Telstra, Optus sign NBN agreements, subject to conditions

23 Jun 2011

Australian telcos Telstra and SingTel Optus have signed definitive agreements with NBN Co and the Commonwealth Government to participate in the rollout of the National Broadband Network (NBN), following two years of negotiations. However, in a press release, Telstra said that the Australian Competition Consumer Commission (ACCC) must first accept the incumbent’s structural separation undertaking and approve its migration plan as pre-requisites for its participation in the NBN. Telstra’s agreement also needs the approval of a majority of the company’s shareholders, with the vote scheduled for its AGM on 18 October 2011. According to the telco, the decision to participate was made on the basis that the proposed transaction is expected to provide it with the ability to recover more value for the business than the available alternatives, given the loss of value following recent government NBN policy announcements. The agreements provide Telstra with replacement revenue, through disconnection payments as the rollout of the NBN occurs, and new revenues, through access payments for the use of Telstra’s infrastructure over an assumed 30-year period. Telstra also set out a list of its anticipated long-term costs related wholly or partially to the rollout of the NBN, totalling approximately AUD2 billion (USD2.1 billion), while forecasting no significant effect on the company’s finances until after 2012.

Key components of the Telstra-NBN Co definitive agreements are as follows:

Telstra has agreed to disconnect, progressively, copper-based Customer Access Network services and broadband services on its HFC cable network (but not pay-TV services based on HFC) that are provided to premises in the NBN fibre footprint, and will migrate its services onto NBN-based services, over the expected ten-year build period of the NBN;

Telstra will provide NBN Co with large scale access to certain infrastructure – dark fibre, exchange space, lead-in-conduits and ducts – at prices based on committed large volume levels of usage and availability. The term of the infrastructure agreement will be between 35 and 40 years from commencement, plus two ten-year options to extend, exercisable by NBN Co. In order to maximise the availability of this infrastructure, Telstra will undertake necessary work on the infrastructure, and retain ownership of all infrastructure assets, except for those lead-in-conduits used by NBN Co which will become NBN Co property once used;

The government has agreed to a package which includes increased funding for the delivery of the Universal Service Obligation (USO), clarification of Telstra’s USO responsibilities for the supply of infrastructure in new developments in the NBN environment, and the avoidance of certain costs to Telstra through various funding measures such as funding of a public information campaign, and for employee retraining; and

Telstra and NBN Co have also agreed to key product feature and price commitments relating to NBN Co’s basic voice and data offering. These will be addressed in NBN Co’s full product terms, which remain subject to further development and industry consultation.

In a separate press release, alternative telco Optus announced that it had reached an agreement with NBN Co on the migration of its HFC customers to the NBN. Under the agreement, Optus will begin the progressive migration once the network is rolled out in a given area and is ready to provide services to customers currently served by its HFC network. Optus estimates the total value of the agreement as AUD800 million. Optus and NBN Co expect that the initial migration of customers to NBN infrastructure will commence in 2014. The programme is expected to take up to four years to be completed across Optus’ entire HFC footprint. Optus will continue to supply services to customers using its HFC network until the NBN is built and customers have been migrated. Mike Quigley, NBN Co’s CEO said: ‘A definitive agreement with Optus, Australia’s second largest ISP, represents a significant step in the journey towards a true level playing field for retail broadband services.’ The agreement is conditional on ACCC’s approval and satisfactory rulings from the Australian Taxation Office. The agreement also contains various termination rights, including rights relating to an implementation plan and the market environment in which the NBN is expected to operate. Optus will progressively decommission the parts of the HFC network that do not provide ongoing support for mobile infrastructure and business customers. Optus agrees to use only the NBN for the supply of fixed line services to residential and small business premises previously served by the HFC network. The Commonwealth Government is providing a separate guarantee to Optus to back NBN Co’s obligations.

Australia, Optus, Telstra (incl. Belong)