The debate over Telstra continues to rage with a Bill to force its structural separation stalled in the Senate, a report on the NBN Co being sat on by the Government and Telstra advising that there is a significant gap between it and the NBN Co.

What is the NBN and what does it mean for Telstra shareholders?

The National Broadband Network, is a Fibre to the Home network set to be built in Australia. The fibre network will replace Telstra's copper network. The Australian Government has established a Government business enterprise, NBN Co Limited, to design, build and operate an Open Access Network for which it is offering to contribute an initial cash injection of up to $43 billion. NBN Co Limited will initially be a public (51%) private (49%) partnership for the first five years, and then fully privatised.

The Government initially called for proposals to build the NBN. In December 2008 the Government excluded Telstra from the bidding process, saying its proposal was not compliant. In April 2009, after the closing date for proposals, the Government announced that none of the proposals received provided value for money and announced its intention to build to network.

Currently Telstra own the copper network which connects to most houses and businesses in Australia. This means it is highly vertically integrated, offering retail services itself, and wholesale services to its competitors in the retail market. The Government proposes that wholesale and retail should be completely separated and accordingly Telstra will be forced to either structurally separate. How that happens is not prescribed, but it is suggested that it could involve the creation of a new company by Telstra, or the migration its fixed line assets to the NBN Co.

Legislation

There are a number of pieces of legislation which will be necessary to push through the building of the NBN, including the Bill which is currently stuck in the Senate, which requires Telstra to voluntarily separate its wholesale and retail businesses the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill 2009. This Bill was withdrawn from the last sitting of the Senate. Where do Senators stand on the Bill? We understand as follows:

• Coalition - against
• Greens - seeking amendments

• Senator Xenophon - for
• Senator Fielding - yet to reveal his hand.

The Senate sits again in May.

Other legislation is in draft, with the consultation period closed, although one would expect further changes and consultation would follow the release of the report by KPMG and Mckinsey & Co (see below).

Telstra/ NBN Co negotiations

These appear to be ongoing. Essentially Telstra and the new public private company set up to build and run national broad band network, NBN Co, are in the process of negotiating access to Telstra owned infrastructure by NBN Co. It's unclear exactly how this will work, although it is understood that Telstra is looking for a substantial payment.

Telstra released an update to the market on 19 March saying that "there is a significant gap between Telstra and NBN Co on what each party considers to be an acceptable financial outcome and there are also a range of commercial matters that are yet to be agreed."
Telstra also say that any agreement to change the nature and scale of activities of the company will require approval of the majority of Telstra shareholders.

To see the Telstra release click on the link below:
http://www.asx.com.au/asxpdf/20100319/pdf/31pc84fmb73rth.pdf

NBN Co

KPMG and McKinsey & Co have produced a detailed implementation study to inform the company's operating arrangements, detailed network design and ways to attract private sector investment.

This report is with the Minister, Stephen Conroy, but he has so far refused to produce it to the public or the Senate (despite the Senate passing an order that t be produced). He says the Government will consider it first.

What can Telstra shareholders do?

Telstra shareholders are encouraged to keep up the pressure on all elected representative to ensure that Telstra shareholders receive a fair go. We encourage you to consider doing the following:

• If you live in Victoria:

o Write to Senator Fielding and let him know how the forced separation of Telstra will effect you as a Telstra shareholder:

Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Address: The Hon Senator Steve Fielding
255 Blackburn Road
Mount Waverley VIC 3149

o Attend the ASA Telstra Forum in Melbourne on Thursday, 1 April 2010 at 1pm in the Yarra Room at the Melbourne Town Hall. and let Senator Fielding know your views in person

• Write to your:

o local Member of Parliament (click here for details of Members by electorate)

o Senators(click here for details of Senator by state)

for your state to let them know how important this issue is to you. With an election this year, it's important to let elected representatives know that this is an issue which has the power to determine how you vote.

You can download a template letter prepared by the ASA here (please note this letter was also attached to Sharemail in February 2010):