Telstra, Optus could co-own Coalition's NBN: Report

Telstra, Optus could co-own Coalition's NBN: Report

Summary: An analysis of the Coalition's options for the National Broadband Network if it wins the September election has suggested Australia's two largest telcos could take an equity interest in a modified NBN Co.

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TOPICS: NBN
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A report by Allen & Overy and Venture Consulting has suggested that should the Liberal-National Coalition win the federal election in September, Telstra and Optus could be brought in as co-investors with the government for a refocused NBN Co that would reuse hybrid fibre-coaxial (HFC) networks and expand wireless and satellite coverage.

One of the biggest hurdles that a potential new Tony Abbott-led Coalition government would face in changing the rollout of the National Broadband Network (NBN) from the current fibre-to-the-premises (FttP) network to a fibre-to-the-node (FttN) network would be renegotiating the AU$11 billion Telstra deal and the AU$800 million Optus deal to transfer their customers over to the NBN from the copper network and each telco's HFC networks.

Telstra CEO David Thodey indicated last week that he would expect shareholders to retain the full AU$11 billion value of the deal under any government.

The Allen & Overy and Ventury Consulting report, provided to ZDNet today, provides an in-depth look into potential options for the Coalition should it win the election in September and seek to scale back the NBN to FttN. Along with extended use of the satellite and wireless networks and the HFC networks of Optus and Telstra, there would have to be substantial renegotiation of the Telstra and Optus deals. However, it said that one method to get the telcos onboard would be to have them co-invest in an altered NBN Co with the government.

"Telstra and/or Optus could receive a minority equity position in NBN Co based on contribution of their copper and HFC assets," the report stated. However, it also said that it would not be enough to compensate the companies for their existing NBN deals.

"We are doubtful that they would accept the conversion of their current cash compensation into equity."

An alternative, the report suggests, would be to seek capital investment from global companies such as Canadian pension funds, which have a history of investing in Australian infrastructure companies like Macquarie Communications Infrastructure Group and, most recently, NextGen.

"While these investors will demand a higher return than government, it is not that much higher, and lower-priced consumer services can still be delivered off the back of a lower-cost structure and greater private sector efficiencies."

The report proposed three ways forward with NBN Co in the event that Malcolm Turnbull becomes the communications minister:

  1. A renewed NBN Co that rolls out the altered network using Telstra's copper sub-loop and the HFC networks. Telstra and Optus would have equity in the company in exchange for handing over their network infrastructure to the new NBN Co

  2. NBN Co could be split into two companies: Metro Co and Regional Co. This would mean that Metro Co would be attractive to private investors, while the government could continue to invest in the less profitable Regional Co

  3. A new ASX-listed company called Net Co is created that is the combination of Telstra's fixed-line wholesale arm and NBN Co.

The report acknowledged that the last is unlikely to occur for the next few years if at all, and would probably be closer to being done around the time of the 2016 federal election.

There would need to be an adjustment in the breakdown of the different technologies used, the report stated. Instead of 93 percent covered by FttP, 4 percent by wireless, and 3 percent by satellite today, it would be more likely to see 83 percent covered by FttN/FttP/HFC, 10 percent on wireless, and 7 percent on satellite.

But the report made the assumption that 17 percent of premises will be passed by FttP by the time of the election, with 2.6 million premises covered by HFC and 10 percent covered by wireless and satellite, leaving the Coalition with 53 percent of premises left to address with a fibre-to-the-node rollout.

"If we assume that the FttN deployment can reach a further 30 percent of the population by the end of 2016, then by the next federal election, 75 percent of premises could be receiving high-speed connections, with the remainder of the population looking at a near-term solution."

The report is reliant on much of the media reporting on the Coalition's proposed policy. Turnbull has not yet unveiled his policy in full, but it has been reported that a more detailed policy will be released in the next few weeks. Turnbull has consistently rejected the notion of pricing his policy in full in comparison to the AU$37.4 billion Labor government project, stating that the Coalition would first need full access to the financials and contracts held by NBN Co.

Topic: NBN

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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24 comments
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  • Touch your toes Australia

    The Libs and Telstra and Optus, the very people who have given us the communications networks we now have which necessitated the NBN are back to running the show, competion will be effectively destroyed. Look at how well Telstra and Optus have looked after and upgraded their fixed networks. Rural Aust shafted once again with the Taxpayer picking up the TAB.

    What else would anyone else expect
    Abel Adamski
    • And

      What is wrong with the current networks run by Telstra and Optus. Have you ever used their services or just believe in hear-say? What makes your statement silly is that both Telstra and Optus have invested billions in their infrastructure - WITHOUT and govt help.
      Kunal Nanda
      • Demonstrates what?

        Yes Telstra and Optus have invested approx the same amount over the same time frame as the NBN will And what have we got for that and what will we get from the NBN. ?

        2 Years for Telstra to do ONE exchange/suburb ?
        Abel Adamski
      • LOL...

        "What makes your statement silly is that both Telstra and Optus have invested billions in their infrastructure - WITHOUT and govt help."

        That was a joke right?

        Telstra (like the NBN) started off as a GBE and was privatised. It doesn't change where it originated.

        Optus is owned by SingTel who is owned by Temasek Holdings ...an investment company owned by the Singaporean government.
        RS-ef540
      • Oh Telstra took government help alright.

        Not true, the ADSL equipment installed in the FTTN cabinet down the road was paid for entirely with Government money. Telstra had no interest what so ever in upgrading it, too few customers on it. But when the locals annoyed the politician just before the election, voila its upgraded (ps: he got voted out anyway).

        proof.
        http://www.archive.dcita.gov.au/__data/assets/pdf_file/0008/70001/Fact_Sheet_ABG.pdf
        haseo20
    • How about this?

      http://www.zdnet.com/spain-to-get-1bn-fibre-to-the-home-roll-out-7000012558/

      I don't see the spanish government investing billions.
      Kunal Nanda
      • Apples and Oranges

        Cities only, and in Euro's
        European cities tend to be much higher density
        Abel Adamski
      • Err...

        There's lot's people don't see in relation to the positives regarding the NBN, if they are pig-headed and refuse to see :(
        RS-ef540
      • And how about this?

        http://www.zdnet.com/au/we-had-the-same-debate-france-approves-nbn-blueprint-7000012057/

        I do see the French government investing billions.

        Your turn *sigh*
        RS-ef540
  • Interesting bed partners...

    I remember vividly the attacks on Singapore owing our network coming from a particular Telstra spokesman on NWAT back in the OPEL/TERRiA days...

    If the alternative to a comprehensive NBN wasn't so pitiful one would physically LOL :(
    RS-ef540
  • I can see why this scenario would be very appealing to Telstra and Optus. They get to effectively unload the responsibility of the copper and HFC just as they wanted while getting to milk it at the same time. I'm sure the Turnbull/FttN apologists would also welcome something as inefficient and as messy as this, the fact that taxpayers money will be used to subsidise regional users when the NBN had it all worked out is irrelevant. It seems in their ideal broadband world unless you are screwing as many as possible you simply aren't doing it right.

    Number three is very interesting. What could possibly compel me as investor to buy shares in a fixed line wholesale network company that has no intention of upgrading to fibre because "wireless is the future"? I'm sure not even Turnbull would risk his money on this lemon.
    Hubert Cumberdale
  • Very, very likely

    I've been weighing up the likelihood of NBN Co assets and responsibilities being taken over by (a) an industry consortium, or (b) Telstra by itself.

    I actually think that option (c) a Telstra-Optus duopoly is actually the most likely of all.

    An industry consortium would be dominated by Telstra in any event, and most of the smaller players would be unwilling to get into bed with an elephant. And Telstra as sole NBN successor would raise a hue and cry from the whole sector that the clock was being wound back 15 years.

    And that's the thing about duopolies. They're nice, cosy affairs. Look at Coles-Woolworths, Coke-Pepsi, Qantas-Virgin. They preserve the illusion of competition while in reality controlling it very tightly. It's like the old saw where competition, like democracy, "is so precious, that it must be rationed out very carefully!"
    Gwyntaglaw
  • The Liberals should invest in NBN.

    The Liberals should move all their parliamentary superannuation into the New NBN, and if it's lemon they loose it.
    Turnbull's not going to put his money into this neither are investors unless of course they have a government guarantee like road tunnel operators, nobody's that stupid. Turnbull's money is in France and FTTH.
    Telstra and Optus are not going to renegotiate their positions unless they get a better deal from Turnbull they simply don't have to.They will achieve the best price for their shareholders.
    Telstra with an 11 Billion Dollar deal in place will not accept any "minority shareholding" and the size of the current arrangement necessitates a near majority shareholding! Optus will get a minority shareholding of about 10%.
    If Turnbull thinks he can do the Liberal NBN "substantially" cheaper than he current version, he's suggesting a Final Sale Price of maybe less than 30 Billion dollars therefore Telstra under a new arrangement would probably want a 50% shareholding considering they will upscale their wish list to probably to 15 billion and Optus 10% leaving Turnbull to cough up the bread for the "fibre to the node implementation of his guessed" 15 Billion, his guess may be a little on the low side if he is now suggesting a service obligation of 80Mbs VDSL in lieu of his real current position of a service obligation of 12Mbs. Giving the LNP government a final shareholding of 40% at a price of 12 Billion.
    That's only if things go to Turnbull's plan, if things go wrong anything could happen. It's been shown time and time again by governments everywhere of all persuasions nothing ever goes according to plans.
    John Howard thought the MH60 Seahawk at $20 per chopper was too expensive, so decided they would adopt the New Zealand solution of renovating a bunch of old mid sixties Karman Seasprite choppers, but the navy wanted to increased the capabilities these aircraft to something like the performance of the later Seakings running up a tab of $1.5 Billion when they could have bought at the time a brand new 16 Seakings and all the equipment for around $600 million.

    Tony Abbott another exponent of high finance and comprehensive planning (who's dad was a Dentist and prosthesis fitter) set up the Dental scheme for the chronically ill at a touted cost of $98 Million annually, when Labour abolished the scheme it was costing $1.2 billion annually.

    Even if things do go to plan it's likely when rural users realise they have been sold the dump they will the pressure the Liberals to deliver in the following government, and current users begin flooding Liberal members with complaints about water affected services and poor speeds since the government will be a shareholder.
    What's their next step?
    Kevin Cobley
    • A Fancy Prospectus

      Good Form for that , look at the share price they got the trusting investor to pay for Telstra.
      A bit of whitewash and glib cover up like their glib sound bites, after all it is a monopoly with vertically integrated majority shareholders
      Abel Adamski
  • Debate will deliver.

    The present situation is facinating. Stephen Conroy does have a plan for a top shelf system for Australians. There are two problems. The cost of the Conroy FTTP plan would be enormous, and the roll-out years longer than promised. The second problem is the elephant in the room, the coming election.

    Telstra and Optus have a deal with Government that they are happy with and should changes be requested both companies would not accept, nor should they, an offer of less attraction to them. Malcolm Turnbull wishes, on behalf of the Australian taxpayer, to give the Australian taxpayer an acceptable fast system for less cost and perhaps with a faster delivery.

    Malcolm Turnbull has stated that he understands the Optus/Telstra position and he will ensure that whatever deal is done these companies will not be worse off financially by any changes made. Probably if Telstra and Optus were offered part ownership of the new system (whatever that system is, and this decision would take careful negotiation) a deal could happen.

    There are those who will be saddened by the present situation and my advice to them would be to accept the fact that the FTTP roll-out is an impossible dream at this time, and to face the truth that changes will be made and for them to contribute to the finding of the solution by sensible debate that will see an adequate system delivered for all Australians.
    sydneyla
    • OK you have won

      Now consider the REAL consequences for the Nation and your other shareholdings and the other social and economic consequences.
      Will the result actually be better for Australia, not just now but in 20 years time. Can you actually see the LNP government constantly paying massive subsidies which will be needed, where will that money be taken from?
      The LNP appear to be following the IPA goals ,which include defanging the ACCC, so how does major shareholders that are vertically integrated and looking after their own shareholders interests benefit the rest of the Nation.
      Who will pay to make the copper subs loop cables and pairs fit for service and maintain the fit for service?. It should be Telstra at their own cost as they intentionally ran it down for shareholder benefit. Do you agree?
      Will competitive media products actually be facilited or even enabled. Remember Telstra's deep packet inspection trials?
      Telstra's partner controls or owns 85% of Australia's media
      Power Corrupts, absolute power Corrupts Absolutely.

      Touch your toes and accept the consequences you have failed to consider
      Abel Adamski
    • Acceptable Solution?

      Please define an acceptable solution that will take into account all sectors in Australia, not just now but for 20-50 Years time that won't cost the taxpayer many billions from the budget, especially an ongoing taxpayer drain. Plus can you personall guarantee the products available will be cheaper, business capable and more reliable with a OPEX that is no greater and at no greater cost to the taxpayer.

      Please explain how your solution will achieve that, and indicate how much quicker it will be achieved, and if those couple of years will be worth what we end up with for the Many decades to come
      Abel Adamski
    • Our prime example we will dutifully follow

      http://www.trefor.net/2013/03/12/the-bt-engineering-visit-lottery-get-yer-tickets-ere/#more-11268
      Abel Adamski
    • Think Syd, think, it won't hurt...

      Sydney, rather than showing your political and selfish monetary biases, think (for once)...

      FttP is NOT unaffordable???

      It comes in at around $4B per year for 10 years - compare that to budgetary areas such as health @ iirc $50B per year or governace at some $100B per year and your claim is laugahable...

      Then again I ask you ... to please enlighten us as to "your opinion" regarding the following, relating to the Coalitions Broadband Plan...

      * What are the technologies to be use %ages and where are these technologies to be used
      * Total cost
      * Funding - who pays and from where
      * ROI - who gets it taxpayers or private enterprise
      * Ownership - who owns the finished product, taxpayers, private company/companies or a mix
      * Telstra - the need of their CAN, how will that work
      * Since the copper is required for national infrastructure, should the government simply seize the CAN from Telstra for the good of the nation
      * If not, why not - considering it would reduce the most important (to some) cost, significantly
      * HFC isn't open access, will Telstra and Optus be forced to provide wholesaling to competitors
      * ACCC - regarding access for other Telcos/ISP's, to the Gov/Telstra's network, how will that work
      * Maintenance of the old copper - who pays (OPEX)
      * What benefits will we see, considering we will still have a copper bottleneck
      * FttP - will it ever be needed
      * If not why not
      * If so - please repeat the first 5 dot points
      * Wireless - where does this come into it (remember all those towers)
      * What happens if FttN is held up legally because of Telstra's CAN (either by Telstra or competitors).
      * Ditto regarding HFC but with Telstra and Optus

      As you can see, the Coalitions Plan has more holes than Swiss cheese. And while the NBN isn't perfect, it of course has issues (and I have always said this) it is nonetheless, clearly, far and away the best option... as all of the above problems have been addressed.

      Rather than grandstanding Syd think about the above...!
      RS-ef540
      • ATTENTION all NBN detractors...

        You all come here and blurt out your spiel... so above are the questions, since brother Sydney is unable and intelligently ill-equipped to either try to answer them, or not man enough to retract...

        So one of you other's may like to help out and shed some light...

        We are waiting!
        RS-ef540