Tuesday, August 19, 2014

Telstra and its NBN Renegotiation

One swallow does not make a spring

There is so little apparent progress being made on the NBN and so little information from the Telstra, NBN and Government bunkers about the renegotiation of the Definitive Agreements that the briefest of statements is subject to intense speculation.

While the really big news of Telstra’s results announcement was strong profit growth and a share buy back, one short paragraph on the NBN got all the news. That paragraph in full read:

This Commercial Framework anticipates a change in the approach taken in respect of the copper and HFC network assets, from staged decommissioning, to NBN Co owning some or all of such assets progressively as the NBN is rolled out. As the current arrangements already provide that Telstra is progressively restricted in its ability to use the copper and HFC network assets, the Commercial Framework does not contemplate any incremental value to be received by Telstra for the transfer of ownership.

Different reports claimed the Commercial Framework used different language, one going so far as to call it  a signed non-binding heads of agreement.

The agreed Commercial Framework falls far short of a heads of agreement.

The detail that attracted attention is that it does not contemplate any incremental value to be received by Telstra for the transfer of ownership. But the same paragraph reveals the framework “anticipates” NBN Co owning “some or all of such assets.”

This indicates that the framework doesn’t go as far as even scoping the assets to be included.

Repeating a statement by David Thodey in May that continued asset ownership provided Telstra with “optionality going forward”, the results statement goes on to say “continued ownership of these assets did provide Telstra with some protection in respect of future changes in the NBN project.” It notes that Telstra is now “seeking to agree other contractual mechanisms which are designed to protect Telstra against future changes in the project.”

In brief there is potentially still a great deal of work to be done getting from the Commercial Framework to an agreement.

As outlined here in June the first lot of Telstra negotiations took two and a half years to be completed. There is no reason why the renegotiation should take so long, but the Commercial framework is still a stage before a signed Financial Heads of Agreement.

The Telstra statement included a warning that after the full financial deal is agreed, there could be additional regulatory delays, noting that “any renegotiated arrangements between Telstra, NBN Co and the Government will need to be reviewed by relevant regulators (including the ACCC) who may seek to impose further regulatory measures.”

The payment for the transfer of the assets isn’t the primary issue NBN Co needs to face. Its three cost concerns are the cost to remediate the copper network, the ongoing cost to maintain the copper and the cost to develop information systems to manage the asset it has acquired.

And everywhere “copper” is mentioned it still potentially means twisted pair copper from telephony network ad coaxial copper from the HFC network.

That said it was interesting to see The Australian report that the Minister had seized on the development since “critics” had insisted he would have to pay Telstra extra money. The first such critic, though, was Malcolm Turnbull himself in a blog post (now no longer accessible on his site - see Note) in May 2011. His comments were, however, faithfully reported by The Australian under the headline  ‘Telstra in for billions if NBN plans change’. (see Note below)

The developments in Australia stand in stark contrast to the latest development in the UK. There the use of the copper network by BT OpenReach has been the last desperate effort of an incumbent to sweat a sunk asset. But The Guardian reports “The government has raised the prospect of switching off the UK's copper telephone network, some of which is 140 years old, as it consults on the nation's future digital infrastructure needs.”

Ultimately Australians concerned about faster broadband don’t care about a lot of this detail. They either want the deal with Telstra completed so that the FTTN rollout can commence or the FTTP rollout to speed up.

Currently neither is happening.

Even measuring the rate of current roll-out got harder as a consequnce of changing the metric at the end of March. At the last SSCNBN hearing NBN Co claimed the twelve week run-rate for premises passed to 30 June was 6,853. However  the run rate for premises from 4 May to 7 August was 4,015 (and only 3,871 for premises servicable.)

The chart below demonstrates there is some difficulty introduced by the change of reporting metric for premises passed. There are only two data points available for the old metric (26 May and 30 June) that were provided at Estimates and the SSCNBN respectively.


The reporting of the Telstra issue does provide a small moment of hilarity. The Australian report
started, “Communications Minister Malcolm Turnbull yesterday seized on the development, given that critics had insisted that taxpayers would have to pay Telstra extra money to get control of the copper.”

It stands in somewhat stark contrast to a story The Australian ran on 14 May 2011 under the headline ‘Telstra in for billions if NBN plans change’. That story began:
TELSTRA could receive a multi-billion-dollar windfall if a Coalition government sought to redesign the National Broadband Network, opposition communications spokesman Malcolm Turnbull has warned.
Opening up a new front on Labor's $36 billion project, Mr Turnbull said Telstra could receive billions to make available parts of its copper network that it would have been paid to decommission under Labor's plan for super-fast broadband.”

The article was quoting a blog post from Mr Turnbull (available in web archive) saying:

the Telstra-NBN deal will not simply deliver Telstra a $9bn windfall for decommissioning the customer access network but, in addition, set Telstra up to receive more billions when inevitably a future government -- certainly a Liberal government, and very likely a Labor government, too -- seeks to redesign the network topography in a way that reduces the crippling cost of the fibre-to-the-home design without compromising the promise of universal, very fast broadband.”

So the first politician to claim that the Telstra renegotiation would cost billions was Malcolm Turnbull himself. It is interesting that one journalist was an author of both stories.

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