Telstra (ASX:TLS) will survive without the $11 billion deal with NBN Co but its fixed line business will struggle, according to analysts.
In June, Telstra entered into an $11 billion non-binding agreement with NBN Co. The telco would decommission its copper network and move consumer customers onto the National Broadband Network (NBN).
At its Annual General Meeting (AGM), Telstra board members stressed the importance of the agreement for Telstra’s future and the stabilisation of the company’s shares.
Parliament can influence the agreement more so than shareholders since it is actually “a good deal” for shareholders, according to Market Clarity analyst, Richard Chirgwin
But should the $11 billion agreement fail to gain shareholder approval, it would place more burden on Telstra.
“Without the NBN, it would simply find itself with an increasing operational cost in maintaining and keeping the copper network up to scratch,” Chirgwin said. “Either that or it will have to invest in fibre to compete with the NBN.”
While there have been suggestions Telstra’s copper network is still viable for long term use, the telco would still need to make considerable investments in the to keep it operational, he said.
According to Chirgwin, Telstra can still compete with its NextG mobile network should the agreement fall through.
“But the future of the fixed line world would look very confused without the deal,” he said.
Telstra and NBN Co would no doubt work hard to make the plan acceptable to all stakeholders, according Ovum telco analyst, David Kennedy.
If the $11 billion deal doesn’t go through, renegotiations may involve bumping up the value of the deal, he said.
“The main thing for shareholders will be the actual compensation and any cost that might be imposed on Telstra as part of the negotiations but compensation is pretty straightforward,” he said. “… but one of the important things is how and when the compensation will be paid over time and what those expectations are.”
But what Kennedy considered a more pressing issue is the actual process of migrating Telstra copper customers onto the NBN.
“A lot of the negotiations are actually around migration protocols and exactly how to cut customers over,” he said. “It’s simply in principle but the actual practical aspects of it are very complicated because the main requirement is to not interrupt services in the course of the transfer.
“That is actually a difficult technical challenge.”
Should Telstra incur costs during the migration, shareholders would want to know exactly what those costs are, Kennedy said.
Telstra is expecting the $11 billion non-binding agreement to be finalised in December. It will then be subjected to shareholder approval.