Telstra ‘interested in buying NBN’ and merging with InfraCo

18 October 2018 | Alan Burkitt-Gray

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Telstra’s chair, John Mullen, has confirmed that the Australian company would like to buy the nation’s wholesale-only National Broadband Network (NBN) from the government.

If Telstra achieves the goal of buying out the NBN Co, which runs the wholesale-only NBN, it will merge it with its own newly created infrastructure division, InfraCo, Mullen hinted at the company’s annual general meeting this week.

“NBN Co pays Telstra about $1 billion a year for accessing all its ducts and the like,” he said. “If and when NBN Co is privatised we think there could be – only could be, no certainty – a lot of value uplift to Telstra shareholders if there was some form of combination of [InfraCo] with the NBN.”

However Telstra would have to demerge InfraCo out into a separately owned unit if it were to get such a deal through the competition authorities, he said.

Telstra CEO Andy Penn announced the creation of InfraCo in June as part of his Telstra22 plan, which also included the company’s 5G strategy. InfraCo would have a separate CEO reporting to him, he said at the time.

“As technology innovation is increasingly relying on connectivity, the role of telecommunications infrastructure is becoming more important,” said Penn.

“There is virtually no technological innovation happening today that does not rely on a high quality, reliable, safe and secure telecommunications network. In this world our infrastructure assets are becoming more valuable. By creating a new infrastructure focused business unit we will better optimise and manage these assets.”

InfraCo would include Telstra Wholesale and the group’s fixed networks, including hybrid fibre-coaxial and fixed-network fibre, data centres, international subsea cables, exchanges and ducts.

Mullen said at the AGM: “We are creating an InfraCo within Telstra so that when and if a government decides to privatise NBN, and they have a problem on their hands doing so, Telstra can potentially provide a solution.”

The idea of the NBN was created more than a decade ago by then opposition leader Kevin Rudd of the Labor Party and his telecoms spokesman, Stephen Conroy. The idea was to create a nationwide fibre-to-the-home (FTTH) network covering almost all homes in the country – with fixed wireless and satellite filling it where fibre could not reach. Rudd won the 2007 election and the NBN was created after a long battle with then Telstra CEO Sol Trujillo.

The project was downgraded to fibre-to-the-cabinet after the Labor Party lost a later election. Paul Budde, an Australian telecoms consultant who previously advised Conroy, commented this week: “After an investment of $50 billion we end up with a network that is not much better than an ADSL2+ network that Telstra could have built for a fraction of that outlay.”

Budde is now saying that “a roughly 50% write-down is needed” in order to return NBN “to an economically viable situation” and he added: “There are even people arguing for an 80% write-down.”

He added: “We need a modern viable society and economy and the NBN was seen as critical infrastructure in that respect. A mainly fibre optic infrastructure is needed, and it did not make economic sense to have competing companies delivering two or three such networks.”

The Labor Party that created the idea is now in opposition and there is a general election due next year. Michelle Rowland, the party’s communications spokeswoman, and she is believed to be open to considering new strategies.

“The NBN rollout has also reached a point where it is almost entirely in design, construction, or deployed – a reality which cannot be undone through political will or legislative change,” she said in an interview. “It would be sensible for the major parties to identify common ground on the next steps where feasible to do so.”