Huge $25B gap between Govt and Telstra valuations

James Riley
Tuesday, 27 October 2009 07:00

IT Policy - Government Tech Policy

The existing Telstra copper network is worth between $8 billion and $33 billion – and the yawning gap is the difference between the buyer and seller.

The confidential network valuation numbers were revealed in an Australian Competition and Consumer Commission report accidently tabled in the Senate yesterday.

The paper shows Telstra values the replacement cost of its CAN at $33.03 billion, which values its ducts and pipes at $15.04 billion and copper cables at $12.3 billion. It puts a value of $1.8 billion on its pair gain electronics and $3.8 billion on radio bearer equipment.

Under a different valuation methodology, the report shows Government's values the same assets at $7.96 billion.

The ACCC identifies a yawning gap between the upper and lower valuations for the existing Telstra network. Telstra’s upper level valuations are based on a methodology known as PIE II that assumes the cost of having to replace the network from scratch. Government's includes depreciation and write-offs.

The ACCC says the valuation of the CAN has direct implications for both the pricing of future National Broadband Network services, as well as the ability for the market to provide adequate incentive for ongoing incentive in future.

"The approach used to value the CAN cannot be considered in isolation of the pricing model that will be apply to the NBN," the ACCC report says.

The release of the ACCC valuations numbers are an embarrassment for Government, and yet will work in its favour in its discussions with Telstra. Government appears keen to note that the ACCC figures are not being used as the basis for the negotiations.

In a statement to stock exchange this morning, Telstra company secretary Carmel Mulhern noted the source of the figures as being from the ACCC and relating to regulatory cost modelling provided to the Expert Panel as part of the cancelled 2008 NBN request for proposals.

Mulhern did not indicate whether the figures formed a part of the negotiations with Government or not.

A spokesman for Communications Minister Stephen Conroy confirmed only that the commercially sensitive material had been tabled by mistake.

"The ACCC document containing commercially sensitive information was tabled by mistake and the Government regrets the error," the spokesman told iTWire.
 
"The value of network assets is a subject of talks with Telstra and we have already indicated that we will not be discussing or giving a running commentary on those discussions."