Telstra-NBN Co deal: Analysts weigh in

While many in the industry will welcome the reaching of a Financial Heads of Agreement deal between Telstra and the NBN Co for the separation of Telstra, analysts are debating which party has emerged from the protracted negotiations as victor.

IDC Australia telecommunications analyst, David Cannon, said the outcome of the negotiations could be read as a “win-win” for the Government and Telstra.

“Telstra… still gets to keep the pits and ducts and hence we should see a big gain in Telstra share price,” he said. “This is also a great win for the government as it validates its broadband vision whilst securing the interests of Australian tax payers (with a cheaper rollout) and Telstra shareholders which the opposition was not able to achieve.

“Most importantly, Telstra shareholders have been looked after, and hence David Thodey has done his job.”

Gartner research vice president Enterprise Communications Applications, Geoff Johnson, Telstra had done well out of the negotiations, securing $9 billion for its assets, plus the $2 billion sweetener to cover the cost of Telstra’s Universal Service Obligation (USO).

“The Universal Service Obligation has been a thorn in the side of Teltsra, so this is a huge win for them, in terms of getting off the hook,” Johnson said. “Most observers would say Telstra has done well out of this, and it was always going to be about how they could negotiate cash out of [the deal].”

While the wider industry would likely welcome the agreement, some telcos could come to regret it once they realised that the $9 billion pay-out would be used to help Telstra’s retail arm remain dominant.

“The other carriers won’t be as bullish about this as they were when the negotiations were first announced as Telstra walks away from this with a huge warchest of money to do some aggressive marketing on a shared infrastructure which all the carriers will have access to,” Johnson said.

BuddeComm’s Paul Budde wrote in a blog post that Telstra’s decision to sign up to the NBN would benefit the company in the longer term.

“The fact that Telstra has made this major step forward is vindication that this industry structure is not only advantageous to the social and economic benefits of our country, but that it also represents sound economics,” the post reads.

“Declining telecoms revenues worldwide are an indication that we are reaching the end of the telecoms model which we have used for around the last 50 years. So with or without the NBN, the traditional telecoms companies will have to come up with new revenue streams anyway.”

Ovum’s David Kennedy said all parties have emerged from the negotiations with spoils.

“For Telstra, this agreement means more certainty," he said. "It proves a clear pathway to migrate its business to a next generation fibre environment, and locks in the value of its customer base and physical assets.

“For the NBN Co, it secures Telstra as a customer, rather than a competitor. This means that its future revenue stream is much more certain.

“For the rest of the industry, this makes the future of the NBN Co more secure, but also makes Telstra into the NBN Co’s most important customer. Telstra and the NBN Co’s interests are lining up, and Telstra’s competitors should be wary.”

Telsyte’s Emilie Ditton said while the $11B post-tax was reasonable compensation for Telstra, it did not adequately compensate Telstra for the inevitable loss in market share it would suffer under an oligopoly market.

"The nature of the NBN will be that it will be very difficult for each operator to create a unique point of differentiation," she said. "[Telsyte] believes that Telstra will end up with lower market share, particularly in fixed voice, and potentially in broadband.

"The advantages [of the deal] are that the agreement removes uncertainly from Telstra’s strategy, and enables Telstra to get on with what it does best – market its services to customers with its formidable marketing arsenal, and to get on with positioning itself for NBN deployment."


Copyright © 2010 IDG Communications, Inc.

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