Telstra deal: market relief, but it's only half-time

Metaratings
22 Jun 2010
00:00
Article

The Telstra-NBN deal must come as a relief to many of those involved but, to use a current metaphor, it’s only half-time.

After a year’s negotiation, the two parties announced a heads of agreement on the weekend.

Telstra’s stock spiked 3.4% yesterday as investors welcomed the certainty the deal offered, leading lead the Australian stock market to a one-month high.

With a national election several months away, communications minister Stephen Conroy must also be breathing easier.

It was Conroy’s brinkmanship in scrapping the previous government’s NBN plans that drove the government to create this new and much grander project, valued at as much as A$43 billion ($31b).

But the most important aspect of the deal is that one has been struck. As Ovum said, it “demonstrates a willingness on both sides of the table to progress the negotiations, and makes the prospect of a successful rollout more likely.”

Much of the detail is yet to be settled, and we don’t know a lot about that which has been agreed, but after the acrimony and uncertainty of the last 12 months it is a big milestone.

On the plus side for the telecom market as a whole, the announcement probably rules Telstra and NBN out of the wholesale market, Ovum’s David Kennedy thinks.

“The business case for a privately funded national wholesale-only fiber network is weak at best,” he said in a research note. “We believe that substantial public subsidy will be required whatever the competitive scenario, but competition would have inflated the level of subsidy required.”

However, he cautions that, having struck this deal, the interests of Telstra and the NBN Co’s will be increasingly aligned – Telstra will be the NBN Co’s biggest customer.

“It is essential that the rest of the industry demands transparency in any final deal to ensure that no hidden cross-subsidies creep into pricing arrangements between the two companies. It will be the role of the regulator to scrutinize this.

Related content

Tags:
Comments
No Comments Yet! Be the first to share what you think!