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Telstra announces copper retirement agreement

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Updated: Also Optus After a week of speculation and months of waiting, Telstra has announced an agreement with the company building Australia’s National Broadband Network, NBN Co, under which it will move its customers to the new fibre-based wholesale access network, and progressively retire its copper.

Within an NBN rollout region, Telstra has agreed that its copper network will be disconnected within 18 months of the completion of the fibre network.

The deal will still have to be approved by Australia’s competition regulator, the Australian Competition and Consumer Commission (ACCC), as well as the approval of Telstra’s shareholders.

Telstra will progressively disconnect broadband users (typically ADSL) from its copper access network as the NBN becomes available, and will also shift broadband customers from its hybrid fibre-coax (HFC) network to the NBN. The HFC network will remain in place to deliver pay-TV services (a point routinely misunderstood in Australia).

In return for its customers – and for access payments – Telstra will provide NBN Co with access to infrastructure such as exchange space, dark fibre, and “pits and pipes” to assist the rollout of the fibre access network. This access is considered crucial to the NBN, since it will accelerate the rollout, minimize disruption to customers, reduce rollout costs, and reduce the need to deploy the fibre overhead (such as along power lines).

The migration won’t be without cost to Telstra. However, the roughly AU$2 billion needed for infrastructure upgrades and customer migrations will mostly be absorbed in existing operational costs. Around AU$600 million of this is in planned infrastructure upgrades which will be brought forward, while $900 million will be paid for in savings in the legacy network.

The carrier expects to be paid around AU$4 billion by NBN Co for customer disconnection payments and the sale of its lead-in conduits. Over 30 years, it expects another AU$5 billion of payments for infrastructure access. This is in addition to another AU$2 billion in payments from government.

For 20 years, Telstra has committed to use the NBN exclusively to connect customer premises within the NBN footprint, with a handful of exceptions (such as point-to-point fibre services). Telstra has also agreed not to promote wireless services as a fibre substitute.

In a blow to Australia’s opposition, the agreement includes compensation of as much as AU$500 million to Telstra, should the rollout be halted or slowed down.

The government has also agreed to restructure Australia’s USO (Universal Service Obligation). This regime, which guarantees telephony to even remote customers, is funded by the industry through carrier license fees, but is delivered by Telstra. ®

Update: Optus follows suit

Hard on the heels of the Telstra announcement, Optus issued a release to the Australian Stock Exchange saying that it, too, will migrate customers from its infrastructure to the NBN. The Singtel-owned carrier estimates the value of its agreement to be AU$800 million.

Unlike Telstra, Optus will decommission those parts of its HFC network that do not support “mobile infrastructure and business customers”, the announcement says. The Register has asked Optus to clarify migration plans for its pay TV customers.

As with the Telstra arrangement, the Optus deal is contingent on ACCC rulings. Both deals are also contingent on how the taxman treats them.

Note: The financial details of both deals are expressed in “net present value” terms, which means the final amounts paid will differ from what’s in the releases. ®

Update: Optus 'clarifies' pay TV customer future

The Register asked Optus about the effect of its planned HFC retirement on its pay TV customers. This declining segment seemed to be a drag on Optus' consumer income: when pay TV was included in its March quarter results, it pulled total on-net revenue down by 1.3 percent.

Optus declined a direct answer, stating through a spokesperson that the company "will continue to work with its partners to offer video and TV services in an NBN enabled world".

Since the Optus HFC footprint substantially matches Telstra's, it's feasible that customers could be handed in that direction; or Optus might get to work crafting broadband-based TV delivery for its future NBN pay TV customers. ®

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