Telstra and NBN Co reach deal for new broadband network

Xavier Verhoeven
21 June, 2010
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Australia’s next generation of internet services received a boost over the weekend with news that the national broadband network could be rolled out sooner and cost less thanks to a deal between Telstra and NBN Co – the company that is responsible for setting up the network.

The two companies have signed an agreement that will see NBN Co use Telstra’s existing copper network infrastructure to build its fibre-optic replacement.

The deal, which will cost NBN Co an estimated $11 billion, means the new network can use pits, ducts and backhaul fibre already in existence, rather than requiring expensive duplication of infrastructure. It also means Telstra customers will be migrated to the wholesale-only fibre network, the old copper network will be decommissioned and Telstra will become one of the biggest customers of the NBN.

“This is a sound outcome for NBN Co because, when finalised, it can maximise the use of existing infrastructure and accelerate the roll out of its network,” says NBN Co CEO Mike Quigley.

The agreement should mean a more efficient rollout of the NBN and a reduction in the overall cost of building the new network. Another bonus is that more of the cabling will be located underground rather than overhead.

Migrating the current copper network to the new NBN Co fibre network will also remove Telstra’s current universal service obligations (USO). Instead, a new entity, USO Co, will be established with government funding to assume responsibility for these obligations – including delivery of standard telephone services, payphones and emergency call handling – from 2012.

The move should also level the playing field for telcommunications companies and internet service providers, with NBN Co becoming the wholesaler of broadband services. Telstra will move from both wholesale and retail to just retail operations, losing one of its advantages over competitors. The move should lead to more competition and innovation in the industry.

Competitors appear to agree, with iiNet CEO Michael Malone saying that both consumers and the industry should benefit from the agreement: “The NBN is the future of broadband in Australia and iiNet had always believed it would be better served by having Telstra involved rather than not.”

However, Ovum analyst David Kennedy is cautious about the agreement: “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.”

While the deal was announced this weekend, it is not yet set in stone. Telstra, NBN Co and the government will now begin negotiating detailed agreements, which is expected to take a number of months. From there, Telstra shareholders will vote on the move – likely to be in the first half of 2011.

“We will continue to work with the Government and NBN Co on the detail required to implement the principles agreed today,” Telstra CEO David Thodey says. “While today’s agreement is an important step, a very significant amount of work must still be done on many complex issues.”

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