Andy Penn argues Telstra is actually making the NBN cheaper

Telstra CEO Andy Penn has refuted suggestions by NBN Co CEO Stephen Rue that commercial agreements between the pair are inflating NBN Co’s costs and keeping wholesale prices high.

Penn used Telstra’s FY19 results to renew what is becoming a protracted feud over NBN Co’s wholesale pricing.

Telstra used the NBN price review currently in motion to press its case once more for wholesale price reductions at NBN Co. Penn has previously argued for a cut as high as $20 a month.

The latest suggestions drew a rebuke from NBN Co’s chief Stephen Rue, who argued NBN Co’s payments to Telstra for infrastructure access weighed on its wholesale costs.

But Penn says that is not the case - and even if it were, the payments aren’t doing Telstra much good.

“The notion that the payments we receive from NBN Co for access to our network leave us better off or somehow gives us an advantage … is not the case as our results clearly show,” Penn said.

“The second point is the claim that payments to Telstra are the reason NBN Co’s wholesale prices are so high.

“In fact, it is completely the opposite - these payments to Telstra have actually helped keep the cost of the NBN down.

“Without access to our very extensive network - all the exchanges, fibre, ducts, pits and pipes - NBN Co would have had to build this infrastructure from scratch at a higher cost and longer build time.”

Penn said that Telstra is “approximately halfway through the negative headwind from the NBN”, an effect the telco has previously described as a major influence on its current financial state.

Telstra said it expected FY20 “to be the biggest in-year NBN headwind to date, with between $800 million to $1 billion expected from the recurring impact”.

It said that headwinds to date had so far cost it $1.7 billion a year between FY16 and FY19.

The telco has previously estimated that the NBN would result in “at least a $3 billion negative impact on recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) by the end of the NBN rollout,” Telstra CFO Vicki Brady said.

Those headwinds would continue to offset the revenue that Telstra received from the long-term lease agreements with NBN Co for access to infrastructure, Brady said.

Overall, Telstra reported an almost 40 percent fall in net profit for FY19 to $2.1 billion, compared to a net profit of $3.6 billion the previous year.

Penn said the results were “in line with guidance and market expectations”. 

However, he said there was “great confidence” in Telstra that the decline could be arrested and new opportunities for growth created.

Telstra also said today it had agreed to sell three international data centres in Europe and Asia to private equity firm I-Squared Capital, the owners of Hutchison Global Communications, for $160 million.