Telstra's $11 billion deal with NBN Co might not be enough to make up for revenue losses it will sustain in its long-term transition away from its tightly integrated structure, local analyst firm Telsyte argued in a research note posted yesterday.
On Sunday afternoon, Telstra revealed it had signed a preliminary $11 billion deal with NBN Co that would see the telco migrate its telephone and broadband customers onto the fibre National Broadband Network, with its copper network to be shut down and no more broadband services to be provided over its hybrid-fibre coaxial cable network.
Telsyte said the money seemed reasonable at first glance.
"However, it may not adequately compensate the company for the inevitable loss of market share it will suffer when moving from a tightly integrated monopoly to being a competitor in a new oligopoly market structure," Telsyte managing director Mevan Jayatilleke said.
Telsyte has modelled Telstra's situation, finding that the company needs to earn an additional $400 per annum per customer, above and beyond meeting its current costs and retained earnings targets to maintain the current level of dividends it pays to shareholders each year.
"Our modelling of Telstra clearly indicates that not only will EBITDA margins for fixed and broadband will be affected, but also other lines of its business such as mobile," Jayatilleke said.
The comments came despite the fact that Telstra shares yesterday rose sharply when the Australian Stock Exchange opened trading yesterday, with most commentators interpreting the gains as a mark of approval from Telstra shareholders towards the deal. The telco's share price did sink a bit as the day went on, closing more than 3 per cent higher than Friday's price.
Other analyst firms have not agreed with Telsyte's comments in their own statements issued yesterday.
"For Telstra, this agreement means more certainty," said Ovum research director David Kennedy. "It proves a clear pathway to migrate its business to a next-generation fibre environment, and locks in the value of its customer base and physical assets."
The analyst noted that the rest of the telco industry should be wary of Telstra's interests lining up with the soon-to-be giant NBN Co.
Gartner research vice president Geoff Johnson described the $11 billion "a war chest of cash" for Telstra to spend on marketing, while most of the rest of Australia's major players in the telecommunications industry — with the notable exception of the Federal Opposition — have welcomed the deal as a win-win situation for the government, taxpayers, Telstra and the industry.