Telstra Surges on $9.7 Billion Internet Deal
The logo of Telstra Corp. is displayed on a manhole cover in Sydney. Photographer: Ian Waldie/Bloomberg
Telstra Corp. CEO David Thodey speaks at an American Chamber of Commerce in Australia (AmCham) event. Photographer: Ian Waldie/Bloomberg
Telstra Corp. rose the most in nine months in Sydney trading after Australia’s largest phone company avoided state sanctions by surrendering the nationwide fixed- line business to the government.
Telstra climbed 3.4 percent to close at A$3.34 in Sydney, the largest gain since Sept. 16, after surging as much as 7.1 percent. The benchmark S&P/ASX 200 Index advanced 1.3 percent.
After nine months of talks, Telstra will receive about A$11 billion ($9.7 billion) in compensation to phase out its copper- wire network and transfer customers to the government-backed NBN Co.’s fiber-optic service. The agreement, subject to shareholder approval, avoids penalties including a ban on Telstra acquiring new airwaves for next-generation mobile services and the forced sale of its pay-television holdings.
“It’s a lot less punitive than it could have been for Telstra,” said Mark McDonnell, an analyst at BBY Ltd. in Sydney, who rates the stock “buy.” “If Telstra had been blocked from acquiring spectrum, but their rivals could, the company could have been at a long-term competitive disadvantage.”
Telstra will gradually shut down its copper-wire network as customers are shifted to the A$43 billion NBN fiber project over the next eight years while the government builds its network.
The non-binding agreement, announced by Prime Minister Kevin Rudd yesterday, will also give NBN access to the ducts and trenches that enable Telstra’s copper-wire network to operate.
Splitting Assets
Telstra had been in talks with the government since September after Communications Minister Stephen Conroy called for the company to split the businesses that sell to customers from its fixed-line assets.
“For Telstra, this agreement means more certainty,” said David Kennedy, research director at telecommunications consultant Ovum. “It provides a clear pathway to migrate its business to a next generation fiber environment, and locks in the value of its customer base and physical assets.”
Chairman Catherine Livingstone yesterday said Telstra needs to forge a “definitive agreement” with the government before putting it to the company’s 1.4 million direct shareholders in the first half of calendar 2011. The deal also needs new laws to be passed and approval from the nation’s antitrust regulator.
With the only national network, rivals such as Singapore Telecommunications Ltd.’s Optus unit paid Telstra fees to sell some voice and Internet services.
NBN will be a wholesale service, selling connections to Internet service providers such as the retail operations of Telstra and Optus, who in turn sell to customers.
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
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