Telstra's NBN Co gift that keeps on giving

The progressive 'gifting' of Telstra's copper and HFC network assets will give NBN Co complete ownership of the fixed network while allowing Telstra to reduce its operational expenditure and concentrate on its future.

Telstra’s annual report has revealed that it is negotiating to progressively "gift" its copper and HFC networks to NBN Co as part of the revised arrangements as the national broadband rollout strategy shifts from fibre-to-the-premises to a multi-technology mix.

It’s not actually a gift, given that Telstra was going to be paid handsomely to progressively decommission the copper network under its existing agreement. Its bottom line in the negotiations remains that the $11 billion of net present value, no matter how it is delivered, remains intact.

The Turnbull version of the rollout, with its core of fibre-to-the-node, relies on Telstra’s copper from the node to the premise. Therefore, unlike the fibre-to-the-premises rollout, it requires that the final connection to the premise not be de-commissioned.

The two options for NBN Co were to lease that final piece of copper from Telstra, leaving the responsibility for its maintenance (and the costs of maintaining it) with Telstra, or to 'acquire' it.

In Telstra’s annual report, the company says that it has agreed a non-binding commercial framework for a re-negotiated agreement with NBN Co and the government.

"This commercial framework anticipates a change in the approach taken in respect of the copper and HFC network assets, from staged de-commissioning to NBN Co owning some or all of such assets progressively as the NBN is rolled out.

"As the current arrangements already provide that Telstra is progressively restricted in its ability to use the copper and HFC network assets, the commercial framework does not contemplate any incremental value to be received by Telstra for the transfer of ownership," it said.

Last year Malcolm Turnbull was howled down by his critics when he said the copper network could be acquired without any further payment. NBN Co chairman Ziggy Switkowski also raised that prospect earlier this year.

It makes sense for both parties. Telstra has effectively already locked in payment over time for decommissioning the network so the copper essentially has no additional economic value to it -- unless it were prepared to try to use its commercial leverage to get paid even more.

It is apparent that David Thodey is being both pragmatic and reasonable in the negotiations. He doesn’t want a fight with another government and wants to put the NBN-related issues to bed as quickly as possible so that Telstra can concentrate on its future, so long as he gets the $11bn of net present value.

Selling the copper, rather than leasing and maintaining it, is a cleaner outcome for Telstra; one that will over time reduce its opex and the workforce associated with maintaining the copper, although NBN Co might contract the maintenance back to Telstra.

From NBN Co and the government’s perspective, it is also a cleaner outcome. It would progressively give NBN Co complete ownership of the fixed network and therefore the flexibility to determine how broadband should be delivered over it both in the near term and in perpetuity.

In a decade’s time, it wouldn’t want to go through another bout of negotiations and pay Telstra more for the ability to replace the copper between node and the premise with fibre.

It will mean that it will have to take over responsibility for the maintenance of the copper, but any lease arrangement with Telstra would have reflected those costs in any event.

There are some negotiations occurring over the detail of the point at which ownership and responsibility for a line should be transferred from Telstra to NBN Co and Telstra is also wary about the potential impacts of future changes to the NBN rollout strategy.

It said its continued ownership of copper and HFC assets provided some protection against future changes to the NBN and that it was seeking to agree other contractual mechanisms to achieve the same end. It doesn’t expect there to be any impact on its continued access to the HFC network for its Foxtel pay television joint venture with News Corp.

It is apparent that there is goodwill and a common cause between Telstra and NBN Co and that both NBN Co and Turnbull are well aware that the $11 billion of net present value Telstra currently has contractually locked in has to be "kept whole". The rest is detail.

Turnbull and NBN Co do have an extra carrot to dangle. Apart from the transit network (the only significant part of the Stephen Conroy version of the NBN, which will be delivered slightly ahead of time and on budget), Telstra was kept out of the construction of the network.

Earlier this year NBN Co announced that with Telstra it would build a large-scale fibre-to-the-node pilot project. In the annual report Telstra said it was negotiating with NBN Co for the provision of design, construction and maintenance services on commercial terms.

It never made sense to exclude the only Australia telco with the experience of building and maintaining large fixed networks from the construction of the rollout, particularly given that the original NBN cut over the copper network and displaced its connections to premises. It is further evidence of a more co-operative and less suspicious and tense relationship.

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