Telstra, NBN Co finally come to agreement

Telstra, NBN Co finally come to agreement

Summary: Telstra has finally signed an $11 billion definitive agreement with the National Broadband Network Company and the Federal Government, which will see it decommission its copper network, lease its ducts and pits to NBN Co and move customers onto the NBN, just over a year after the heads of agreement was first announced.

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Telstra has finally signed an $11 billion definitive agreement with the National Broadband Network Company and the Federal Government, which will see it decommission its copper network, lease its ducts and pits to NBN Co and move customers onto the NBN, just over a year after the heads of agreement was first announced.

NBN Co's Mike Quigley and Telstra's David Thodey signing the heads of agreement
(Credit: NBN Co)

Over the next 10 years, Telstra has agreed under the deal to progressively move customers off its copper network and hybrid fibre-coaxial network, but the telco will keep the HFC in place for pay TV. For Telstra's customers, NBN Co will pay $4 billion over the next 10 years. For $5 billion, Telstra will also lease dark fibre, exchange space, lead-in-conduits and ducts to NBN Co over the next 35 to 40 years, with the option to extend the deal twice by 10 years.

The government will also give Telstra $700 million to fund its universal service obligations, $300 million for greenfields fibre deployment, as well as a further $1 billion for other government commitments over 10 years.

Telstra said that it expected to spend around $2 billion to support the agreement, with money being spent on infrastructure and the customer migration. Some of these costs would be recouped by savings in legacy network product and IT investment costs.

Telstra chair Catherine Livingstone said that the agreement comes after two years of negotiations between Telstra and NBN Co.

"The government's commitment to the NBN and other related policy changes meant that the Telstra board had to decide whether the company should participate in the NBN roll-out or pursue other options," she said. "The decision to participate was made on the basis that the proposed transaction is expected to provide us with the ability to recover more value for the business than the available alternatives, given the loss of value after the NBN policy announcements."

Telstra has also secured product and pricing commitments from NBN Co for basic voice and data services. According to Telstra, NBN Co will reveal this in a full product terms document and this portion of the deal will still need consultation with industry.

"These agreements represent an important milestone in addressing much of the uncertainty for Telstra associated with the NBN and government regulation, and allow us to focus intently on our customer service and simplification strategy," Telstra CEO David Thodey said.

"The government will achieve its desired industry structure and the arrangements for the [universal service obligation] and associated social obligations will be reformed to ensure that funding for these public interest services is secured. Within this new environment, we look forward to continuing to focus on customer service, content and innovation," he added.

There are a number of conditions in the deal to protect both NBN Co and Telstra in the event that the roll-out runs into trouble or is amended under a change of government. Telstra will, for instance, be able to reconnect customers to its copper network in the event that the NBN service is unavailable, is insolvent or permanently ceases ongoing operation.

For the next 20 years from the commencement date under the agreement, Telstra must not promote its wireless services as a substitute for fibre-based services or build a passive optical network.

If the roll-out of the network is slow, NBN Co may be liable to pay Telstra up to $500 million. NBN Co said that in the event that the project is cancelled entirely, Telstra will be protected through the cash flows from its existing copper network and HFC network customers in the areas where the NBN has not been rolled out.

NBN Co will also be required to pay for all dark fibre links, and the exchange space it uses over a 35- to 40-year period, even if the government changes policy, such as in the event that the Coalition wins government.

Until 1 July 2032, Telstra will remain responsible for providing standard telephone services across Australia, including the supply, installation and maintenance of payphones.

The portion of the long-awaited deal involving Telstra's structural separation and the migration of customers onto the NBN will still require the approval of the Australian Competition and Consumer Commission. Telstra shareholders will also have to approve the deal at the company's annual general meeting in Sydney on 18 October 2011.

Stay tuned to ZDNet Australia for further news on this breaking story.

Topics: NBN, Broadband, 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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22 comments
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  • Remember - power goes off, fibre goes dark!
    In the USA, Verizon, for example, offers an 8 hour battery backup as an integral part of its service - and it monitors and installs all batteries for safety and security reasons. What about NBN? Do it yourself 4 hour batteries? The copper network could still offer that vital power backup needed to keep what will become an infrastructure of national security importance and vital economic significance up and operational on a much better platform.
    caelli
    • Power goes off... cordless phone goes off.... now....
      where did I put that old plug-in phone?
      oh dear....
      hl-0b512
    • Presumably you're referring to power to the individual household. If power goes off to the exchange and infrastructure (which includes fibre optic backbones), then having copper to your door is irrelevant. What "much better platform"?
      guanaco_brisbane
      • Simple - one of Telstra's bills is for fuel to power its back-up generators for the battery units that keep the exchange and its dependencies up and operational for - possibly - over 4 to 5 days! Even during Brisbane's flood it was reported to me by a flooded householder who had no power - that - wait for it - the phone still worked for a few days! As far as I understand it, NBN is not planning to remove power backup at the exchange (router/switch) level - oops - perhaps they are - to cut costs!!! OUCH if true! SURELY NOT!

        Interestingly I note that Optus advise their customers with cable/fibre to actually keep a direct connect phone for power loss situations - and - during storm season in Queensland that's a common occurence.

        "Do-it-youself" batteries are simply a ridiculous situation that the Minister should NOT TOLERATE and NOT best practice as explained by such companies as Verizon in the USA. Moreover, they (Verizon) also have made the point that loss of power in the middle of the night meant that they really wanted 8 hours backup at least - not 3-4 as suggested by NBN - I understand. They also monitor the battery unit for failure, performance problems, tamper resistance, etc.

        Now - imagine - old age pensioners will have to firstly identify the power backup unit (that's the OTHER box near the ONT - but some others integrate the power backup unit into the ONT - that would be really disastrous if mum and dad have to open and replace batteries) - find some screwdrivers etc - unclip the unit - remove the dead battery (ummm.... dispose of it in the garbage tin? so much for a GREEN Australia with how many millions of these horrors are there to be recycled?) - buy a new one (how much?) - correctly replace the battery and check that all is OK.

        Remember - this will be the system that will be our national telecommunications base! I, for one, want the best practices in system resilience that are available. A "do-it-yourself", 3 to 4 hour battery is a LONG WAY away from that! Our telecommunications professionals of yesterday knew that.
        caelli
  • What can be said, but the most clumsiest financial project in Australia history has been signed. There are no winners here (even though the tech heads think they get 100Mbps to download bit torrent and lime wire - but they won't even be able to afford it) except Telstra. The loser of it all, is obviously the taxpayer.

    A project that makes absolute no economic sense or industry sense, but has financial disaster written all over it. The libs will have no option, if they are the better economic managers, but to call it quits and put an end to the project once in power, and to cut their losses.

    Conroy thinks he will go down as the 'saviour' of all time, but in reality, he will go down as the most pathetic communications minister of all time. Telstra, onthe otherhand, are laughing all the way to the bank (and their shareholders) winning in both retail and wholesale. Even if they get to buy it back for a dime (which they will), they would have used taxpayer capex, instead of theirs, and get paid for it.

    Tech heads, what more can be said about them. Pushing mouse buttons they think makes up for brains in this industry, but in reality they will suffer too with higher prices, but will be on furms spruiking "I have fibre at home". Big deal.

    As for the taxpayer, the biggest sucker of it all. Used your money to give to Telstra, to make it stronger, and you pay higher prices for broadband, as the government spends our money wastefully.

    Good luck to Telstra shareholders, you are the only winners....
    Theguy-bbb4a
    • This is an excellent investment in the future. You ignore the fact that NBN Co business case says that the NBN will be paying for itself in around a decade. That will remove the impost on the taxpayer, and indeed, provide them a healthy return. If the infrastructure is then sold, as is the current plan, it will reap even more benefit to the taxpayer. This is all of course not taking into account the productivity, economic and social benefits the provision of ubiquitous broadband will bring. You are barking up the wrong tree in trying to make out that speed is the only benefit of the NBN. The true benefit will be ubiquitous access. Once we rid ourselves of the blackspots and inequities in access caused by Telstras dominance over the last few decades, broadband become a utility like power and water. Households are finding today they need an internet connection, and this is only going to increase as the younger generation become parents and wage earners. Their expectations from the internet are much different to the baby boomers that dominate the population today. The world will be very different by the time they fall off the perch, and the NBN will provide the necessary infrastructure for the future.
      CommonSense-e9dea
      • Don't worry he'll die of old age in a few short years.
        Everlongdrummer
    • There are not many long term Telstra shareholders that you can call "winners"... trust me
      hl-0b512
  • This is a great outcome for the future. Ubiquitous fibre will be a massive asset in years to come. It stands to transform the way we live. You only have to look at the way the consumption of multimedia content is changing now to see that. Medical patients will be able to have consultations without travelling, which will be a massive benefit to those in regional areas who are starved for health infrastructure.
    SOme cant see past today, but just as people wouldnt go from their ADSL2 connections today back to dial up, in 10 years time people will wonder how they got by with ADSL2. Time to wake up and smell the roses people. This is an excellent investment in our future, its has freed Australia from the Telstra monopoly that has hindered infrastructure growth for decades. Australia will be the envy of the rest of the world, and move us up the technology rankings, which will only bring dollars into Australia.
    This is great news.
    CommonSense-e9dea
  • What a farce!! This quote says it all "For the next 20 years from the commencement date under the agreement, Telstra must not promote its wireless services as a substitute for fibre-based services or build a passive optical network."

    Oh dear - is NBN Co scared that wireless technology may improve a little over the next 20 years to the point that mobile communications may make fixed line technolgy a nice (but expensive) option but only when one is home or in the room where the cable happens to be. This is an utter joke and , as usual, it is on the taxpayer.

    I'd give half my kingdom for a couple of by-elections in the next couple of months. if only Kevin would "walk". This ALP government is so on the nose even Martin Ferguson may battle to hold Batman with his 25% margin.
    Brianab
  • Can anybody tell me logically why the Gillard Government would give 800 million dollars to Optus (Singapore Government) with no advantage to the Australian taxpayer?

    There was a necessity to pay Telstra who could have been a competitor to the NBN but Optus could never have competed so why the 800 million?
    sydneyla
    • Because they are giving NBN their cable users.
      rtfmoz
    • Dear sydneyla, may I direct you to today's media announcement from NBN Co:
      ==============
      "The agreement with Optus is expected to enhance the take-up rates on the National Broadband Network, thereby improving NBN Co's revenue plan," said NBN Co Chief Executive Officer Mike Quigley.

      Key to the deal is the agreement by Optus to progressively migrate HFC customers to the National Broadband Network as it is rolled out.

      At the same time, Optus has agreed to a fixed line network preference in favour of the NBN for residential and small business customers served by Optus' HFC network.

      In turn, NBN Co has agreed to make progressive payments to Optus based on the actual number of customers that migrate from its HFC network to the NBN.

      Optus estimates the total value of the agreement as approximately A$800 million on a post tax net present value basis.

      Once migration is completed, Optus will decommission the parts of the HFC network that do not provide ongoing support for mobile infrastructure and business customers.

      The Definitive Agreement reached with Optus is financially beneficial to NBN Co resulting in an improvement in NBN Co's Internal Rate of Return when compared to the company's Corporate Plan of December 2010.
      ===================
      ***Note: the last paragraph is significant - it spells out that the agreement is _financially beneficial_ to NBN Co, and results in an _improvement in the Internal Rate of Return_. This is the basis of the deal. To assert that the payments are about "giv[ing] 800 million dollars to Optus (Singapore Government) with no advantage to the Australian taxpayer" is absurd, both on the face of it, and on the facts of the matter.

      Reasonable people can argue about the merits or otherwise of the Government's plan; but the argument you have advanced is not that of a reasonable person.
      Gwyntaglaw
      • @ Gwyntaglaw, I don't know why you would bother explaining because it's like talking to a brick wall with these types!
        IMO they are just here to spruik a response from people and to gauge the amount of interest in the subject.
        Particularly on a subject like this, the pros and cons have been discussed ad-nausium.
        ravsta
    • Oh Sydney your BS is endless... Here's what you said at Delimiter just a week ago...

      "Senator Conroy, who in this case is the custodian of funds owned by the Australian taxpayer (via the NBN Co) must calculate that any compensation to be paid to Optus must be a very small fraction to that paid to Telstra.... {cont}

      ...Certainly if Optus decides to abandon its equipment because of its inability to compete with the NBN Co some compensation may be expected but an Optus agreement is not vital to the NBN Co while the NBN Co/Telstra agreement is absolutely critical. {END}.

      Now that YOU got exactly what YOU asked for YOU ask why?
      Rizz-cd230
  • As for Theguy and Brian are you two twins...LOL?

    Just because you wish, we can't go back to the 50's and Elvis is dead...head back in sand now, good boys!

    Interestingly TLS shares are down 4c and sub-$3 since the announcement! Seems the market would actually greedily, prefer Abbott's FTTN, monopoly...LOL!

    But early days and shareholders can always vote against it (which would probably mean sacking the board too, under such circumstances)...!
    Rizz-cd230
  • Gwyntaglaw thank you for your educational advise which is noted.

    Rizz you are correct I did say that Optus should receive a "very small fraction" of that paid to Telstra simply because in reality the Government was under no pressure to be concerned with any threat Optus could be to the NBN Co. Not so with Telstra.

    If a "very small fraction" was offered, and don't forget this is Australian taxpayer money, say 100 million dollars and this was refused by Optus then Optus would have been in a lose, lose situation. I ask again, why 800 million?
    sydneyla
  • I am wondering if anyone in South Australia had this negative attitude to the Overland Telegraph when John Stuart risked his life making several attempts to cut a path through to the Top End to allow the communications cable to be strung.

    Clearly what serves us well at the moment will not in the future. We've gone from horse and cart to morse code to telegrams to the first voice services to Viatel and other bulletin board systems to the Internet and narrowcast television. Each time there has been an upgrade to services provided there has been a need to upgrade the system that supports them.

    We are at that phase in the evolution of our communications requirements right now. Let's build the FTTN and embrace it.

    Sydney Lawrence, what makes you so certain that Optus could not compete? Are you forgetting back to when certain Optus execs, on the temptation of higher pay, left Optus and ran Telstra for years, namely Ziggy Switkowski and Paul O'Sullivan.
    Lord Watchdog
  • Oh Rizz when will I make you understand?? I am not opposed to a high speed fibre based broadband - quite the contrary - I'm all for it. What I am utterly opposed to is FTT (every)H. It is that roll out that will cost the bulk of the billions. And before you get too excited I fully understand that there will be a mix of satellite and wireless for those even this government can not justify FTTH. However 90+% under the current plan will get FTTH. It is a complete waste of money!! Half of the 90% do not even have a computer in the house, another 25% of the 90% are already very happy with wireless because they happen to live in a good coverage locality (like all my family - 16 of us) So what will the take up be? Look at the pilot sites for your answer and there the connectivity is free!

    This is not a case of "heads in sand" or wanting to go back to the 50s. Both silly comments. It is simply recognition that the pressing needs of homelessness, healthcare, disability carers support etc etc are much more demanding of limited taxpayer funds. Get your priorities in order....
    Brianab
  • Brian you are opposed because for the umpteenth time fibre doesn't go to every ****ing home... helllloooo
    Rizz-cd230