PART OF A STORY IN THE AUSTRALIAN BUSINESS, WITH THE WALL ST...

PART OF A STORY IN THE AUSTRALIAN BUSINESS, WITH THE WALL ST JOURNAL >
Telstra negotiates NBN break fee
June 13, 2011 12:00AM

TELSTRA'S $9 billion deal with the NBN Co could be settled as early as this week and will include break fees that could be worth more than $1 billion to protect shareholders should the $36bn rollout be abandoned or substantially revised in the future.
The Australian can reveal that the landmark deal -- first mooted almost a year ago when Telstra and the NBN Co signed the non-binding heads of agreement -- will include break fees that would not kick in immediately, but at the point where the telco has spent money on the deal.
It would be based on a percentage of the network build.
The market has been expecting that Telstra would push for such protections in the event that the deal with NBN Co cannot be delivered.
The break fees could be enormous. In a recent note, Macquarie Equities Research said they expected "material" break fees either via a nominal figure or through the structuring of take-or-pay arrangements that are often used in coal supply deals, energy purchase agreements and to access infrastructure facilities.
Deutsche Bank analysts estimate that a break fee could be worth between $1bn and $5bn, or between 10 per cent and 55 per cent of the value of the payments to Telstra under the $9bn deal.

Telstra's share price has recently rallied, despite the structural separation into its wholesale and retail arms that paves the way for the NBN rollout.
The share price has risen this year from lows of $2.60 in mid-March to close above $3 last week, suggesting that investors have started re-rating the stock in the expectation the deal with NBN Co is close to being .
The federal opposition has maintained it would scale back the project, likely to include a cheaper fibre-to-the-curb proposal, which has further complicated the already drawn-out talks for the deal.

Last week, NBN Co chairman Harrison Young told an AICD luncheon in Melbourne that he expected the deal would be concluded in "about a week".
But details of the deal -- including protections for shareholders in the event that the NBN changes