Telstra signs on to the NBN for $11bn

Telstra announced today that it had signed a non-binding agreement with the National Broadband Network (NBN) Company which will see it have a part in the roll-out of the network.

The deal, which will see Telstra provide access to its infrastructure and decommission its copper network and cable broadband services, was expected to be worth $9 billion, according to a joint release by Prime Minister Kevin Rudd, Communications Minister Stephen Conroy and Finance Minister Lindsay Tanner. It will provide Telstra with a post-tax net present value of about $11 billion (which includes reforms leading to avoidance of costs such as maintaining the universal service obligation).

The government had been seeking a commercial arrangement with Telstra to avoid the need for a duplication of infrastructure for the national roll-out of its $43 billion broadband network.

Under the deal, NBN Co will have access to Telstra's backhaul fibre and its network of pits, ducts and wires.

Telstra has also agreed that as the government's planned network is rolled out, it will migrate its customers from its copper and cable networks to the new fibre network. The company will, however, still use its cable network to fulfil its contract with pay TV company Foxtel.

The release said the deal will reduce the overall cost of building the network, with higher take-up rates and revenue. The deal also meant a greater proportion of the NBN network will be underground, with less need for overhead cabling than initially planned.

Under the deal, the government will establish a new entity — USO Co — to assume responsibility for most of Telstra's universal service obligations for the delivery of standard telephone services, payphones and emergency call handling from 1 July 2012.

The government will also provide $100 million to Telstra to assist in the retraining and redeployment of staff affected by the changes.

NBN Co will become the wholesale supplier of last resort for fibre connections in greenfield developments from 1 January 2011.

Telstra CEO David Thodey also said that he'd received written confirmation from Rudd that, if the transaction went ahead satisfactorily, the government would not ban Telstra from bidding for additional spectrum necessary for the roll-out of a long term evolution (LTE) mobile network.

Yesterday, Telstra and Nokia Siemens Networks announced that they had achieved downlink speeds of 100Mbps over 75km in LTE trials.

Telstra chairman Catherine Livingstone said the agreement was encouraging, however, Telstra chief executive officer David Thodey said there were still details to be nutted out. "We will continue to work with the government and NBN Co on the detail required to implement the principles agreed today. While today's agreement is an important step, a very significant amount of work must still be done on many complex issues," he said in a statement.

For example, how customers would be migrated, future regulation and taxation would need to be discussed, as well as the consequences of changes to the National Broadband Network's roll-out schedule.

The negotiation of definitive agreements was expected to take some months, according to the government release. When they are completed, the agreements will be put to Telstra shareholders and the government for final approval. The Australian Competition and Consumer Commission will also review the agreement.

Negotiations had been going on for months, with some sceptical that an agreement could be reached.