When Kohler asked whether it would make sense for Telstra shareholders to own the NBN directly, rather than through a structurally separated Telstra network company, Conroy said: “Sure, that’s something we’re absolutely prepared to look at. I think that’s a very sensible suggestion that a number of people have made recently and it’s certainly something we’d be prepared to consider.”

Here’s how it might work, according to Kohler (though Conroy and the Government might well have other ideas):

The Government would capitalise the NBN Co with $22 billion in equity: $4.7 billion from the Building Australia Fund and $17.3 billion to come progressively via new government debt.

The NBN Co would buy Telstra’s copper network, telephone exchanges and ducts for scrip, at a valuation of $21 billion: no actual money required. The NBN Co shares would then be distributed directly to Telstra shareholders rather than held by the company.

Says Kohler: “That value would mean the balance sheet of NBN Co would add up to $43 billion – ­ the Government would have 51 per cent and Telstra shareholders 49 per cent directly. Telstra would be instantly ‘structurally separated’, since the company would no longer own its network:

He adds: “The Government is about to announce the chairman and board of directors for NBN Co. If the above scheme were to happen they would, in effect, become the board of Telstra’s wholesale network business. Its current CEO, Deena Shiff, and her team could simply transfer across and work for (NBN Co.)”.



Kohler notes that other telcos would be banging down the NBN Co’s door trying to sell it network assets, “including Optus, Nextgen and a few others”. (You can absolutely bet that’s the case, Alan. ­ They might also be charging into the courts to protect their interests ­- DWR).

In total, he foresees $25-30 billion worth of existing network assets being sold into the NBN Co. The $22 billion cash holding would presumably be used to lay the promised fibre network and regional wireless networks.

While the Government would initially have 51 percent of the action ­ something Conroy said on Inside Business was non-negotiable ­ this will eventually be sold, allowing the Government to repay the debts.

Alternatively, it could simply issue convertible debt at the beginning that turns into equity progressively over the next decade as the fibre network is built, says Kohler.

Conroy was not available for comment last night. But industry observer Paul Budde told CDN the industry was not averse to Telstra having a major share of the NBN action, so long as the environment was right. “To get Telstra on board, it’s important to make it easier, not squeezing them,” he said.

A valuation of $21 billion for the Telstra network would be “a bit on the far end”, said Budde. “But there’s room for flexibility and negotiation, if everyone keeps cool and doesn’t try to push the others into a corner.”

Business Spectator is an online business news and commentary Web site.

Kohler, well known to ABC TV nightly news watchers, is editor-in-chief, while former Sydney Morning Herald and Cricket Australia editor Eric Beecher is chairman.

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