NBN study puts Telstra in a vice

James Riley
Thursday, 06 May 2010 22:48

IT Policy - Regulation

The KPMG-McKinsey implementation study of the National Broadband Network confirmed what many have thought all along: That the best way to come to a cooperative agreement with Telstra is to proceed with building the NBN as if Telstra will not be involved.

And the further the network roll-out progresses, the more compelling the case is for Telstra to reach an agreement with Government.

The release today of the $25 million implementation study ratchets up the pressure on Telstra to find an agreeable valuation for its useable assets and a valuation for a staged customer migration with the NBN Company.

Telstra's share price fell 5 cents to close at $3.08 following the release of the study, despite the market already factoring in the enormous potential downside of the Rudd Government's network plan.

Communications Minister Stephen Conroy has always said the Government was committed to going ahead with the NBN, with or without Telstra.

And the implementation study gives it a business case in which it can proceed without Telstra, and get a return of 6 to 7 per cent on its investment in the project. It says the original $43 billion estimate was at the very upper edge of its cost estimate, and could cost many billions less at $38 billion.

It tells them that the maximum capital investment required from the Australian taxpayers will be $26 billion - at about Year 7 of the build - and that it will get its money back, plus interest, plus the cost of the capital in 15 years.

The KPMG-McKinsey study points to a compelling case - a natural commercial fit - between Telstra and the government's NBN. It makes sense, the study says, for both parties.

The only undecided issue is price, the study says, and the only way to arrive at a price of cooperation is to continue to build the NBN network until the pressure is so great a price is arrived at.

And that's what Government has been doing. (The $250 million backhaul blackspots program announced last year was nothing if not a postcard to Telstra, letting them know the NBN was coming, ready or not.)