Telstra negotiates break fee over NBN

13 June 2011 | Kavit Majithia


Australia’s troubled A$43 billion National Broadband Network (NBN) was dealt another blow after potential major investor Telstra negotiated a break fee clause that could be worth up to A$1 billion should the roll-out be abandoned.

According to local media reports, Telstra’s proposed A$9 billion investment with state-owned NBN Co will include break fees that would not immediately be implemented but at the point the telco has invested in the network. The clause would be based on a percentage of the amount of network infrastructure in place.

German-based Deutsche Bank estimates that if the NBN roll-out was suspended or scaled back and fails to hit its 2020 nationwide implementation target, the project could fail to deliver on dividend payments to shareholders unless there was a break fee in place.

Much of the controversy surrounding the A$43 billion roll-out, which aims to deliver broadband access to over 90% of homes in Australia, is the scepticism voiced by the opposing Conservative party. The party has repeatedly questioned the need for high capacity in the country, the large expenditure placed on the national budget, and it has rejected the idea that major providers of communications should be state owned. If in power, the party has declared it will build a cheaper fibre-to-the-curb (FTTC) alternative and abandon the current network.

"Given the information we already have, it is impossible to determine whether the NBN will prove a boom or a white elephant, but we can conclude that the risk being carried by taxpayers is considerable," said David Kennedy, research director and principal analyst at Ovum. "Whether this is a good idea or not has been the subject of heated debate in Australia, and comes down to different philosophies about the role of government."

After suspending its network tenders in April due to failing negotiations with vendors, NBN Co announced last week it has awarded vendor Ericsson a contract for the fixed wireless roll-out of the network.