Telstra’s deal with the NBN Co to lease/wholesale a part of the incumbent’s infrastructure to the government-led project was discussed today at Telstra’s annual general meeting. The deal is expected to bring wider and cost efficient underground deployments of NBN while it is estimated to send 11bn of cash to Telstra’s deposits. The financial magnitude of this deal (compared to the price tag of 43bn for the whole NBN) proves the obvious, how important are incumbents in nation-wide NGA deployments.
At the same time, the developments in Australia show that the reluctance of the incumbents to get involved in government-led nation-wide broadband projects eventually drives them out of the scene; regulatory agendas favor fiber access over copper.
Although the discussions in the meeting centered around the 11bn deal, the right question would rather be whether Telstra should have participated in the NBN in the first place.
The dilemma/trade-off, simply put is this: Would an incumbent prefer to get (roughly) twice as much revenue from each wholesale customer switching from copper to fiber or would it prefer to get a hefty amount of cash from wholesale, to (perhaps) finance other operations or pay dividends? If these 11bn are not appropriated to good cause, I wouldn’t be surprised to see Telstra’s stock racing south. Companies with a lot of cash and uncertain future were never good investments. [Someone might say that Google is also testing innovative ways to do something with its cash (1) (2)!]
Altogether, reality check is never a bad idea; maybe it is the best idea today. Do the incumbents overestimate their market power? Because as much as they may expect to get back any customers switching to a DSL competitor, when the customers see the light (fiber), there’s probably no turning back.
