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Telstra key to stop NBN wobbles

The new Abbott government briefly lost control of the optics of its national broadband network remake after Fairfax Media revealed on Monday that the NBN board was being spilled, but it actually does have a plan, and it could go in two directions from here.

The new Abbott government briefly lost control of the optics of its national broadband network remake after Fairfax Media revealed on Monday that the NBN board was being spilled, but it actually does have a plan, and it could go in two directions from here.

One keeps Telstra onside, and potentially enlists it as a key network construction partner. The other potentially creates a bunfight reminiscent of earlier wars between the Coalition and the telco, and sends the government into the next election with the NBN project still off the rails: it's not hard to guess which path both sides favour.

Communications Minister Malcolm Turnbull and Finance Minister Mathias Cormann got the optics refocused on Tuesday by announcing interim instructions for the NBN, and yet another downgrade in the expected number of homes passed by June 30 next year.

The NBN gets 60 days to review its construction agenda and its finances and deliver what Turnbull says must be the unvarnished truth about the status of the project and the company. Ziggy Switkowski will be confirmed as the NBN's new chairman next week, and will oversee the task.

It will complete work on connections to 300,000 premises that are already contracted, continue to work on connecting 645,000 premises where plans are advanced, and look for ways to link 66,000 premises including apartment blocks that have been passed by fibre, but not connected.

Work on connecting another 900,000 premises is to be suspended until the strategic review is completed, and the government decides what shape its revised network will take.

All of that is as expected. The NBN project is changing, and it makes sense to slow the rollout while it happens. It is the talks that come after Switkowski has reported back and the new designs are drawn up that will be crucial.

Tony Abbott's pre-election commitment that Telstra and its shareholders would be "kept whole" in a rewrite of its $11 billion deal to co-operate with an NBN rollout is the fulcrum, but there are many moving parts.

Telstra has leverage because in its original deal it retained ownership of the copper wire that will have to be used where the government opts for fibre to the neighbourhood node instead of fibre all the way to premises. Telstra will need to be paid for its copper, but will get less for allowing access to its ducts and pipes, because the new fibre network will be less extensive.

The battle between telcos for customers will probably be less intense and customer churn less common under the Coalition's plan, because customers with contracts for services that connect by copper wire to neighbourhood nodes will not be disturbed. Lower churn creates value for all telcos, but creates the most for the biggest telco, Telstra.

Whatever formulas for payments are used, Telstra's co-operation with the rollout should also be more valuable if it receives its money earlier. The expectation is that under the Coalition's simpler plan, it will.

Labor also aimed the rollout more aggressively at country areas after its narrow 2010 election win, and its side-deal with the independents. Changes that focus the rollout on denser population areas would also accelerate payments to Telstra.

Once again, however, there are offsetting elements. A faster fibre rollout that was aimed more squarely at areas with higher population density would, for example, also result in Telstra's wholesale copper line rental revenue shrinking more rapidly.

The great risk in the talks is that either the government or Telstra decides that the mix changes so much that the original $11 billion agreement cannot stand, and has to be renegotiated - that the price of, in effect, re-nationalising the nation's telecommunications network has to change.

That would cause negotiating deadlock: the 18 months it took to reach a heads of agreement for the $11 billion deal is the guide there. If the government was seeking to pay less, it could also spark legal action by Telstra that further delayed the rollout.

There is, however, no sign that the new government will not begin the process by reiterating its intention to keep Telstra and its shareholders whole. If it confirms that going into the talks, there could be a relatively quick heads of agreement, on a deal that pays Telstra differently, for allowing access to its copper wire over the final mile of the network, for example, but nevertheless keeps the original value of the deal intact.

As they closed in on that result, Turnbull, the NBN and Telstra could also begin parallel negotiations over Telstra's participation as a broadband network constructor.

The telco was cut out of the NBN's build, but is the obvious choice to do much of the construction work, and wants the work. It would be paid for that on top of its original deal, but for the government, it could be worth it.

The Maiden family owns Telstra shares.

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