Telstra signs NBN HFC design, copper maintenance deals

NBN has entered an MoU with Telstra for managing the designing, engineering, and construction of its HFC network, with Telstra also awarded two maintenance contracts worth AU$80m in the first year.
Written by Corinne Reichert, Contributor

Telstra has announced that is has entered into a memorandum of understanding (MoU) with the National Broadband Network (NBN) company for a "significant contract" to manage the design, engineering, procuring, and construction of NBN's hybrid fibre-coaxial (HFC) network currently within Telstra's HFC footprint.

The deal will also see Telstra updating HFC to include DOCSIS 3.1 technology in order to deliver end users speeds of up to 1Gbps.

The MoU, called "the final piece of the puzzle for fixed broadband" by Tony Brown, public affairs manager at NBN, was signed due to being the most cost- and time-efficient way for NBN to design and build out its HFC network, given Telstra's expertise.

According to Brown, it would have been too difficult for NBN and Telstra to coordinate on each building out the HFC network, with services possibly disrupted due to the necessary node splits, with NBN therefore taking a step back and handing over management work to Telstra.

While neither company would be drawn on how much the contract will likely be worth, Brown said that since it is a 4 million-line network, it will be "a reasonable sum".

HFC will connect 4 million premises in total, with 3.6 of these coming from the old Telstra HFC network. The network will also be extended and infilled, with the Optus network likely to be infilled and overbuilt in the remaining 400,000 premises.

"The NBN team is gearing for the next stage of exponential growth, building on the now 1.7 million premises ready for service and the 700,000 homes and businesses that are actively using the NBN network," said NBN CEO Bill Morrow.

"We're now tracking over 10,000 new activations a week. By the end of this financial year, we're on track for nearly one in four homes to be able to order an NBN service, and by June of 2018, this is set to grow to three in four. To optimise the network build and provide access to an excellent service for Australians, united partnerships with the construction and telecommunications industry are a key priority.

"This year, we have reset our relationships with the industry by improving the way we collaborate and structure competitive, flexible agreements with our partners."

Telstra is also set to prepare exchange locations and planning and design prior to and during the contract's negotiation. Telstra has already been continually building out its HFC network despite its impending transfer of ownership to NBN.

"I am delighted that we have an opportunity to support NBN by leveraging Telstra's knowledge and experience in network design and construction management, as well as continued maintenance. We have said all along that we are committed to providing whatever commercial services NBN needs to meet its business objectives," said Telstra CEO Andrew Penn.

"We have already engaged in work with NBN, such as the successful 1,000-node trial including FttN node design and construction, and further design work under NBN Planning and Design Services Agreement.

"We look forward to working with NBN to finalise the MoU and help bring the NBN network to millions of HFC customers."

The Telstra-NBN HFC contract is due to be completed in early 2016.

An additional two contracts have also been signed for Telstra to supply operations and maintenance services for NBN, with work beginning in early 2016. Combined, the two contracts are worth AU$80 million in first-year revenue.

The first of these two contracts involves a three-year agreement for Telstra to repair faults on the copper network and undertake a "small number" of service connections that have yet to transfer to the NBN. Telstra noted that the revenue gained from this contract will progressively decrease as the NBN rolls out.

The second contract will see Telstra repair faults and connect new services on NBN's fibre-to-the-node (FttN), fibre-to-the-premises (FttP), fibre-to-the-basement (FttB), and HFC networks after a customer has migrated onto the NBN. Unlike the first contract, revenue is expected to increase as the network rolls out.

NBN's Brown pointed out that these contracts are all post-ready-for-service agreements, meaning they do not involve remediating old copper. Since the maintenance contracts only cover copper services that have already been activated, the contracts will simply deal with network faults and maintenance issues as they arise for customers on the NBN.

Both contracts have the option to be extended upon expiry, with NBN also signing up Service Stream and BSA Limited for similar contracts. All three service providers have a fairly even spread of maintenance and fault repair work, Brown said, indicating that Service Stream and BSA will gain similar monetary figures as a result.

NBN had moved away from Labor's full FttP rollout following the Coalition's election at the end of 2013 to the present so-called multi-technology mix (MTM), which proposes to cover 20 percent of the population with FttP; 38 percent with FttN and FttB; 34 percent with HFC; 5 percent with fixed wireless; and 3 percent with satellite services.

NBN in August revealed in its three-year corporate plan that the peak funding cost for the project will reach between AU$46 billion and AU$56 billion, with a base case peak funding target of AU$49 billion.

"Management are targeting a base case peak funding of AU$49 billion, which includes a contingency of AU$4.6 billion for unforeseen risks inherent in a complex infrastructure built over multiple years. This contingency is intended to cover revenue, operating costs, and capex risks," the company said.

The risks taken into account by the company covered the implementation of the HFC deals with Telstra and Optus, among other issues.

The wide-scale rollout of HFC services was approved by the Australian Competition and Consumer Commission (ACCC) in June, with a revised AU$11 billion deal allowing NBN to take ownership of Telstra's HFC and copper assets and Optus' HFC network.

Last month, however, a leaked draft from NBN revealed that Optus' HFC network is "not fully fit for purpose", with 470,000 premises in the footprint needing to be overbuilt by either Telstra HFC or fibre services.

The leaked document, called HFC Plan B: Overbuilding Optus, dated November 2015, states that the necessary work of overbuilding Optus' HFC network with FttN, FttB, or fibre to the distribution point (FttdP) will lead to a peak funding increase of between AU$150 million and AU$375 million, with NBN to miss its FY17 ready-for-service target by 300,000 premises, and its FY18 target by 333,000.

"Overbuilding the Optus HFC network with either Telstra HFC or FttX could deliver higher probability of success given the current state of the network [and] significant operational simplicity," the document says.

"Optus network is not fully fit for purpose. Optus nodes are oversubscribed compared with Telstra, and will require node splits. Existing Optus CMTS don't have sufficient capacity to support NBN services. Noise (ingress) [is] causing interference and degrading end users speeds."

For its part, Optus agreed that its HFC network needs to be updated.

"Optus and NBN Co have always acknowledged that parts of the HFC network would need an upgrade to support the NBN's product set," an Optus spokeswoman said.

"In advance of handover, there has been and continues to be major investment into the HFC network to manage subscriber growth and capacity demand."

The Australian Competition and Consumer Commission said in August that the original HFC deal would have seen Optus eventually decommission its HFC infrastructure.

NBN is currently conducting a 4,500-premises HFC trial in Redcliffe, Queensland, and has not found any "unexpected" technical issues with the Optus network.

NBN added that the leaked document was developed as part of ongoing risk mitigation, and that the company regularly prepares for multiple scenarios in network deployment.

"Our corporate plan has accounted for the ebbs and flows expected in a project of this scale," the company said.

"Scenario planning is part of good governance and has been accounted for in the corporate plan released in August."

The HFC network will be launched by June 2016, and completed along with the rest of the NBN by 2020.

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