NBN negotiations between Telstra and the Government set to end with no deal in sight

Negotiations between Telstra and the Government regarding the National Broadband Network are expected to conclude soon, with communications minister Stephen Conroy signalling the possibility of emerging with no deal at all.

But the worst case scenario, in which the Government and Telstra are unable to strike a deal, and legislation ordering the split of Telstra’s wholesale and retail networks is shot down in the Senate, could result in a disaster for the Government, one industry expert has warned.

”It won’t be long before there will be either a deal or no deal in the discussion between the Government and Telstra,” Conroy told 3AW radio yesterday.

”I can assure Telstra shareholders that David Thodey and Catherine Livingstone have been representing their interests.”

”We have had long constructive discussions and we have had differing points of view at various times, but it has been a positive and constructive dialogue over the last three months.”

The Government has faced widespread opposition to its draft legislation ordering the construction of the National Broadband Network. While the NBN was designed to be wholesale-only, a clause in the draft allows for the possibility of a retail component if the communications minister deems it appropriate.

This has been a serious point of contention between Telstra and the Government, along with politicians in the senate and other telcos such as Primus and Optus, both of which spoke out against the clause in official submissions.

Additionally, Telstra does not believe it is receiving a fair enough offer for the sale of its copper networks. It told shareholders last month there was a gap between the asking and offer price for a sale, and will seek shareholder approval for any final offer.

Nathan Burley, analyst at Ovum, says the worst-case-scenario would see the Government walk away from the negotiations with no deal and no legislation ordering the split of Telstra’s networks.

“The worst situation would see the whole thing cost the Government more money, or they could even potentially pull the pin. The reason they want the deal with Telstra is to bring the cost down and so they don’t have to compete against it.”

Burley says that in a situation where negotiations break down, the Government could see Telstra react by upgrading its own networks to speeds over 100mbps.

“Let’s assume that Telstra backs away, it could potentially upgrade its networks to speeds of 100mbps, equivalent to the NBN. It could quickly reduce prices, attempt to rapidly increase penetration rates, cut prices on other broadband offerings, and so on.”

“Outside of that it could also ramp up wireless offerings and so on. This would also have the Government pay more to use infrastructure, ducts and so on.”

But Burleys says a deal would be the best outcome for the two parties, as it would save them both time and effort and result in a mutually beneficial situation.

“There are lots of benefits for both of them. Obviously for the Government, this would see them save quite a bit of money, while for Telstra they wouldn’t have to compete with a Government network that has potentially bottomless loads of cash.”