NBN throws a grenade under Telstra's $5 billion plan

Telstra's recently mooted plan to deliver up to $4.5 billion back to shareholders - a plan that is only a couple weeks old - has been torpedoed by the National Broadband Network.

It is a move that makes Australia's largest telco even less popular with investors.

The shock statement from the NBN on Wednesday represents round two in the battle between the telco wholesaler and the telco retailer.

The relationship had already reached a particularly low ebb as each blamed the other for customer dissatisfaction over slow or choked internet connections.

Now that the NBN has effectively pulled out the rug from underneath Telstra, its already struggling share price is under even more pressure. Since September last year Telstra's share price has fallen by about one-third - an outcome which will eat into the valuations of millions of Australia's superannuants.

Telstra's was a slightly complex plan that involved effectively packaging up and selling a portion of the $11 billion in future payments it was to receive from the NBN - then on-selling them to another party or parties. It's a process called securitisation.

The effect of this would have been that Telstra would get a big pile of money now rather than have to wait until it came on over the years in instalments from the NBN.

Telstra planned to use around $1 billion of that cash to pay down debt and the remainder would go to shareholders.

To an extent this would compensate for the disappointment investors have worn since Telstra announced its a few weeks back that its dividends would shrink from 2018.

Telsta has millions of small and large investors who have retained their shares because of the handsome dividend that the company has traditionally paid.

Telstra's share price was always set to fall on Wednesday as the value was adjusted to account for the payment of the latest 15.5 cent dividend. But it fell by much more and at one stage in the morning trade was down by 8 per cent.

Meanwhile Telstra boss Andy Penn is still left with finding a way to fill the earnings hole that it will face in around three years as its copper network customers are migrated over to the NBN wholesale network and it faces increased competition.

While it continues to attempt to redefine itself as a technology company, the contributions from newer digitally based business are not growing fast enough.

From the NBN's perspective this is not its concern.

Its boss Bill Morrow doesn't want Telstra's financial engineering to further complicate the already complicated process of building this multi-technology mix broadband infrastructure which, as already mentioned, has left many customers furious by slow speeds and service dropouts.

He is already getting ample heat from Labor which is blaming second rate technology for the NBN's problems - given Labor had originally plan the more expensive full fibre option. This plan was modified by the coalition to save money.

Indeed there is no certainty that Morrow - who was appointed by the coalition - will even retain his job if Labor wins office in the next election.

Morrow takes the view that any changes to Telstra's plans on how the NBN payments are made add another layer of risk.

It's fair to say that introducing third parties into the already complex mix could become a headache for the NBN which is ultimately in line for privatisation.

If for example the NBN was broken up as part of this privatisation process - perhaps the cable network is separated from the fibre-connected assets new agreements may need to entered into.

"Essentially we can't see how NBN's position can be protected/improved by Telstra's securitisation plan especially given the unpredictability of our operating environment in the 2020's," the nbn said in a statement.

Telstra did not suggest on Wednesday that it had a Plan B up its sleeve - which is not surprising given NBN's grenade appears to have been unexpected.

In the meantime, it and other retail service providers need to grapple with the brand damage they are sustaining thanks to overselling network speeds which in some cases have been been a fraction of that which they had promised customers.

The Australian Competition and Consumer Commission has stepped into the fray ordering retail providers to promote more realistic speeds in their advertising, specifying evening peak speeds rather than quoting the theoretical maximum speed, which is hardly ever achieved.

This story NBN throws a grenade under Telstra's $5 billion plan first appeared on The Sydney Morning Herald.