NBN Co could be liable to pay over $98 billion in total nominal pre-tax payments to Telstra over 55 years, according to advice provided for NBN Co’s board by Goldman Sachs in May last year.
CommsDay can reveal that the advice was sought by NBN Co following the release of the then-Opposition Coalition’s alternative broadband policy in April 2013.
The confidential “working draft” advice, sighted by CommsDay, puts a number on NBN Co’s nominal long term commitments to Telstra for the first time: previously NBN Co’s liability had been generally expressed in terms of its post-tax net present value to Telstra.
Goldman Sachs said that based on the then-latest corporate plan of NBN Co, the firm would be obliged to pay out $98.159 billion in nominal pre-tax payments to Telstra between FY2011 and FY2067. The bulk of this—some $88 billion—would be for infrastructure leases covering ducts, dark fibre, rack space and conduits.
As the NBN Co footprint expands to cover all of the Telstra copper footprint, these payments would rise: from A$400m annually this financial year, to $1 billion in FY2019 and to $1.6b a year by FY2042. By 2067, NBN Co would be paying Telstra some $2.9 billion a year in lease commitments.
According to Goldman Sachs, the net present post-tax value to Telstra from the definitive agreement with NBN Co was worth $11.72b in May last year. Analysis of what was known then of the Coalition’s policy estimated that it would add $2.4b or 20% to the value of the agreement to Telstra if the then-Opposition could implement its plans in government. This uplift was based largely on Telstra’s increased value from its ability to retain and operate its HFC network for broadband services, although this would be highly sensitive to ARPUs and market share. NBN Co is currently negotiating new terms with Telstra.
LAZARD ANALYSIS: In a separate analysis for Federal Cabinet two years earlier in mid-2011, global advisory firm Lazard provided its own confidential take on NBN Co’s definitive agreement with Telstra, calculating that NBN Co had a $52 billion nominal liability before time discounting to Telstra over 35 years. At the time, Lazard estimated that if the NBN rollout was to be terminated in FY2014, NBN Co still faced a $22.2 billion “nominal” ongoing commitment to Telstra. This rises as high as $36.5 billion in 2020.
Lazard warned Cabinet that “if the Commonwealth was seeking to exit this project, we believe Telstra is likely to be the only private sector buyer of NBN Co’s assets due to the long term take-or-pay liabilities and would likely argue that the Commonwealth’s liability should be valued at a Commonwealth discount rate… in other words, a larger liability.”
Cabinet was also warned by Lazard that NBN Co’s business plan was highly dependent on two assumptions: that it could double its ARPU in ten years and that wireless-only premises would remain at a static 13.5% of the total beyond 2021 out to 2041. On these assumptions, NBN Co’s projections resulted in an expectation that it would generate EBITDA of 77% by 2031 and 79% by 2041. Lazard said “this would place margins above infrastructure businesses which are proven natural monopolies, which own their own assets and operate in more stable markets than NBN Co.”