Updated: Telstra downplays financial effect of NBN exclusion

CEO estimates its exclusion will cost up to $2 billion in future revenue

Telstra (ASX:TLS) CEO, Sol Trujillo, has played down the impact of its exclusion from the government’s National Broadband Network (NBN) on top-line revenues.

In a presentation made at the Citigroup Entertainment, Media and Telecommunications conference in Phoenix Arizona, he estimated the telco giant would lose $1-$2 billion in future revenue, a small dent in annual results over the next few years.

“Rational analysis would suggest that at most a mid single digit percentage of revenues, or perhaps $1-$2 billion, may be at risk, and that is over an extended period of time,” Trujillo said in his presentation. He also pointed out the time it would take to build the NBN, and the need to provide services at lower margins in rural areas.

As a result, Telstra would not change its guidance figures for the current financial year, Trujillo said.

In December, the minister for broadband, Senator Stephen Conroy, rejected Telstra’s 13-page, informal bid to build the NBN because it failed to address SME requirements. Local ISPs have since criticised Telstra for failing to take the bidding process or the NBN seriously and expressed mixed opinions on the pros and cons for the broader market.

Those left in the running for the Australia-wide NBN contract are the Terria Consortium led by Singtel-Optus, the Victorian Acacia Group, and Canadian-based Axia NetMedia. An independent panel overseeing the tender will make its recommendation to government in conjunction with the Australian Competition and Consumer Commission (ACCC) by the end of January. A ministerial spokesperson said it had not set a firm date to announce the winning bid or bids, but hoped to reach a decision by March.

Telstra is now planning to focus on building out its existing wireless broadband Next G network, which was recently upgraded to deliver up to 21Mbps access speeds, as well as its fixed cable network, which covers 2.5 million homes.

Ovum senior consultant, Craig Skinner, said Telstra’s exclusion would allow it to cherry pick areas to expand its own broadband network against the NBN provider, such as lucrative urban areas, while buying NBN services in non-competing or rural areas that weren’t as profitable.

“Telstra was probably in two minds about participating in the NBN process and was doing it just to tick the box,” Skinner claimed. “The government isn’t providing a subsidy to build the NBN – it’s a financial investment that it wants a return on. Telstra already has access to finance without the terms and conditions the government is imposing.”

The bigger consideration for the independent panel and government now was how to avoid creating another statutory monopoly, Skinner said.

“That would cause the same problems we have experienced with Telstra in the past around regulation and enforcement,” he added.

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