Telstra's $11.2 billion assured

Telstra and the Federal Government will successfully renegotiate the NBN payment

A little over a week in office and already the telecommunications cards have been thrown into the air.

For Telstra (TLS) shareholders, concerned that the company's $11.2 billion Federal Government bounty may be reduced, at this stage there appears to be little to fear.

Telstra boss David Thodey has made it absolutely plain that the company has a binding deal with the Australian Government, not the Australian Labor Party, to receive $11.2 billion for handing over its wholesale infrastructure to the NBN.

While his attitude superficially has a whiff of intransience, the crucial element in the upcoming renegotiations will be the time value of money; a concept that will allow everyone, after much huffing and puffing, to leave the negotiating table with their pride intact.

In Opposition, the numbers emanating from the shadow communications minister's office indicated Telstra would be receiving close to $50 billion or more on a nominal basis for the length of time it takes for the cable to be rolled out.

The cheaper and faster roll-out may mean less dollars in nominal terms. But the cash flow will be quicker and hence some boffin will be easily able to recalibrate the net present value to Telstra at – that's right, $11.2 billion despite all the changes. Bingo! In fact, it could end up being more than that, despite the cheaper roll-out.

Negotiations between the new Communications Minister Malcolm Turnbull and Telstra have been proceeding on a preliminary basis for at least the past year.

Under the existing agreement, Telstra is to be paid for migrating customers from its copper network onto the new NBN fibre system as it was rolled out and that Telstra would use the NBN network exclusively.

Given fibre under the incoming government's policy will only be extended to the node, Telstra's existing copper line – the "last mile" –  will connect to the premises, opening up several avenues for negotiations around an $11.2 billion financial solution. 

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