Australian phone giant Telstra Corp agreed yesterday to help build a national broadband network worth up to US$37 billion, a deal that could win votes for the government and ease uncertainty for Telstra investors.
Under the deal, Telstra agrees to convert its old copper-wire network into a super-fast web of optic-fiber.
Telsrta will then rent it out to the government’s National Broadband Network Co (NBN Co) in return for A$11 billion (US$9.6 billion) in long-term payments.
Australia has slower and more expensive Internet services than many rich nations, a problem viewed as a serious economic bottleneck, but Telstra had been reluctant to become involved with such a costly, political and state-planned project.
That changed last year when the government threatened to split Telstra up and force it to sell one of its crown jewels, a stake in pay-TV firm Foxtel, unless it cooperated. Since then Telstra shares have mostly underperformed the wider market.
“The war is over,” Australian Communications Minister Stephen Conroy said when announcing the heads of agreement with Telstra.
The details of the non-binding deal have yet to be finalized, but it envisages NBN Co effectively leasing Telstra’s fixed-line network. In today’s money, the long-term income stream would be worth a total A$11 billion for Telstra, the two parties said.
Telstra will not take equity in the broadband network, which still faces an uncertain future, given the conservative opposition has promised to scrap it if they defeat Australian Prime Minister Kevin Rudd at general elections which are expected to be held in October.
“It is a commercial transaction which commits NBN to pay for certain prices for access to Telstra assets,” Conroy said.
“There is no equity involved,” Conroy said.
Rudd hopes the Telstra deal will remove the last major roadblock for the broadband network, which he promised on assuming power in 2007, and will enable him to tell voters at the next election that he is fulfilling his pledge.
Rudd’s popularity has been sliding in the run-up to the election, with opinion polls suggesting he could lose. Voters are particularly upset at his recent decision to shelve another 2007 election pledge: to set up a national carbon-reduction scheme.
For Telstra shareholders, the agreement at least eliminates a major source of uncertainty over Telstra’s share price.
By signing up to the government’s broadband network plan, Telstra can now keep its stake in Foxtel.
“This agreement reflects a commitment by all parties to reaching a mutually beneficial outcome for Telstra investors, customers, employees and the industry,” Telstra chairwoman Catherine Livingstone said in a statement.
The Telstra agreement must still be vetted by the competition regulator, which will want to be sure that the government-controlled NBN Co is a neutral body that allows private operators to compete fairly over the new network.
Under the overall network plan, the government plans to invest A$26 billion over seven years to develop the network and then look to fully privatize it five years after it is launched.
Once crucial details of yesterday’s Telstra deal are hammered out in the coming months, shareholder approval will also be needed.
“Should those [detailed] agreements be finalized, Telstra expects they would be put to shareholders in the first half of calendar 2011,” the company said.
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