What does the Coalition’s NBN mean for Telstra?

After a drawn-out election campaign, investors will be happy that a majority government has entered office. Miners, the big banks and retailers will be cheering on the stable corporate environment and will be, once again, open for business.

A key policy put forward by the government was the introduction of a new strategy to roll out the NBN. It is different from Labor’s Fibre-to-the-premises (FTTP) network because it runs fibre optic cable only as far as a ‘node’ and then utilises existing copper cable to connect to houses. This lowers speed significantly, but also lowers the cost.

Under the government’s plan, it will require around $20.4 billion in capital expenditure and deliver a speed of 25 or more megabits per seconds (Mbps). However new houses built in estates will receive fibre to their doorstep and reach speeds of up to 1000 Mbps.

To roll out Labor’s FTTP network Telstra (ASX: TLS) signed an $11 billion agreement for the lease of its infrastructure and migration of its traffic on to NBN. With a new government in place, it raises doubts that a new plan may not be as profitable for the company and shareholders.

Despite Chief Executive David Thodey saying the telco giant will not accept a contract that shows anything less than the $11 billion under the current arrangement, some believe a new commitment may require Telstra to do more to secure such a deal. However Mr Thodey said they are committed to renegotiating the agreement and “will look to facilitate this quickly with a view to minimise uncertainty”. According to Citi Analyst Justin Diddams there will be little, if any, upside in the new agreement.

Foolish takeaway

Telstra has repeatedly said that it has a ‘natural hedge’ against the roll out of the NBN thanks to its highly lucrative copper network. Mr Thodey will do everything he can to settle on an agreement as lucrative as the current deal but the uncertainty may make some shareholders nervous – perhaps an opportunity for the long-term investor.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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