Telstra reveals plan to sell off $5 billion in future NBN revenue

Telstra has revealed intentions to sell off at least $5 billion of its NBN revenues, but will need approval from the government and NBN Co first.

CEO Andy Penn first raised the prospect of selling some of the future revenue from its long-term infrastructure leases and other payments to be made under the definitive agreements with NBN Co at the telco’s investor day late last year.

The plan to offload between $5 billion and $5.5 billion of these future “receipts”, which was outlined today, confirms speculation in June about the size of the proposed sell-off.

Recurring receipts from NBN Co lease payments run until 2045 but Telstra has been looking for a way to bring a portion of that revenue forward.

The payments from NBN Co to access Telstra infrastructure are expected to be worth just under $1 billion a year “by the end of the NBN migration period”.

The proposed sale represents about 40 percent of the total receipts that Telstra expects to receive, Penn said.

He said the proceeds would go to reducing debt “by around $1 billion … with the balance to support a capital management program to enhance shareholder returns, most likely through a series of on- and off-market buybacks".

“The proposed transaction is subject to agreement and a number of steps including approvals and consents from investors, the government and NBN Co,” Penn said.

“We are currently in discussions regarding these matters.

“We cannot confirm whether they will be achieved but we will update the market in due course.”

The ABC speculated yesterday that the sale could be of interest to the likes of pension funds and asset management firms. "It would be a patient investor with a low cost of capital looking for a steady annuity style-return," the report said.

Confirmation of the scope of the planned sell-off came as Telstra declared it had “met guidance” in its full year results. Penn said it had been “a strong year”.

However, he warned that the costs of servicing fixed-line customers on the NBN in future meant some pain was coming for Telstra’s earnings.

The telco flagged as much back in May 2016 when it forecast the NBN to have a negative impact of $2 billion to $3 billion on future earnings before interest, tax, depreciation and amortisation (EBITDA).

This is largely the financial result of no longer having a wholesale fixed-line business once the NBN is complete.

“We are entering a very material period for the NBN. The rollout is accelerating,” Penn said today.

“This will clearly have a significant impact on the whole of the industry but it particularly affects Telstra because it essentially represents the renationalisation of a material part of our business.

“Of course we reported to the market in May 2016 that the consequence of that would be an expected negative impact on our ongoing EBITDA of between $2 billion and $3 billion per annum.

“Our view is, given the latest outlook of NBN CVC charges, which we estimate will more than double over the coming years, we now expect the impact is likely to be at the top of this range. In other words, around $3 billion.”

CVC or connectivity virtual circuit is a backhaul charge imposed by NBN Co. It is one of the main vehicles NBN Co is using to bring in revenue.

Telstra continues to do well on securing NBN connections, claiming to have 52 percent of the NBN market, though this excludes Sky Muster which Telstra does not resell.

Penn said future difficulties posed by the NBN rollout meant that Telstra’s strategy to transform - particularly through mobile - and to seek productivity improvements was justified.

The telco today said it would move forward its plans to hunt out $1 billion in productivity improvements by a year - from FY21 to FY20 - and a further $500 million in cost savings.