The Service Stream Limited (ASX: SSM) share price is down around 10% after making an announcement about the NBN.
Service Stream’s NBN update
Service Stream announced today that it has secured a “significant” long term agreement with nbn Co for the provision of service activations, operations and maintenance services to its multi-technology NBN.
Under the new ‘Unified Field Operations Agreement (Unify Services)’, Service Stream will continue to be responsible for performing activation, operations and maintenance activities across core network technologies.
This agreement is for an initial period of four years, with options to extend that by two periods of two years, at NBN’s election.
This deal will supersede the existing Operations and Maintenance Master Agreement (OMMA) that has been held by Service Stream since 2015. The transition is expected to happen in March 2021.
Under the regional allocation model, NBN has initially allocated Service Stream regions across Queensland, South Australia, Northern Territory and Western Australia, with additional regions to be allocated at the NBN’s discretion.
What this means for states like Victoria and NSW remains to be seen.
Unify Services is expected to generate approximately $70 million of revenue for the group in its first year, with subsequent years dependent on annual work volumes.
Management comments
Service Stream Managing Director Leigh Mackender said: “As a leading provider of operations and maintenance across services to the telecommunications industry, we are pleased to secure another long-term maintenance agreement with NBN and to continue providing vital support to its customers.
“Following the recent signing of the Unify Networks agreement in August across a similar term, Service Stream will effectively be providing nbn with operations and maintenance support across all mainland and territories under either the Unify Networks or Service agreements.”
Summary thoughts
These agreements with the NBN are very important because of how much revenue it generates for Service Stream.
The company is trying to diversify its earnings away from mainly telecommunications, but the ongoing NBN deal is important. Time will tell if Service Stream can win the two most populous states.
Service Stream is a decent income idea as ASX dividend shares go, but I prefer something like Brickworks Limited (ASX: BKW) which has a safe dividend record going back over 40 years.
