The Federal Government has signed an $11 billion deal with Telstra (ASX:TLS) to use its infrastructure and customer base to help establish the National Broadband Network (NBN).
This will involve the Government paying for the telco’s pits, ducts and backhaul fibre. Telstra’s copper and pay-TV customers will be moved onto the NBN’s fibre networks and its universal service obligation (USO) costs will no longer need to be met.
Instead, the Government will establish USO Co, which will start providing standard telephone calls, payphones and emergency call handling from July 1, 2012. It will have a budget of $50 million per year in 2012-13 and 2013-14, before ramping up to $100m per year.
The agreement is set to change Australia’s telecommunications and technology industries as one of the NBN’s biggest hurdles is cleared. Up to 10 million customers will shift to the Government network, making Telstra one of its biggest customers.
The deal also signals a new direction for the company as it ceases to rely on dominating Australia’s copper network to generate business. It allows Telstra CEO, David Thodey, to fulfil his obligations and present shareholders with a big enough carrot to swallow the splitting of its wholesale and retail operations.
“We will continue to work with the Government and NBN Co on the detail required to implement the principles agreed today,” he said in a statement. “While today’s agreement is an important step, a very significant amount of work must still be done on many complex issues.”
While the contract won’t be put to shareholders till the first half of 2011, other effects will be felt much sooner. The Government’s main threat of damanging Telstra by stopping it from purchasing wireless spectrum appears to have been curtailed.
“Telstra has received written confirmation from the Prime Minister that Telstra would be able to bid for... wireless spectrum should the transaction be completed and that sufficient regulatory certainty will be provided on a range of matters for NBN Co and Telstra to enable the transaction to proceed,” Telstra wrote in a statement.
The telecommunication bills that aim to split Telstra currently before the Senate are being held up by the vote of Family First Senator, Steve Fielding, who said he wouldn’t provide support until a deal with Telstra was struck on the NBN.
Although he has not yet announced plans to agree, the conditions of his vote have largely been met. The deal will also have an impact on the Coalition, which has campaigned on a platform of stopping Telstra’s separation.
The $25m Implementation Study commissioned by the Government claimed the NBN could be built by the Government without Telstra’s support, but acknowledged it would benefit from a deal.