Sunday, July 10, 2011

#Australia #NBN - Taxpayers face a liability of billions of dollars if the agreement with Telstra is broken by the next government

[the australian] TAXPAYERS face a potential multi-billion-dollar liability to Telstra in addition to a possible break fee if the National Broadband Network is halted by a Coalition government after the next federal election.

While Finance Minister Penny Wong said on Thursday that Telstra could receive the one-off break fee of up to $500 million if a future government backed out of the super-fast internet project, stockbroking analysts stressed yesterday that lease payments for Telstra infrastructure would still have to be paid for decades and could reach into billions of dollars if the project were stopped after the 2013 election.

The government has guaranteed these payments in an $11bn deal under which Telstra will allow NBN Co to access infrastructure such as ducts, pits and manholes for a more efficient rollout.

JP Morgan estimated that if the NBN rollout was halted in 2014 NBN Co could have already committed to payments worth $3.2bn until 2035. Goldman Sachs estimated Telstra would receive $2.7bn if the rollout was halted in 2013 under a new government.

Communications Minister Stephen Conroy's office conceded last night that lease payments to Telstra would have to continue where Telstra's infrastructure had been used but disputed claims that they would be as high as $3.2bn.

"The extent of these liabilities will depend on the stage of the rollout and the extent of the commitment undertaken to use Telstra infrastructure at that point," his spokesman said.

The infrastructure payments would apply regardless of when the rollout is ceased or scaled back and would last up to 35 years.

By June 2013, the NBN could have passed about 1.3 million premises - or 12 per cent of the project - although analysts already say delays mean about 10 per cent of the project would be done.

Goldman Sachs estimated the $2.7bn would consist of $2.1bn in infrastructure lease payments, $400m for disconnecting customers from the copper and cable network, and $200m for guaranteeing a basic phone service to all Australians.

Goldman Sachs said Telstra would be unlikely to get the break fee if the $36bn project were dumped in 2013, as it is triggered by NBN Co reaching 20 per cent of its goal to connect fibre to 93 per cent of the nation.

The comments underline the bind facing a potential Coalition government in 2013, with the opposition pledging to scale back the NBN if it wins power.

Opposition communications spokesman Malcolm Turnbull said the government had tried to "make it harder to take a different approach to the network design", but said that some of the Telstra infrastructure was valuable and that most of the investments made by 2013 were "in respect of assets which can be used".

"Whether they paid too much for them is another question," he said.

NBN Co and Telstra have not disclosed detail on the timing and cash value of the lease payments.

Government sources said NBN Co had agreed to the long-term leases because it needed certainty of access to Telstra's ducts. Sources also said NBN Co would retain the right to full use of the infrastructure during the lease and that returning assets to Telstra would fail to smash Telstra's dominance of the telecommunications sector.

The commonwealth has guaranteed NBN Co's liabilities for the four biggest agreements with Telstra and will continue to do so until NBN Co has an investment-grade credit rating and has repaid the government's $27.5bn contribution, or until the NBN is declared to be built and fully operational.

If the current government runs its full term, an election would be held by November 2013.

If a Coalition government came into office, any decision to scale back the NBN would probably spill into 2014 because of a commitment to perform a cost-benefit analysis ahead of such a pronouncement.

By 2014, it's possible NBN Co would have reached close to 20 per cent of its fibre footprint, which is the trigger for the break fee of up to $500m.

Even if the conditions for a break fee are not met, the infrastructure payments would still flow to Telstra for the parts of the network that had been built by NBN Co.

While Telstra will also be paid for each customer it disconnects from its copper network and migrates on to the new fibre broadband structure, the most significant and ongoing payments are tied to an infrastructure access agreement that will run for an initial term of 35 years. This so-called infrastructure services agreement is needed by NBN Co to gain access to critical fibre and exchange space from Telstra to build the backbone of its network, which it hopes to complete by 2014.

Scotched National Broadband Network deal 'could cost public $3bn'

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