Service Stream extends contract with NBN Co.
- OMMA contract extended by 6 months with option for additional 6 months
- Government support for nbn scheme
- Rollout is expected to be accelerated due to new processes
On the 13th of October Service Stream Limited (ASX: SSM) released an announcement detailing a contract extension of its Operations and Maintenance Master Agreement (OMMA) with NBN Co. The OMMA extends work out for another 6 months from December 2020 to July 2021, with a built-in option to make it a full year. This follows the initial contract which was first signed in December 2015.
Detractors from the national broadband network (nbn) scheme have forecast the pandemic related government pressure to see the nbn rollout plan scrapped. However, in the past week the federal government decided to support the nbn with an additional AUD4.5 billion of fibre wire to lay, with 2023 as an end date to improve internet speeds.
This comes during a time when 5G is seen as a growing threat to wired connectivity, with competitors such as Spark New Zealand (ASX: SPK) gearing up to distribute the technology. The nbn rollout has been ongoing but now is geared towards speed. New processes such as ‘nano-trenching’, where shallow cut slots in pavement and roads are being utilised to house the fibre. This development will help fast track the rollout and save SSM operating costs.
SSM also services Telstra Corporation Limited (ASX: TLS), with the whole telecommunication segment generating AUD554.2 million in revenue during FY20. Unfortunately, this is a 7.7 per cent decrease from FY19, due to the previous completion of NBN design and construction activities and COVID-19 slowdowns. SSM is also exposed to wireless revenue, yet 5G has also been affected by the pandemic.
Recently, the Australian Competition and Consumer Commission (ACCC) has finalised an inquiry into NBN Co. which many believed would end with a final access determination (FAD), allowing for price regulation. This has not taken place, with speculators uncertain of outcomes. Depending on developments with the ACCC, the amount of work available for SSM could be affected.
Service Stream Limited will help provide an array of services for the NBN’s fixed-line network, which includes Fibre to the Node (FTTN), Fibre to the Premise (FTTP), Fibre to the Basement (FTTB), Fibre to the Curb (FTTC) and Hybrid Fibre-Coaxial (HCF) technologies. Unfortunately, the nbn has been down in the Northern Territory in the past week, with Telstra blaming fire for leaving the region without mobile or fibre service. As such, NBN had to issue an apology.
Revenue directed to SSM from the OMMA is dependent on nbn activation and maintenance work volumes, and so savvy investors should focus upon government intervention and competing factors that could affect the company. Over the past two years, revenue has increased from FY19’s AUD280 million rising to FY20’s AUD330 million. Looking to the future of SSM, the group expects to continue OMMA’s with other leaders in the telecommunication segment and increase exposure to 5G design and construction opportunities.