NBN deal undervalues our copper: Telstra

NBN deal undervalues our copper: Telstra

Summary: Telstra has said that the Australian Competition and Consumer Commission hasn't valued the telco's copper network highly enough, because it wrongly used the Financial Heads of Agreement deal the telco struck with the Federal Government earlier this year to price the asset.

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Telstra has said that the Australian Competition and Consumer Commission hasn't valued the telco's copper network highly enough, because it wrongly used the Financial Heads of Agreement (FHoA) deal the telco struck with the Federal Government earlier this year to price the asset.

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(Australia Dollars image by InfoMofo, CC BY-SA 2.0)

The claim was made in its submission (PDF) to the Australian Competition and Consumer Commission's (ACCC's) draft report on access pricing for fixed line services.

In a draft paper deliberating about what price Telstra can charge access seekers to use its copper network, the commission proposed shifting the valuation of Telstra's assets from current-dollar valuations to a nominal valuation. A substantial item in Telstra's assets is its existing copper access network, which the ACCC valued at $9 billion, based on the agreed terms of the deal the telco reached with NBN Co. This valuation would then ultimately be used to determine the price Telstra could charge access seekers.

Telstra said the new valuation was put forward "without any justification" and would result in an $18.6 billion devaluation of the telco's assets.

"The amount in the FHoA was also a post-tax amount — a factor not taken into account in the ACCC's analysis, which adopted $7.5 billion and $5.8 billion as pre-tax values," the telco said. "When the full $11 billion amount agreed under the FHoA is scaled up to reflect this error, it alone increases the value of the non-binding FHoA payment to approximately $16 billion.

"The amount in the FHoA also excludes pre-migration net cash flows, which add to the value of the CAN [copper access network] for the period over which the ACCC proposes to set indicative prices."

Telstra said in the submission that it was incorrect for the ACCC to use the value of the government's agreement as the basis to price the copper network because the deal wasn't a straight asset purchase.

"The FHoA is not — and was never treated as — an asset purchase. The amount agreed under the FHoA is one element of the terms on which Telstra was prepared to 'settle' a global and multifaceted deal with NBN Co and the government," Telstra said.

Part of the deal, Telstra said, included concessions from the government to participate in 4G spectrum auctions, something the government had threatened to prevent the telco from doing if it did not agree to voluntarily structurally separate. The ACCC also didn't take into account the cost to the government for further regulating the industry in the event that structural separation was forced on the telco, Telstra said.

"Given these various factors, and the nature of the FHoA itself, it is simply not possible for the ACCC to backwardly derive from the FHoA a value for the [copper access network] which is reasonable or robust."

The ACCC also wasn't taking into account the effect of the National Broadband Network (NBN) on the valuation of the copper network, ignoring the short asset life and reduced demand for copper-based services given the roll-out of the NBN. These were all factors that would affect pricing, according to the telco.

Topics: NBN, Broadband, Government, Government AU, Telcos, Telstra

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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3 comments
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  • Give em $1 and tell them the rest has already been paid in the RIPOFF amounts Telstra has charged the consumer over the years.

    I read a report it would cost 12-14 billion to replace the copper CAN.... So we are paying for 5-10-20-30 year old copper at new prices.

    FFS. Australian we are being walked all over by our Government and have for years. TIME TO TAKE TO THE STREETS!
    kirbykia@...
  • Telstra's copper network is well and truly on its last legs. If they actually did any maintenance on it, it might be worth something, but as it is, it is actually worthless. I don't have mobile coverage here, so I am barracking for the NBN. If the conservative wreckers kill it off, I will be without any telecommunications service in a couple of years.
    greals
  • With modern technology even a circuit made of rust with paint as an insulator (not your typical paint) has some amazing untapped potential.

    Of course, it lacks the 'new & shiny' appeal, plus NBN Co trumps it in every possible way. (Excluding emergency calling by land-line, requiring at least 85 watts, and the whole 'overhead optical fibre' issue).
    scott2010au