Telstra and NBN Co. deal

David Kennedy, Research Director, Ovum

AUSTRALIA: Though many details have not been finalized, this Heads of Agreement is a substantial step towards realising the NBN.

In effect, this is a non-compete wholesale layer agreement between the NBN Co and Telstra. It reflects a major shift in the industry, away from policy to promote infrastructure competition and towards a monopoly access network regulated as a utility.

For Telstra, this agreement means more certainty. 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.

But the agreement has several hurdles to leap before it can be finalised. There is still a lot of detail that must be negotiated. The final agreement will require ACCC approval, Telstra shareholder approval, and enabling legislation for the proposed USO changes. There is no guarantee that the deal will be finalised in its current form.