Turnbull and Telstra's free copper

Malcolm Turnbull's indomitable confidence when it comes to working out a deal with Telstra will infuriate his critics but he does have a few inducements on hand to help him navigate what will be a complicated affair.

The National Broadband Network (NBN) debate might not be the vote winner it once was but shadow communications minister Malcolm Turnbull’s latest bout of political posturing has certainly managed to infuriate his critics.

Turnbull’s bold assertion that the Coalition can acquire “access, ownership if you like,” of the last mile copper without any additional payment, isn’t exactly a bolt out of the blue. The shadow communications minister has been labouring the point for some time now and the latest statement made in an interview with Sky News is most likely another exercise in political point scoring.

However, does the tough talk lock Turnbull into an intractable position if things don’t quite go to plan? There are plenty of people who would only be happy to point out that Telstra isn’t going to hand the copper over to him without lining its pockets. Or is it?

Turnbull’s indomitable confidence has intrigued NBN watchers but it’s unlikely that it stems from the Coalition having already cut a deal with Telstra. The shadow communications minister has undoubtedly had informal talks with Telstra put a predetermined deal struck before the outcome of the election.

What they have done however, is laid out the groundwork to start negotiations on a firm footing. Labor’s dealings with Telstra weren’t always convivial and the Coalition would be wary of repeating the mistake, given the aggressive rollout time table of its version of the NBN.

Turnbull’s latest comments reflect the Coalition’s starting position for the ensuing talks with Telstra.

“Telstra already has an arrangement with the NBN Co, a contract in fact, whereby they are being paid about $1500 for every premise as it is cut over to the NBN and they decommission their copper network,” he said.

“Their copper network in the context of an NBN world is of no economic value, it can’t be used anymore, so I’m very confident that we can acquire access, ownership if you like, of the last mile copper for no additional payment.”

Firstly, the Coalition believes that adequate compensation has already been provided to Telstra and secondly, that the copper just isn’t that valuable.

Informa analyst Tony Brown says that at the moment the copper is being deactivated, it still stays in place and Telstra is still its owner. For the Coalition, its biggest test will be to deduce just what Telstra will sell or lease to the new look NBN Co.

“The big question for Turnbull is to work out what it is he is actually buying, so before push comes to shove he needs to have a completed a strong evaluation of the quality of the copper network,” Brown says.

“The only people who know that is Telstra and that adds another layer of complexity to the negotiations.”

The sentiment is echoed by independent analyst Chris Coughlan, who says Telstra will most likely have a number of starting points of its own.  

Telstra have structural separation as defined in the Structural Separation Undertaking (SSU), and Coughlan says the telco could potentially push for a declaration of geographic areas where either NBN Co or Telstra Wholesale can provide access services.

With regards to the copper, Coughlan says, Telstra may first look at leasing the copper to NBN Co however, if a purchase is envisioned, then a price equivalent to 80 per cent of the saving associated with doing fibre to the node (FTTN) vs Fibre to the premises (FTTP) would probably be the telco’s opening gambit.

“Turnbull will be hoping for a depreciated asset value, Telstra will not contemplate this,” Coughlan says.

As the NBN has been rolling out Telstra has been signing lease agreements for 20 years with NBN for facilities, duct space, backhaul etc.  According to Coughlan, the ongoing liability to Telstra increases every day as the NBN is rolled out further.  

“Perhaps by transferring the current NBN assets to separated Telstra there is solution to this problem,” he says.  

“Telstra Wholesale will of course be looking for revenue and margin assurances and I'd expect that it will come under the same ACCC controls as NBN Co, that will require a new SAU, that in itself is a 12 or more month process.”

Turnbull’s drawcard for Telstra is that under the Coalition’s plan the telco should be getting its NBN payments at a much faster clip. And there are other inducements that may also come into play

One potential incentive is allowing Telstra to make some extra money on the construction side. Turnbull has indicated that he is partial to getting Telstra involved in the construction and design of the process and that scenario is almost certain to be part of a final deal between the Coalition and Telstra.

According to Brown, the Ultra-Fast Broadband (UFB) rollout in New Zealand provides a few markers to what might ensue here post-election.

“If you look at what happened with Chorus in New Zealand, they split the network up and then everybody had to tender for different regions of the UFB build, Chorus ended up winning 70 per cent of the work and are right now outstripping everyone else,” Brown says.

“Turns out telcos are actually quite good at building networks, who would have thought that?”

Telstra did bid for the construction work at the inception of the project and with Turnbull unlikely to use big stick to bring the telco to a reasonable position, things just might come full circle if and when the Coalition comes to power.