Telstra’s CEO Andy Penn has said there is still potential for the company's InfraCo business to take a stake in NBN Co if the government forges ahead with its privatisation.
In June 2018 when Telstra announced the establishment of InfraCo as part of its T22 strategy, the company said the creation of the new standalone business unit would “provide significant optionality for Telstra in the future for a potential demerger or the entry of a strategic investor” once the roll out of the National Broadband Network is completed.
Although there is no timeline for privatisation, it remains the government’s policy. Communications minister Paul Fletcher last month said that privatisation of NBN Co is still “some way away”. The minister also in June reemphasised that the government would not allow NBN Co to be owned by a vertically integrated telco such as Telstra.
Penn said today told a National Press Club Event that he understands the policy framework “that the NBN cannot be owned by a vertically integrated operator.”
“In other words, it cannot be owned by a company that provides both wholesale and retail services,” the Telstra CEO said. “In fact, that's one of the tenets of the establishment of the NBN, but that is exactly why we have created a separate part of our business, which is what we call InfraCo, because at some point of time in the future, it has been the policy of both sides of government for the NBN to be privatised.”
He said he expects privatisation of the new network to be a “a good number of years into the future”.
“If Telstra were ever to play a role in that transaction, then we could only do so... via our infrastructure business being separated from our retail business, if I could describe it that way,” Penn said.
The creation of InfraCo by Telstra is “putting itself in a position” where the telco has the “capacity to be a party to or participate in” a privatisation process.
InfraCo controls Telstra’s fixed network infrastructure, including many of the assets leased to NBN Co. NBN Co’s CEO, Stephen Rue, today said that the fees the company pays to Telstra for access to InfraCo assets are a factor in NBN wholesale pricing: “Our Corporate Plan points to a continuing payment to Telstra for access to ducts, dark fibre and facilities of $1 Billion annually from FY21, representing 20% of forecast revenues, and continuing for decades after the build is completed. This has an obvious impact on wholesale prices,” the CEO wrote in a blog post.
Telstra recently repeated its call for NBN Co to simplify and slash its wholesale pricing.
Penn said today that NBN wholesale pricing are a “significant contributor” to shrinking returns on capital in the telco sector.
“Recent research from PwC shows return on invested capital for telecommunications was just 7 per cent in 2016, having declined from 12 per cent in 2012,” he said in remarks prepared for the NPC. “I would hazard a guess that this is below the cost of capital of every operator in the country.”
NBN Co’s wholesale pricing is making it “unprofitable for operators like Telstra to resell NBN.” Although Penn does not expect 5G to replace the NBN, he said that a significant portion of households switching away from the fixed broadband network to wireless could be “incredibly damaging” for NBN Co and put further upward pressure on prices.