NBN to help Telstra generate $2-3bn excess cashflow over three years

NBN to help Telstra generate $2-3bn excess cashflow over three years

Delays with the NBN rollout will have a partial impact on the telco's cashflow projections.

Telstra's prediction that it will generate around $2-3 billion in excess free cashflow in the next three years will hinge on several key factors, including the National Broadband Network (NBN) rollout.

The telco hosted an investors briefing in Sydney today.

Other factors that would affect the free cashflow outcome are significant market changes and acquisition possibilities.

NBN Co and Telstra struck up an $11 billion deal in 2010, with the telco to gradually migrate its copper network customers onto the NBN. The deal also gives NBN Co access to Telstra pits and ducts to expedite the NBN rollout.

Telstra retains ownership of the copper network.

“Looking forward, the payments and benefits received under the NBN transaction, which are implicit in the $11 billion of post tax net present value, are expected to help offset the reduction in free cashflow from the fixed-line business,” Telstra’s new chief financial officer (CFO), Andrew Penn, said.

“Notwithstanding this, there is in the next couple of years, an increase in free cashflow to Telstra as a consequence of the timing of the NBN financials.”

It has become much harder to make money in the fixed-line telecommunications market, particularly with voice services.

Depending on how fast the NBN can be rolled out, Telstra could add another $1 billion in excess cash in 2013 and 2014, according to the CFO.

Last month, the Government revealed a three-year NBN mass rollout plan which, if fulfilled, will see 3.5 million premises touched by the high-speed fibre network by 2015.

Should there be a delay in the NBN rollout schedule, it will only have a partial impact on the projected excess free cashflow.

“You have to look at the different revenues we are receiving [from NBN Co],” Telstra CEO, David Thodey, said. “There is a fair chunk on the infrastructure build, which will get built – we are under a contract to get that done.

“… It will have an impact but it’s only a part of an impact.”

According to Thodey, roughly 15 per cent of the $11 billion deal pertains to infrastructure.

He also addressed questions on possible acquisitions. While the company is very focused on work with the NBN in the next three years, Telstra acquisition plans will involve a more long term view.

Thodey said he will consider acquisition opportunities for the next five to 10 years for the business.

"What investors should clear on is the fiscal discipline and also [that we are] looking for new opportunities as we go forward," he said.

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