Telstra Corp, Australia’s biggest phone operator, plans to acquire companies and technology using the compensation it will get for giving up control of a copper-wire network that connects all the nation’s homes.
The A$11 billion ($10.7 billion) payment will help fund investments in wireless, entertainment and so-called cloud-computing services, Chief Executive Officer David Thodey said in an interview in Hong Kong yesterday. Australia’s Senate today approved the transfer of Telstra’s fixed-line grid to state-run NBN Co to become the backbone for a national broadband network.
Telstra will retain its retail network as the government spends A$35.7 billion to bring a fiber-optic network to 93 per cent of Australian homes in the nation’s largest infrastructure project. The Melbourne-based company may also use some of the proposed payout for share buybacks and dividends, Thodey said.
“Even small acquisitions can make the market nervous because they usually precede bigger deals,” said Theo Maas, who helps manage about $5 billion at Arnhem Investment Management in Sydney, including Telstra stock. “I would much rather see a return of capital to shareholders if they don’t need it for the capital expenditure going forward.”
Telstra has gained 8.8 per cent this week as prime minister Julia Gillard won support from independent lawmakers for the structural separation and compensation. The stock fell 1 per cent to A$2.85 at the 4.10 pm close in Sydney trading and has declined 17 per cent this year, compared with the benchmark S&P/ASX 200 Index’s 5.6 per cent drop.
Profit Pools
“Having the cash gives us the flexibility,” Thodey said. “We have got to create new revenue and profit pools in the business.”
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Telstra hasn’t determined the portion of the NBN-related payout that it will allocate for investments, dividends and share buybacks, Thodey said.
The company will hand over assets to NBN, which will build the nationwide network by 2018. The operator will then join rivals including Singapore Telecommunications Ltd’s Optus in leasing infrastructure from the government.