Telstra D-Day Tuesday: Vote On $11B NBN Deal

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1.4 million shareholders will decide the fate of Telstra tomorrow as the vote on the NBN ‘Proposed Transaction’ worth $11 billion, comes to pass. The vote follows Telstra signing of ‘definitive agreements’ with the NBN and government in June on the proposed break up of Telstra and the signing over “long term access” of dark fibre links, pits and ducts infrastructure to NBN Co.The controversial deal means Telstra would be pressing the ‘disconnect’ button on copper network and HFC cable network (except for the delivery of Pay TV services) although would still provide broadband service to areas but only where NBN fibre has not been deployed.

The $11bn handshake also means the mighty dog Telstra would no longer be the dominant force in fixed line wholesale services, depending now on NBN Co fibre network, and will instead focus on wireless services.

It would also change the shape of Australian telco regulatory environment and see NBN Co as the new dominant force in broadband forever and separate Telstra’s retail and wholesale arm and migrate millions of customers to NBN fibre network.

The agreement is “materially superior to any other option realistically available to Telstra under government policy,” according to Telstra Explanatory memorandum to shareholders.In fact, Telstra is also dangling the fact that the ‘next best option’ to NBN agreement would be a difference of $4.7 billion before its shareholders.

To break the $11bn sum down – $4b goes to disconnection payments, $5b infrastructure access payments, $0.3b housing estate provision responsibilities, $0.7bn on TUSMA and $1b on ‘other’ includes retaining Telstra staff and migration os customers over to NBN.

Chief Executive David Thodey also recently said, if passed, Telstra would release a capital expenditure’ grand plan next year on how it intends to spend the windfall although it is unclear if shareholders will get a slice of the action.

 

“Our cashflows do increase over the next three to five years and the question is what do we do with that excess cash.

“We’ve always said that if we haven’t got a use for it, we’ll give it back to shareholders, but we’ve not declared that.

“What we’ve said to shareholders is that early next year, we will come out with a capital management strategy that will give clarity to what we plan.”

In the memo, Directors are calling on shareholder to “unanimously recommend” the proposals as it will give the Telco a “better overall financial outcome”, “free cash flow” and help it focus on “key areas of growth.”

Read Yes: Telstra Shareholders Hard Nod $11B NBN Deal

The Australian Shareholders Association, which has about $150m stake in Telstra or 10,000 proxy votes is already calling on shareholders to approve the plan saying it is the best deal available, saying “we can only assume…management negotiated hard for it.”

“We believe that it is important that all shareholders express their support for this transaction and the board by voting ‘for’ and thus give the board some bargaining power if it should be required in future negotiations with government,” the ASA members report stated last week.

And Telstra need no longer worry about rebel investors Future Fund, once its biggest shareholder who turned against it at every turn over the uncertainty surrounding the NBN and Telstra deal because it now holds just less than 1% share, in total.

However, one issued bugging shareholders is that Telstra’s structural separation undertaking has not yet been approved by ACCC, who already idenfiied several holes in the Telstra-NBN deal although did not think the issues were insurmountable.

However, it is not known what would happen if the deal was rejected by shareholders, however unlikely.

The NBN deal expires in December so a fierce scramble to renegotiate would be on the cards or scrap it altogether. However, if this was to be the case, it would hold up the entire NBN roll-out and upset Telstra’s grand plans.

 

Telstra AGM which takes place tomorrow 18 October 2011 10:00 AM at Sydney Convention and Exhibition Centre, Darling Harbour.

It will also be broadcasting live to venues in Melbourne and Brisbane, and to T-Box customers using its Electronic Program Guide (EPG), or via channel 919.

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