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Australia to pay Telstra A$11 billion for entire copper network

Sean Hollister

The Australian government just found the infrastructure for its A$43 billion national broadband project and eliminated its largest competitor in one fell swoop -- pending shareholder and regulator approval, Telstra will receive A$11 billion of that money in exchange for its entire landline network. Telstra will decommission its monopoly of copper cables to make room for the government's fiber and migrate its customers to the resulting 100Mbps National Broadband Network (NBN) as those light-bearing threads roll out. While Telstra might become a smaller player in the internet and cable business without a land network of its own, it may get even larger in the wireless space -- the company says it's received "written confirmation from the Prime Minister" that it can bid on a chunk of precious LTE spectrum should the deal go through. Press release after the break.

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Telstra signs Financial Heads of Agreement on NBN

Media Release 20 June 2010

Telstra today signed a non-binding Financial Heads of Agreement with NBN Co to participate in the rollout of the National Broadband Network (NBN).

The transaction, if completed, would deliver to Telstra a post-tax net present value of approximately $11 billion. This includes payment for the decommissioning of Telstra's copper network and cable broadband service, use of Telstra's infrastructure, and the value to Telstra of avoiding costs, including certain Universal Service Obligation (USO) costs. Payments would be made progressively to Telstra.

The transaction would see Telstra progressively migrate its voice and broadband traffic from its copper and cable networks to NBN Co's network as it is rolled out. Telstra will continue to use its cable network to meet its pay TV contract with FOXTEL.

Telstra Chairman Catherine Livingstone said the milestone was encouraging after a year of complex negotiations.

"The Heads of Agreement is consistent with the Government's high-speed broadband vision and desired industry structure. This agreement reflects a commitment by all parties to reaching a mutually beneficial outcome for Telstra investors, customers, employees and the industry," Ms Livingstone said.

Telstra Chief Executive Officer David Thodey said: "We will continue to work with the Government and NBN Co on the detail required to implement the principles agreed today. While today's agreement is an important step, a very significant amount of work must still be done on many complex issues."

These issues are as diverse as migration processes, taxation, the future of legacy regulations applying to Telstra and the consequences of any major changes to the NBN rollout schedule.

While the Government is not a party to the Heads of Agreement, Telstra has received written confirmation from the Prime Minister that Telstra would be able to bid for Long Term Evolution (LTE) wireless spectrum should the transaction be completed and that sufficient regulatory certainty will be provided on a range of matters for NBN Co and Telstra to enable the transaction to proceed.

In addition to requiring shareholder approval, the Heads of Agreement has a range of conditions, including the passage of necessary enabling legislation and ACCC approval. Accordingly, there can be no guarantee at this time that the transaction will progress to completion.

The Heads of Agreement provides the framework for definitive agreements to be negotiated over the coming months. Should those agreements be finalised Telstra expects they would be put to shareholders in the first half of calendar 2011. Shareholders and investors would receive comprehensive detail in relation to the definitive agreements and an independent expert's report on the transaction well before the shareholder vote.

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