THE DISTILLERY: Broadband boon

Such unanimity of jottery this week: Foster's, Qantas, Woodside. All big deals or major announcements. All analysed until they couldn't move. Meaty, juicy issues, just made for our commentators to get their teeth into and gnaw contentedly this morning and for the next few weeks, even months. Then along came the NBN agreement, the timing of which had been known for most of the week. The pack was lying in wait, laptops at the ready yesterday, briefed till their eyes crossed. A nation-defining deal? It was only natural for it to grab the headlines and the commentators' attention. It is a big deal.

Malcolm Maiden wrote in the Fairfax broadsheets this morning: "I just can't get this image of wicket-keeper David Thodey, diving full-length down the leg side to miraculously scoop up a ball that is on its way to the boundary, out of my mind: Telstra's $11 billion deal with NBN Co and the Commonwealth government has to rank as one of the greatest saves in Australian corporate history. What Thodey has done, however, is to negotiate a deal that Telstra calculates not only compensates it for loss of market share and profits as the old copper wire network is dismantled, but creates a new, large revenue stream for the life of the national broadband network, as NBN Co pays Telstra for the use of ducts, pipes and other assets that are at present part of the copper network."

The Australian's John Durie wrote this morning: "The initial sharemarket reaction to the NBN deal was the best thing that could have happened from the government and Telstra's perspective. The deal is a boon to Telstra and the government can rightly claim some credit for pushing forward on a landmark infrastructure deal that is also a boon for the country. The government now will embark on a massive sales campaign aimed at showing how little Aussie battlers will benefit from the technology."

Durie wrote yesterday on the paper's website: "A very rough calculation suggests the federal government is $18 billion ahead on its NBN deal when you subtract the $37 billion cost from the $55 billion in proceeds from the sale of Telstra. As shown below by the proceeds from the different tranches, the taxpayer is, on the surface, well ahead, even after handing over $11 billion to Telstra shareholders as extra compensation. The government has sold an ageing monopoly network in exchange for a new one and arguably is still in front. Obviously, this analysis ignores the fact the money could be spent elsewhere and indeed would not have been necessary if the Howard government had the courage and foresight to actually split the company before it sold the first tranche in November 1997."

And fellow Fairfax writer Elizabeth Knight wrote this morning: "From the Telstra shareholder perspective, there are only two major factors that need to be assessed when it comes to voting on the agreement with the NBN/government that was outlined yesterday. The first is whether the compensation it receives will be sufficient to ensure that there will not be a cash flow hole created down the track when Telstra ultimately abandons its wholesale copper network business. The second is whether Telstra is capable of increasing its earnings in a new telecommunications landscape – one in which it does not have its traditional capacity to use a wholesale monopoly to do-over its telecommunications competitors."

News Ltd's Terry McCrann said this morning: "But as the actual consequences emerge of what's been agreed between Telstra and the NBN/government – and will be agreed with the competition regulator the ACCC – the other telcos are going to find out that it's no silver bullet. Indeed they could end up in a worse competitive position versus Telstra. Yes, they win from Telstra no longer being able to mix-and-match its wholesale and retail; but they lose the subsidy inherent in their access to Telstra's infrastructure. Indeed, they could be facing the worst of both worlds for years. For an extended period, Telstra will still be mostly the existing Telstra – the guy that owns the (continuing copper) infrastructure, as it takes the NBN ten years to build out the fibre.”

The Australian Financial Review's Chanticleer columnist said: "Don't be fooled by the negative sharemarket reaction to the definitive $11 billion national broadband network agreement." And the paper said in an editorial: "The economic and social value of the national broadband network is still unsubstantiated, and there are several hurdles still to be jumped."

Adele Ferguson wrote on smh.com.au: "The tortured $11 billion deal for Telstra to transfer its fixed-line monopoly to the national broadband network was finally stitched up this morning on the eve of Julia Gillard's one-year anniversary as prime minister. It was a deal the Gillard government had to pull off or face massive criticism after so much fanfare declaring the NBN to be part of a grand plan to build a new high-speed nation. Telstra's share price went backwards, easing 1.3 per cent on a day when the rest of the market was off 0.5 per cent, a result more about selling on the fact and buying on speculation. The details of this deal have been well flagged and will have no material impact on the group's financial results for 2012."

The Herald Sun found analysts weren't so optimistic about the deal: "Telstra needs to address unanswered questions over its $11 billion NBN deal in the lead up to the critical shareholder vote that could yet scuttle the landmark agreement, analysts say. The call comes as ratings agency Moody's yesterday placed Telstra on review for a possible downgrade on fears its margins may be squeezed. Under the $11 billion deal, Telstra will close its copper wire network and shift customers to the national broadband network. Analysts yesterday said the agreement – which was supposed to bring certainty to Telstra shareholders – instead posed more questions."

But the Herald Sun found one independent analyst who saw the longer term benefit of the deal: "The national broadband network deals bedded down with Telstra and Optus yesterday provide for a "new economic platform" that will transform Australian business, an industry expert says. Independent telco analyst Paul Budde said the deal was crucial to the development of the information economy in Australia, and would open the door for new businesses in sectors including health and education. "The massive capacity of the network, its ubiquitous nature and the low cost to end users will see a shift in the national economy towards a digital economy."

Business Spectator's Stephen Batholomeusz says: "If one looks forward to, say, about 2020 and assumes that the arrangements are intact, Telstra would be a re-seller of fixed-line services paying NBN Co for access to its infrastructure. It would still have some of its own fibre infrastructure and would be paid by NBN Co and others for access to it. It would be selling applications and value-added services associated with that business to both retail customers and businesses. It would still be generating inflation-protected annuity income from the infrastructure deal with NBN Co. Its fixed-line business would be much lower margin than it is today and Telstra would presumably, in an NBN environment, have a smaller market share but, apart from the compensation it would still be receiving from NBN Co, the business would be far less capital intensive than it is today, it would be far simpler and it would have much lower operating costs."

The Australian's Tim Boreham wrote yesterday: "Despite the monumental nature of the NBN news, which delivers $11 billion to Telstra in current-value terms in return for the telco ceding its copper network, Telstra shares this morning eased 3 cents. The announcement had been expected for some weeks and Telstra shares had been creeping up in anticipation, but some might have expected a bit more of a brass band. A key point is the payments are not up-front and won't influence Telstra's performance in 2011-12. Of the payments, $5 billion will flow in over 10 years, but a further $5 billion is staggered over 30 years, when the NBN will be as cutting edge as two cans and a piece of string."

Michael Pascoe wrote on smh.com.au: "The three-year trend of slowing population growth from the 2008 peak continued in 2010 as more of us died and net overseas migration dived. According to the latest Australian Bureau of Statistics demographics survey, Australia pulled up just 22,600 short of the 22-and-a-half million mark on December 31 – just 1.5 per cent more of us than in 2009 and well down on the peak 2.2 per cent expansion in 2008. Thus while various politicians were jumping on the anti-migration bandwagon during last year's election, we were already stepping back from a brief surge to a more normal growth rate." Another reason why economic growth has slowed, but it will also be a reason why the RBA is worried about labour costs.

The Australian's Nabila Ahmed said: "Bidders for Fairfax Media's radio business will have three weeks to submit indicative offers after advisers KPMG officially kicked off the auction. It's understood prospective buyers received information in the past day or so showing the business is generating about $30 million in earnings before interest, tax, depreciation and amortisation. Fairfax is hoping for close to $300 million from the sale, although bidders believe $200 million to $250 million would be more realistic."

The Fairfax business pages (and other papers) report that: "Australia's biggest infrastructure project, the Oakajee port and rail development in Western Australia's Mid West region, was in tatters last night after being torpedoed by its key Chinese foundation customer. Sinosteel Midwest's sudden decision to mothball development of the $2 billion Weld Range mine robs the Oakajee proponents of 15 million tonnes of iron ore a year, or one-third of the infrastructure's proposed start-up capacity. It remained unclear last night whether Murchison Metals and Mitsubishi, the two companies behind the Oakajee Port and Rail consortium, could resurrect their 45 million-tonnes-a-year infrastructure plan without Sinosteel's involvement." If this project dies, it's good news for BHP, Rio and Fortescue because that extra iron ore will no longer make it to market.

And The Australian's Bryan Frith reported this morning: "Sinosteel's dramatic decision to stop work on its $2 billion Weld Range iron ore project and to sack its staff may well sound the death knell for Murchison Metals' plans to develop, in conjunction with Japan's Mitsubishi, a new deepwater port at Oakajee and a railway line to open up Western Australia's midwest region. Murchison obtained a trading halt yesterday afternoon to enable it to consider Sinosteel's announcement and the implications for the port and rail project. At the time, the company's shares were trading 4.5 cents lower at 76.5 cents.”

And still in resources, the AFR said this morning that: "BHP Billiton has said the estimated cost of expanding the Worsley alumina project in Western Australia had increased by more than half due to its complexity and inflationary pressures."