Telstra agrees key commercial terms with NBN Co as it reveals first half financials

10 Feb 2011

Australian fixed line incumbent Telstra has announced its financial results for the six months ended 31 December 2010, using the occasion to also reveal that it has finalised ‘key commercial terms’ with NBN Co, the public-private company set up to oversee the construction of the country’s National Broadband Network (NBN).

Telstra CEO David Thodey noted that along with the agreement with NBN Co, which will deliver around AUD9 billion (USD9.11 billion) in post-tax net present value, his company had also reached an in-principle agreement with the Federal Government regarding the specific measures that will increase the value of the deal by a further AUD2 billion. Telstra has provisionally agreed commercial terms relating to copper network decommissioning, dark fibre and duct usage, exchange usage, certain roll-out arrangements and other matters with NBN Co, while the pair are reportedly still working on completing the associated operational details and ensuring that all contingencies are addressed. Subsequently Telstra is expected to commission an independent expert report for its shareholders so that the proposals and can be voted on at an Extraordinary General Meeting (EGM) provisionally scheduled for 1 July 2011. Telstra has noted, however, that the finalisation of any agreement, and indeed the date of its EGM, remains ‘subject to prior regulatory approval, price stability, confirmation of tax arrangements, and appropriate legislation setting out regulation and ownership rules for NBN Co and reform of the Universal Service Obligation.’

Meanwhile, in terms of Telstra’s recent financial performance developments were less positive, with the operator posting a 36% year-on-year decline in net profit, in part impacted by the telco’s rising operational expenditure as it has looked to increase customer numbers. For the six months ended 31 December 2010 Telstra posted a net income of AUD1.194 billion, down from AUD1.853 billion in the same period a year earlier, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 12.5% compared to 1H 2009 to AUD4.654 billion. Telstra noted that operating expenses (before D&A) for the six-month period had risen by 10.7% y-o-y to AUD7.829 billion, as it ‘invested in customer acquisition’, noting in particular that mobile subsidies had increased by AUD140 million, or 44%, to AUD457 million, while network payments in the half were up 5.3% as a result of increased outpayments resulting from mobile traffic growth. Turnover for 1H11 was AUD12.263 billion, down 0.5% y-o-y, and in line with Telstra’s guidance; this compared favourably with the 2.5% decline in revenue that Telstra reported in 1H10

Telstra’s initiatives to attract new customers seem to have had some effect, with the operator reporting that in the six months to end-December 2010 it had added around 919,000 new mobile subscribers to bring its total base to 11.5 million. Fixed line voice customer numbers, however, have continued to decline, with some 109,000 lines disconnected in the half, although this was offset by improved performance in terms of broadband subscriber uptake. Having reported a loss of 30,000 high speed internet customers in the last six months of 2009, in the corresponding period of 2010 Telstra added 139,000 new broadband customers, growth it attributed in part to the new offers it had introduced over the period.

Australia, NBN Co, Telstra (incl. Belong), Telstra Mobile