A beautiful trade… on your dime
One of the requirements for the Coalition’s Multi-Technology Mix National Broadband Network (the NBN) is the takeover of Telstra Corporation Ltd’s (ASX: TLS) copper network. The Government and Telstra are currently in contract negotiations, but the telco has already provided (in principal) agreement for a deal with a present value of approximately $11 billion.
Think about what has transpired here. It’s well-known that telephony is on its way out, as affordability and convenience drives many consumers solely onto mobile networks. In fact, mobile revenues are now larger than fixed line phone revenues for Telstra.
In addition, the superior performance of fibre over copper as the backbone of the internet is also well established. When considering both these factors, it’s easy to see how the copper network is looking increasingly obsolete – a fact I suspect Telstra is aware of.
So the Government and the NBN Co are paying taxpayer dollars – 11 billion of them in today’s terms – for an asset that will most likely have negligible value as we move to FTTP networks after 2025 (as per the NBN outlay timetable as specified in the NBN’s 2013 Strategic Review).
With this money, Telstra will be primed to invest as it sees fit. It may entrench its dominant position in wireless broadband (3G and 4G), or even its own FTTN (fibre to the node) or FTTB (fiber to the basement) network.
The deal is a great win for Telstra shareholders – whether it will be a win for taxpayers can only be determined when the performance of the Coalition’s version of the NBN is assessed.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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