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Will Telstra Buy the NBN?

In 2020, Telstra announced plans to restructure its business into several separate entities. This sparked curiosity across Australia, as this decision could see Telstra buying our National Broadband Network (the NBN).

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As of April, Telstra’s NBN plans are still fairly murky: leaving many Australians with questions like “will Telstra buy the NBN?” and “would the government sell the NBN?” This article will answer these questions.

Telstra & The Origins of the NBN

Before we look at the state of the NBN today, it’s important to understand how the network came to be.

Plans for the NBN were first announced in the lead up to the 2007 Federal Election. By 2009, projections for the NBN had it covering 93% of Australian premises by 2020. This early NBN set the stage for the network we have now, though it underwent many major changes. The largest of these changes occurred in 2013. That year, the decision was made to change from a Fibre-to-the-Node (FTTN) network to a fibre-to-the-premises (FTTP) network.

Today, government-owned enterprise NBN Co manages the FTTP NBN network and rents its services out to providers who sell NBN plans (like TPG, Vocus and Optus).

While the NBN is a government infrastructure project, Telstra has been tied to the network since the very start of the project.

Telstra was originally formed in 1993 after the Australian Telecommunications Corporation merged with the Telecommunications Commission (a state-owned entity). The Australian government still owned shares in the company, though they sold these to Telstra in 1997.

Throughout the 1990s, Telstra held a monopoly over Australia’s telecommunications industry. This was a blessing and curse, according to telecommunications expert Paul Budde.

On the one hand, Telstra was able to manage the majority of Australia’s telecommunications infrastructure, but on the other, it “raised consumer and business prices to the maximum and delayed innovations (such as high-speed broadband) to maximise its financial return on the old infrastructure.”

In part, the lack of innovation from Telstra drove the NBN – as the Government decided to build its own high-speed network.

‘Telstra Buys NBN’: Why It Might Happen

Although Telstra does not own the NBN, the network is heavily dependent on the company. Telstra rents 47.6% of NBN Co’s services, making them the biggest NBN customer. Telstra also supplied a large amount of infrastructure for the NBN and owns some of the equipment used in the network. In part, this includes transit links, ducts, traps, pits, pipes, telephone exchange infrastructure – all of which are needed to keep the NBN online.

Though we are not privy to the behind-the-scenes operations of Telstra, there are three other reasons people suspect Telstra will buy the NBN. These are outlined below.

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Reason #1. NBN Co is Losing Money

The latest data from February 2021 shows that 8 million businesses and homes are connected to the NBN. Despite this large customer base, NBN Co is losing money.

In the first half of the 2019/2020 financial year, NBN Co reported an after-tax loss of $2.8 billion. NBN Co’s after-tax earnings did improve in the second half of the 2019/ 2020 financial year, though the enterprise still lost $648 million.

While the NBN was always a controversial project, consumer opinions of the network haven’t improved. Between July and December of 2017 alone, NBN Co received 22,827 complaints about the network. In 2021, NBN Co customers are still complaining about bad customer service, high lag times, and slow internet – all of which is not helping NBN Co to generate revenue.

Reason #2. The NBN is Competing with the 5G Network

Australia’s NBN network is not Australia’s newest or fastest network anymore. While the 5G network offers the potential for speeds up to 4.2 Gbps, 90% of NBN users are stuck with 50 Mbps plans. This is a large blow to the NBN, as the 5G network delivers faster speeds for a similar price.

That’s not all, however. NBN Co is charging high prices for their NBN plans, which leaves service providers making very thin margins. If the cost of delivering NBN internet to customers remains high, NBN service providers may switch over to the 5G network: costing the NBN more customers.

Reason #3. Telstra’s Timely Restructuring Plan

Finally, we come to Telstra’s restructuring plan. Telstra’s restructuring plan divides the companies into several separate entities. This includes InfraCo Fixed, which encompasses Telstra’s existing network infrastructure, InfraCo Towers, which would operate the 4G and 5G networks and ServeCo, the ‘core’ of Telstra.

While Telstra’s restructuring plan won’t be confirmed until October 2021, the plan does give Telstra the ability to operate the NBN under the ‘InfraCo’ entity.

‘Telstra Buys NBN’: Why It Might Not Happen

According to Morningstar analyst Brian Han, Telstra is unable to own the NBN, despite the restructuring. Han was quoted in the Australian Financial Review, as saying:

“Telstra, as it currently stands, cannot own NBN. If they are going to do anything about owning NBN, whatever vehicle Telstra wants to own it will have to be significantly decoupled from the core business.”

Australia’s Communications Minister Paul Fletcher also expressed a similar sentiment. In an article for Sydney Morning Herald, Fletcher explained that the policies guiding the NBN make it impossible for a company that sells retail telecommunications plans to own the network.

“A clear feature of the policy structure is that NBN cannot be owned by a vertically integrated telco,” he says, “I don’t see any prospect of that restriction being changed.”

If Telstra does want to own the NBN, it will need to separate the Telstra Group from InfraCo Fixed completely. Though this would take time, it’s not impossible – meaning Telstra could buy the NBN. Just not yet.

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