Yes — there are both potential opportunities and costs. Telstra might win construction work under a Coalition rollout and make extra money, but it may also need to spend to upgrade the last mile of its copper network to connect to neighbourhood nodes. The plan would also require regulatory and legislative changes that could affect Telstra’s separation undertaking.
Yes. The article discloses that the Maiden family owns Telstra shares, which is noted as a relevant ownership disclosure in the piece.
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