Telco industry welcomes Telstra-NBN deal but Opposition still not happy

The telecommunications industry has welcomed the announcement of an $11 billion deal between Telstra and the National Broadband Network Company, saying businesses can now have certainty about the growth of high-speed broadband and the construction of the network itself.

However, both Telstra shareholders and the Federal Coalition have reacted tepidly, with Telstra shares dropping after the announcement and Opposition communications spokesman Malcolm Turnbull saying Stephen Conroy is shooting himself in the foot.

“Today’s agreement between Telstra and Labor may be a good deal for Telstra’s shareholders but it will not deliver value for taxpayers nor will it deliver more affordable broadband for consumers,” he said in a statement.

But Telsyte senior research analyst Chris Coughlan says the deal ends months of speculation, and provides good compensation for the telco giant.

“Although there are still a few hurdles to jump here, this is one of the biggest they have to go through ahead of the NBN,” Telstra broadband analyst Chris Coughlan says.

“The deal is positive from Telstra’s perspective. Any risks that I would identify they seem to have mitigated fairly well.

Telstra announced yesterday the $11 billion agreement, which will see it hand over infrastructure to the NBN and progressively migrate customers as construction continues. It will also lease certain infrastructure to the NBN over the next 35-40 years, reducing the price of having the network construct its own.

The Australian Information Industry Association said in a statement businesses will now have certainty over the delivery of fast-speed broadband.

“The real impact of this deal will be to deliver high-speed broadband to almost every area of the country at a much faster rate,” Birks said. “That means it’s now time for every organisation and business to start planning for the opportunities that high-speed broadband will deliver.”

While the Coalition has continued to say it would halt the NBN if it returns to power, analysts are saying that with the conclusion of these deals, that scenario seems less and less likely.

“Australia is competing with nations who are well down this path. Our industries need to become more efficient and more effective and our businesses need to extend into that marketplace,” Birks said.

The Communications Alliance, made up of some of the nation’s biggest tech companies including Optus, M2, Alcatel-Lucent and Optus, also announced that it welcomed the agreement.

“Today’s agreements with Telstra and Optus are a very welcome boost to those efforts, and bring one step closer the benefits that Australian businesses and consumers can derive from having a ubiquitous high-speed network for our nation,” chief executive John Stanton said in a statement.

Coughlan says the Telstra deal has ticked all the right boxes.

“There are some good elements, some obligations around disconnections don’t apply, 18 months to disconnect seems a reasonable timeframe…all in all I think this is a good deal.”

“There are also some provisions here if the Opposition pulls the plug. So it gives Telstra certainty, gives shareholders certainty, and it gives NBN access to all the assets Telstra owns, which will help out the building process.”

But some aren’t so sure. Several financial analysts have pointed out that while the deal does prevent some certainty, (despite still being subject to ACCC and shareholder approval), Telstra will still take on some capital expenses.

Nomura analyst Sachin Gupta has said Telstra will need to fork out $2 billion for the construction of the network.

“As we gradually get more details it doesn’t appear as simple as getting $11 billion cash. Telstra will definitely start getting ‘another’ cash stream, but this is at the expense of losing its fixed network monopoly. It is very difficult to know which is the better outcome,” he told Reuters. 

The Opposition has certainly come out against the deal, with Malcolm Turnbull saying it will only serve to make broadband – which has been dropping price for several years – more expensive.

“Telstra understandably negotiated the best deal for its shareholders.  Senator Conroy negotiated the best deal for Labor’s political interests.  But no one at the table sought the best deal for the millions of Australians whose taxes will bankroll the $50 billion NBN and pay Telstra to scrap its copper network.”

“The deal will also have damaging consequences for consumers – that is, every Australian that purchases broadband or telephony services during the next decade.  The NBN Co corporate plan makes it clear that broadband prices will be high and stay high. “

Turnbull says the fact Optus and Telstra networks won’t be able to compete with the NBN means prices for high-speed broadband won’t ever have the chance to drop.

“Separation will take eight years, compensate Telstra with payments equivalent to a third of its current market capitalisation and disadvantage Telstra’s competitors in gaining access to infrastructure in the meantime.”