Telstra

After three years, Telstra has finally signed off on its $11bn (in post-tax present value terms) compensation agreement with NBN Co. The first payment of $190m (post-tax) is expected this year. While the initial payment is miniscule, the deal guarantees Telstra will receive $11bn over many years (assuming a new government doesn’t scrap the $37bn project).

Although the deal was virtually guaranteed long before the recent announcement, Telstra still faces several challenges. Dividend payments currently exceed free cash flow and the NBN deal is unlikely to remedy that. Competition will also increase due to the new arrangements and there’s no guarantee Telstra will thrive as a retailer, though the early signs are promising.

Telstra also announced that Foxtel’s proposed acquisition of regional pay TV operator Austar has progressed, with the ACCC currently assessing the impact on competition. The outcome is inconsequential, though, as Telstra’s 50% stake in Foxtel produces less than 3% of the telecommunication giants' total profits.

With the share price falling 5% since Telstra: Future guaranteed from 15 Feb 12 (Hold – $3.43), we’re sticking with HOLD.