Telstra NBN deal: the facts

Now that the deal between Telstra, NBN Co and the government has been finalised — presuming that Telstra shareholders give it the tick on 18 October — the telco will set about moving its customers onto the NBN. But what does it all mean?
Written by Josh Taylor, Contributor

Now that the deal between Telstra, NBN Co and the government has been finalised — presuming that Telstra shareholders give it the tick on 18 October — the telco will set about moving its customers onto the NBN. But what does it all mean?

Telstra deal

(Credit: NBN Co)

Why does the government need to pay Telstra?

Telstra used to be a publicly-owned company, but the then-Howard Government decided to privatise Telstra in 1997, meaning that the physical infrastructure, such as copper wire and ducts, was owned by a private company. When the government decided to build a fibre network that would be owned by NBN Co, it realised that it would be much cheaper to build the network if it had access to Telstra's infrastructure.

Telstra has now agreed to lease the ducts and pits that were in place for its copper access network, and provide NBN Co with access to its dark fibre and exchanges for a minimum of 35 years. This means that NBN Co doesn't need to dig new pits and ducts down every street where fibre is being laid, or install all new fibre backhaul and building exchanges. The total cost to NBN Co for this portion of the deal is $4 billion to be paid out over the next 30 years.

According to the details of the deal released today, Telstra needs to have its backhaul, exchanges and points of interconnect ready for NBN Co to access by the end of December 2014.

What about the Telstra retail customers?

Telstra has agreed to decommission its copper network in the areas covered by fibre as the NBN is rolled out. NBN Co will pay the company $5 billion over the next 10 years, with payments made as customers are disconnected and transferred onto the NBN.

NBN Co must give the industry a non-binding 12-month forecast, and a three-month forecast to declare where it is rolling out the NBN. From this point in time, Telstra has 18 months to disconnect services.

What this means is that when NBN Co begins bringing the fibre to an area in the 93 per cent footprint, customers will be asked by NBN Co to consent to having the fibre installed to their premises, and will be asked if they wish to have their service transferred onto the NBN.

If the customer agrees, their copper service will be disconnected, and they will be connected to the NBN. If the customer opts not to have the fibre rolled out to their premises, their copper service will be disconnected, and no fixed-line service will be provided to that household, and the occupant will need to seek wireless or mobile alternatives.

The Federal Government has agreed to pay Telstra $230 million per year as part of universal service obligations to allow Telstra to offer voice services to customers who only want a voice service on the NBN, as well as to pay the telco to continue operating its copper network in areas outside the fibre footprint until 1 July 2032.

For customers outside of the fibre footprint, this means that voice services will still be delivered over Telstra's copper network, and customers wishing to sign up for NBN services will either need to obtain a fixed-wireless or satellite connection.

Payphones will also continue to exist, with the government paying Telstra $40 million per year to keep them up and running.

Will it cost the customer anything to be transferred over?

If the customer opts to have fibre installed at the time of roll-out, they will not incur any charge for that installation, even if they do not opt to have a service on the NBN connected at that point in time. At this point, the only cost that the customer might incur is if they want a connection long after the roll-out has passed their area. NBN Co said last week that it was also looking at whether it would bear the costs of installing fibre for residents that change their minds about whether they want to be connected or not.

What happens to broadband customers of telcos that wholesale from Telstra?

As the owner of the copper access network, Telstra's agreement with NBN Co means that all rival telcos that resell services over Telstra's copper network will also be subject to the same transfer process. Optus, Internode, iiNet, iPrimus, Exetel, AAPT, AARNet, Comscentre, Nextgen Networks, Platform Networks and SkyMesh have all gone through NBN Co's "on-boarding" process to configure their networks and systems to connect to the NBN.

What about Telstra's hybrid fibre-coaxial (HFC) customers?

HFC broadband customers within the 93 per cent fibre footprint of the NBN will also be migrated to the NBN as the roll-out progresses; however, the Foxtel connection provided over HFC will remain in place.

Is Telstra the only telco getting money?

Optus has also agreed to decommission its own HFC network and transfer 500,000 customers onto the NBN for $800 million. However, parts of the network will remain in place to service its mobile network and business customers.

What if the Coalition wins government and stops the NBN?

Under the deal, Telstra is eligible for up to $500 million in compensation if the roll-out is cancelled. Optus CEO Paul O'Sullivan said that there is a termination clause under Optus' deal, too, but wouldn't go into detail about that clause.

When will this all start?

The Australian Competition and Consumer Commission (ACCC) must first approve the structural separation undertaking to be made by Telstra in the near future, and the deal itself is subject to a private tax ruling by the Australian Taxation Office. Telstra shareholders must also agree to the deal, with a vote to occur on 18 October 2011. After that, it is all systems go to move customers onto the NBN over the next 10 years.

For now, Telstra and NBN Co have negotiated interim arrangements to allow work on the second release sites for the NBN to progress and for further planning on the network to take place.

The ACCC must also examine the Optus deal, and, should it meet the commission's approval, customer migration will begin in 2014, and is expected to take four years.

Will Telstra market Next G or LTE as an alternative to the NBN?

A specific clause in the contract prevents Telstra from advertising wireless broadband as a substitute for fibre broadband for the next 20 years. Telstra CEO David Thodey said that he doesn't think that this would mean much lost revenue for Telstra, and said that the deal had a provision that said Telstra could get out of the ban if one of its competitors was conducting a similar ad campaign.

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