NBN – Implementation and Interpretation Deed

In the first of a series of articles on the Telstra/NBN Co deal signed today, I will highlight what I believe are the interesting and/or important parts of the first of eight agreements signed – the Implementation and Interpretation Deed (IID).

All descriptions are taken from the Telstra release to the ASX.

As a summary, the IID as described is:

“[The IID] documents the Conditions Precedent (i.e. actions that must be completed and conditions that must be satisfied or waived before the transaction is required to be fully implemented) and various interim arrangements and is effective immediately. It also contains common provisions which are incorporated into the SA, ISA, and AD.”

The first interesting point on this one is the discussion entitled “Termination”, in which is has been agreed that if any of the Conditions Precedent (CP) are not satisfied or waived by 5.00pm on 20 December 2011 – (unless varied by prior agreement) – the IID is automatically terminated.

The CPs themselves relate to some already known and expected conditions of the deal between Telstra and NBN Co going ahead – such as ACCC approval of the deal, acceptance by the shareholders of both Telstra and NBN Co, and a number of others – such as the customer migration plans, and taxation rulings in regards to the deal as a whole.

You can of course read the full list in the ASX release.

What this discussion means overall is that if all the pre-conditions for Telstra’s participation in the NBN are not met by the 20th of December, 2011 – the IID becomes invalid, and terms for any continued deal(s) between the two would likely need to be renegotiated.

It does not necessarily mean the end of the road for any Telstra participation – but it would slow things down dramatically. The biggest hurdle is likely to be ACCC approval and possibly Telstra shareholder approval.

I doubt that any of the parties haven’t been particularly careful not to put controversial provisions into the agreements, so even the ACCC process will probably go smoothly – but time will tell.

The next interesting item for me is entitled “Illegality and Change of Law”, in which some avenues a different government might use to try and shut the project down are possibly “headed off at the pass”.

It states that “if performance of any terms of the SA, the ISA, or the AD becomes illegal, the IID contains a process under which these documents can be varied to make performance legal”.

Now, I would never claim to be a lawyer, but the way I read that is that if any aspect of the intended work, or the way in which that work is carried out is made illegal – (say, through a legislative change) – there is some scope to work around that change.

As an (extreme) example, lets say that a new government decreed by legislation that it is “illegal for Telstra or NBN Co to lay optical fibre”, there exists in the agreement instruments through which it may – (or may not) – be possible to make the continuing rollout legal once again.

I wouldn’t be surprised if such aspects to agreements are common, but it is interesting that potential law changes are catered for.

The agreement also notes that the current NBN-enabling legislation allows for the sale of NBN Co into private hands after the completion of the network, and that Telstra may terminate the SA, the ISA, and the AD if “there is a change in control of NBN Co which results in a provider of retail telecommunications services in Australia controlling 15% or more of NBN Co, except where that provider only has a small market share”.

It seems clear that the intention at this stage is that no large telcos may own more of a privatised NBN Co than 15% – possibly/probably designed to prevent a company like Optus getting in control of the company. Presumably, Telstra would be similarly limited.

So – that’s it for now. The IID isn’t a lot more than a “head” document to tie the next three agreements between Telstra and NBN Co together – and they are where the interesting bits come in.

Stay tuned for the next installment!