NBN Co to take over Telstra, Optus networks in new deals

NBN Co will assume ownership of Telstra's legacy copper and hybrid fibre-coaxial (HFC) networks and Optus' HFC network under revised definitive agreements with NBN Co and the Australian government signed on Sunday.

The original AU$11 billion deal with NBN Co signed in 2011 would have seen Telstra decommission its copper network and transfer fixed phone and broadband customers from both the copper and HFC networks onto the fibre-to-the-premises National Broadband Network (NBN) as the network was rolled out. A similar AU$800 million deal was also signed with Optus at the time for its HFC network.

Since the election of the Coalition government in September 2013, however, Communications Minister Malcolm Turnbull has directed NBN Co to abandon the fibre rollout to 93 percent of Australian premises, and instead opt for a mostly fibre-to-the-node (FttN) and HFC "multi-technology mix" network.

In order to do this, however, NBN Co needs access to the legacy networks -- something that was not included in the original deals.

Under the revised agreements signed today, NBN Co will progressively take ownership of the networks to use as part of the multi-technology mix NBN for the same net-present values of the original agreements.

One of the criticisms of the renegotiations was that Telstra may use the deal to extract additional money from the government and NBN Co for ownership of an asset that was no longer worth the value of the deal. NBN Co's head of strategy JB Rousselot told ZDNet today that as part of the negotiations, NBN Co was privy to some information about the state of the networks.

"We did have, during the process, some data which was shared with us," he said, but indicated that the agreement was flexible enough to allow NBN Co to determine how much of the copper or HFC asset NBN Co would use in any particular area.

"The deal basically gives us the option to use the network if we want to. We'll do the detailed due diligence when we get to each of the specific areas, and that's when we'll make the decision whether we roll out using the copper network, or if we use some fibre technology.

"There was some information made available, which we used, statistical, whole-of-network level, but each of the decisions will be made for each region, and that's when we'll do the detailed due diligence of where the copper is."

Turnbull said he is "very comfortable" that enough funding had been set aside to remediate the copper network for fibre to the node.

The time frame for disconnecting customers once an area is ready for service remains at 18 months under the new agreements.

Telstra could ultimately receive more compensation from NBN Co for some information it hands over, including network topology, maintenance history, and other data.

"We'll be reimbursing them the fair costs, and there is no margin in there," Rousselot said.

NBN Co will take over remediation of the pits and ducts, something that had been an issue for Telstra in 2013, when asbestos was discovered in several pits across Australia. Rousselot said that while NBN Co will take on responsibility and liability for this remediation, using less of the infrastructure under the multi-technology mix would benefit the company.

"Using the existing copper and HFC networks dramatically reduces the amount of remediation, because we don't have to reuse the pipes that the copper or HFC are already in. So rather than additional remediation, this deal significantly reduces the amount of remediation we'll have to do," he said.

"We'll only be doing remediation between the exchange and the pillars, and in that area, NBN Co will be taking on the responsibility. Ultimately, it wasn't Telstra itself that was doing the work, it was contractors. We'll do the same thing."

Telstra CEO David Thodey said on Sunday that the agreements took over a year to finalise; much longer than anticipated by Turnbull prior to the last election, due to the complexity of the three technology types, rather than the value of the deal.

"The commercials were pretty straightforward. It has been the complexity of the technologies," he said.

Telstra may be brought on to do additional construction work as part of the new multi-technology mix, but Turnbull said that any such deal would involve "negotiation with NBN Co on a very strict, arm's-length, market basis".

NBN Co CEO Bill Morrow said it is too early to say whether Telstra would pick up construction work as part of the deal.

"Telstra does have 11 decades of existence of the company that they have learned to build out and manage the copper networks," he said.

Both Telstra and Optus do retain some use of their HFC networks, with Telstra keeping access to the HFC for the delivery of Foxtel pay television, while in the Optus agreement, the company will retain ownership of fibre to connect to mobile base stations and business customers.

The two agreements will need to get approval from the Australian Competition and Consumer Commission and the Australian Taxation Office before being concluded. This is expected to occur over the first few months of 2015.

New timetable

Due to the approval process from the regulators, NBN Co is not yet putting a timetable on when the company will start a full rollout of HFC and fibre to the node, but Rousselot indicated that more trials would take place on FttN and HFC over the coming months.

Turnbull has been reported to say that at the time of the 2016 federal election, the NBN could reach up to 47 percent of the population, with the HFC networks included.

Speaking to ZDNet on Sunday, Turnbull said he would wait for NBN Co to release its new rollout plans.

"The company will have a three-year rollout plan in its three-year corporate plan, which will come out in Q2 next year, so I'll wait until then," he said.

"But this obviously does give us the opportunity to accelerate, naturally. That, after all, was the whole point."

Shadow Communications Minister Jason Clare criticised the new deal, saying that it isn't "for free", due to the maintenance costs of the copper network.

"Don't believe this is free; this is going to cost Australian taxpayers billions and billions of dollars to maintain and upgrade this old copper network," he said.

"The losers in this deal are the millions of Australians that will end up with a second-rate broadband network."

Turnbull said that the agreement today provides NBN Co with flexibility to choose what technology to use under the original value of the agreement.

"The company can choose to do, in any given area, fibre to the premises, fibre to the node, HFC if it is there. Any or all of the above. That is absolutely critical," he said.

"[Labor] was saying we were going to have to pay Telstra AU$20 billion, and we secured all these assets for no incremental payment, and now they're criticising us for it."