Telstra's dash for NBN cash

Telstra is looking to secure some earlier funding – and get more cables laid, to boot

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 10, 2012 11:34 am AEST

As part of the arrangement for the NBN to go ahead, Telstra Limited (ASX: TLS) agreed to switch off its copper network and transfer customers to the NBN; in return for which, Telstra will receive around $11 billion, in a series of payments.

Telstra CEO David Thodey is planning to spend $100m to accelerate construction of a key aspect of the NBN, in order to unlock a $2 billion windfall for shareholders, according to a report in today's Australian Financial Review.

Mr Thodey announced yesterday that the company is increasing its capital expenditure by $500m over the next two years to complete transit links that will form the core of the NBN, as well as expanding its superfast 4G mobile coverage.

The company is in a rush to get its hands on as much cash as it can before next year's federal election, which could see the NBN canned, should the Liberal/National Coalition win. The Coalition has stated that it will close down the NBN project if they take government.

(AGL Energy (ASX: AGK) and Origin Energy (ASX: ORG) are in a similar limbo, uncertain about the future of the carbon tax.)

The construction of the transit network involves rolling out fibre to 121 points around the country. Mr Thodey said yesterday:

"That was meant to be a three-year build. We are working very closely with NBN Co and Mike Quigley, and the team, we are saying, gee can we do it a little bit quicker? That allows NBN Co the flexibility to go to different fibre service areas sooner."

Should the transit links be put in place, Telstra may be paid sooner.

One of the issues for the NBN is that fixed line customers are dropping off Telstra's copper network but are switching to mobile services, which offer very high speeds almost as fast as ADSL services, and in some cases faster. As new technologies become available, speeds are increasing too.

NBN Co predicted that 92,000 homes would be connected by June 2013, compared to its earlier forecast of 566,000, and of those 92,000, just over half will be connected by fibre.

Given the very low take-up of the NBN so far compared to the planned takeup, one wonders whether anyone will be left to subscribe to NBN's fixed line services by the time the project is completed in June 2021.

A cynical person might suggest that Telstra is happy for someone to pay it to lay cables, all the while knowing that the future is mobile, and that's where Telstra's strategy appears to be heading.

The expansion of Telstra's 4G network will result in up to 1,500 mobile sites being upgraded to the 4G standard. Traffic on Telstra's networks is doubling each year, and the increasing penetration of smart phones and the expected launch of Apple's newest iPhone before the end of this year are likely to increase demand for data.

Telstra's superfast 4G network and its lead over its competitors allowed it to pick up an additional 1.6 million mobile customers last year, and more than 3 million in the last two years. Optus – owned by Singapore Telecommunications (ASX: SGT) has only just started rolling out its 4G for business customers in the last week. Third-placed carrier Vodafone plans to launch a 4G service next year – which may be too late.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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