Telstra (ASX:TLS) has warned its shareholders that NBN Co’s decision to temporarily pause the rollout of its hybrid fibre-coaxial (HFC) access network could delay payments by the network builder for the telco’s infrastructure.
As part of the $11 billion deal Telstra inked in 2014 to hand over its existing copper and HFC networks to the company behind the rollout of the National Broadband Network (NBN), the telco was also set to receive additional payments over time for long-term leases of associated infrastructure.
Telstra announced its proposal on 17 August to "monetise" between $5-5.5 billion worth of future, locked-in income from the recurring payments it expects to receive from NBN Co under the arrangement between the two companies in a bid to free up the potential capital sooner rather than later.
Telstra was subsequently advised that “technical consents” from NBN Co for the proposal would not be forthcoming, with the network builder suggesting that it could not see how its position could be protected or improved by Telstra’s "securitisation" plan.
Regardless, a portion of the payments Australia’s largest telco expects to receive over the coming years is likely to come from the HFC network infrastructure.
However, on 27 November, NBN Co said it would temporarily halt all new orders over its HFC access network, which uses Telstra’s legacy infrastructure, as it works to improve service standards across the network.
"We are going to delay the rollout of the HFC network until we can go back and calibrate a number of processes so we can adjust a number of issues on the network to give the level of quality that we know that HFC network is capable to give," NBN Co chief executive officer, Bill Morrow, said at the time.
"This will result in a six to nine-month average delay for those people that have yet to connect to the NBN network over HFC,” he said.
While NBN Co hopes to address a number of process-based issues that have seen lengthy connection and service times for end customers, it also wants to fix network problems that have been affecting the HFC infrastructure specifically, such as drop-outs for some customers.
Now, Telstra has flagged that the HFC rollout pause could delay some of the income it expects to receive from the payments related to the HFC infrastructure.
“Telstra will assess the effect of today’s announcement in conjunction with the NBN Co Corporate Plan 2018 on its outlook for FY18 and advise the market once that assessment is complete,” Telstra told shareholders on 27 November. “The delay in the NBN rollout will delay a proportion of the payments to Telstra from [NBN Co] in future periods.”
“Telstra’s FY18 guidance to the market included an assumption that the NBN rollout would be broadly in accordance with the [NBN Co] Corporate Plan 2017, released on 31 August.
“Telstra acknowledges NBN Co’s core priority to protect the customers experience and will continue to work with NBN Co on this goal. NBN Co has stated that it remains confident that its long-term corporate plan can be met to connect eight million homes by 2020, including three million through HFC services,” it said.
At the time of writing, the publicly-listed telco's share price stood at $3.46, down slightly from $3.48, where it ended the trading day on 24 November.