Wednesday, June 22, 2011

Telstra and Australia's NBN Sign Definitive Agreement

Telstra signed a Definitive Agreements with NBN Co and the Commonwealth for its participation in the rollout of the National Broadband Network (NBN) through the decommission of the Telstra copper network and eventual migration of traffic onto the new fibre infrastructure.


The deal provides Telstra with replacement revenue, through disconnection payments as the rollout of the NBN occurs, and new revenues, through access payments for the use of Telstra's infrastructure over an assumed average 30 year period. Telstra estimates the value of this arrangement at approximately AUS $11 billion in post-tax net present value over their long-term life.


The agreements remain subject to the satisfaction of a number of conditions, including the critical step of ACCC acceptance of Telstra's structural separation undertaking and approval of its migration plan.


Key elements of the signed deal include:

  • Telstra has agreed to disconnect, progressively, copper-based Customer Access Network services and broadband services on its HFC cable network (but not Pay TV services on the HFC) that are provided to premises in the NBN fibre footprint, and will migrate its services onto NBN-based services, over the expected 10 year build period of the NBN;


  • Telstra will provide NBN Co with large scale access to certain infrastructure – dark fibre, exchange space, lead-in-conduits and ducts - at prices based on committed large volume levels of usage and availability. The term of the infrastructure agreement will be between 35 and 40 years (the precise term depends on a number of factors including NBN Co's rollout schedule) from commencement, plus two 10 year options to extend exercisable by NBN Co.


  • The infrastructure will be taken over the course of the NBN rollout and payments made for an assumed average period of 30 years. In order to maximise the availability of this infrastructure, Telstra will undertake necessary work on the infrastructure. Telstra retains ownership of all infrastructure assets, except for those lead-in-conduits used by NBN Co which will become NBN Co property once used;


  • The Government has agreed to a package which includes increased funding for the delivery of the Universal Service Obligation (USO), clarification of Telstra's USO responsibilities for the supply of infrastructure in new developments in the NBN environment, and the avoidance of certain costs to Telstra through various funding measures such as funding of a public information campaign, and for employee retraining; and


  • Telstra and NBN Co have also agreed to key product feature and price commitments relating to NBN Co's basic voice and data offering. These will be addressed in NBN Co's full product terms, which remain subject to further development and industry consultation.


Telstra Chairman Catherine Livingstone said "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 rollout or pursue other options. 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.


"After rigorously assessing the options before it, including the regulatory and commercial implications of each, the Telstra Board expects to recommend that shareholders approve a proposal to participate in the NBN rollout, subject to the conditions precedent being satisfied."http://www.telstra.com.ahttp://www.nbnco.com.au

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