Telstra and NBN Co reach quorum on fiber rollout

David Kennedy/Ovum
23 Jun 2010

Telstra and the government-owned NBN Co have been negotiating the terms of Telstra’s involvement in the NBN project for over a year.

On 21 June 2010, the government, the NBN Co, and Telstra jointly announced that they had reached a non-binding agreement for Telstra to progressively transfer its wholesale and retail traffic to the NBN as it is rolled out over the next eight years.

Importantly, the government has achieved a political victory by progressing negotiations towards the successful rollout of the NBN in advance of the national election expected later this year. As the situation in the UK with the fixed-line levy demonstrates, a change in government has the potential to derail what had been planned.

The parties have agreed the compensation to be paid to Telstra for the loss of its fixed access revenues and for the use of its ducts, and for transferring the cost of the USO to a new USO Co, giving the agreement real substance. The net present value of this compensation will be A$11 billion ($9.7 billion), which is in the region of estimates of value made by financial analysts. This money will ultimately come from the government.

Of course, this is not a final deal, and either party could walk away before the deal is finalized. The parties cannot yet share details, and it is clear that some of these details remain undecided. The announcement nevertheless demonstrates a willingness on both sides of the table to progress the negotiations, and makes the prospect of a successful rollout more likely.

Regulatory approval will be required for any final deal, either through an authorization for a non-compete agreement or legislation. Neither of these can be guaranteed, since the regulator has not seen a final deal and the government does not control Parliament.

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