NBN threat to Telstra overestimated

Stuart Corner
Wednesday, 29 July 2009 08:04

IT Industry - Strategy

Southern Cross Equities analyst Daniel Blair believes the perceived threat posed by the National Broadband Network to Telstra has been greatly overestimated, and further that the NBN will most likely be built with significant Telstra involvement.

In a just-published analysis of Telstra, Blair says: "Telstra presently has no greater risk than on the day before it was excluded from 'NBN Mark I' (12 December 2008)... We believe this risk is overstated and that the Government cannot achieve its NBN objectives without Telstra The key question is to what degree [will Telstra be involved]?"

Yet, he points out the share price has fallen 15 percent from the $4.12 on that date. However he does flag the NBN as "the single biggest risk to Telstra."

According to Blair, "Excluding Telstra from the NBN creates significant risk for the project (project delivery, competition and commercial)." He predicts "continued NBN delays with the implementation study providing the first real clarity...in April 2010." Anything happening sooner would, he argues, likely be positive for Telstra because it would be the result of Telstra's negotiated involvement in the project.

Blair has for several months been punting on a negotiated outcome under which Telstra agrees with Canberra to invest in high speed broadband with a regulatory outcome that is acceptable, ie changes to the Trade Practices Act and/or functional separation designed to deliver equivalence of access.

He says that FTTH reaching 90 percent of homes under this scenario would be "unlikely". (However, this would represent a significant failure of the government to deliver on the promise for its grand $43b NBN plan.)

Should Telstra not be involved, Blair believes the NBN will struggle to meet rollout targets and struggle to win customers from Telstra. "Currently 80 percent of Australia's 9.9m fixed lines are Telstra retail customers. We believe the NBN will struggle to achieve appropriate take-up rates without a large chunk of these Telstra customers. This is unlikely to be achieved from customer demand in the medium term given the lack of demand for 100Mbps (especially given pricing vs. DSL)."


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