Telstra fans its FTTN feathers

Telstra’s reported fibre-to-the-node pilot is an exercise designed to conclusively display its construction prowess and engineer an outcome that sees more money flow into its coffers.

Telstra is reportedly on the cusp of launching a fibre-to-the-node (FTTN) pilot, an exercise designed to conclusively display its prowess when it comes to pushing on with the construction of the National Broadband Network (NBN) and to engineer an outcome that sees more money flow into its coffers.

It could also potentially signpost just how the Telstra-NBN Co renegotiations might play out.

Telstra is reportedly waiting for the final green light to install 300 cabinets, and the end result of the pilot could potentially see Telstra start building the FTTN component of the Coalition’s NBN.

It’s a pretty big trial and it won’t be cheap, but the potential payoff for Telstra is substantial.

Any impending deal has probably been in the works for quite some time and could provide an ideal opportunity for NBN Co chief executive Bill Morrow to make his official entry into the NBN world.

Having said that, Morrow has been quite active in the last couple of months inside NBN Co and the prospect of Telstra playing a bigger role in the construction of the NBN is just one of many initiatives he has an eye on.    

Getting Telstra involved in the construction process was always on the cards once the Labor government was dethroned, and if the pilot does indeed become a precursor to a more substantial FTTN rollout deal, it potentially opens up a number of scenarios.

Informa analyst Tony Brown says that Telstra can basically do what BT’s OpenReach did in Britain, and incumbents are simply the best equipped to tackle tasks of this size.

But Brown adds that a show of intent on Telstra’s part does raise a couple of important questions. Firstly, how much does Telstra get paid here and how does it fit into the overall cost structure of the NBN?

The purported windfall for Telstra from a construction deal could be anywhere between $6 billion to $8bn, and presumably this will be in addition to the $11bn deal being renegotiated right now.

What’s unclear is whether handing Telstra a juicy construction contract will be the inducement the government needs to get that last-mile copper on the cheap.

Ovum research analyst David Kennedy says that any prospective deal between Telstra and NBN Co with regards to the construction of the FTTN component could provide a glimpse into how the main NBN negotiations might pan out.

“If Telstra gets the FTTN deal then the cost will go through as capex on NBN Co’s balance sheet,” Kennedy says. “Whether that includes a component on access to copper is an unknown."

Given NBN Co had to recruit third-party contractors to get the rollout happening in the first place, handing the task over to Telstra would make a lot of sense. However, the key bone of contention is what happens to the copper required to connect the households.

One of the key tasks ahead for Morrow is to operationalise the cost of NBN Co infrastructure, and Kennedy says that renting the copper from Telstra on an ongoing basis could help NBN Co make the shift from capex to opex. What that means is that once the rollout is completed NBN Co will be able to cover the costs from the revenue it generates.

For now, one can assume that Telstra’s pilot puts it in the box seat to build the FTTN network for NBN Co. The telco will build it, presumably maintain it and NBN Co will operate it.

Telstra’s rivals are unlikely to oppose its ascension as the chief builder of the network -- but only as long it builds it. As Informa’s Tony Brown puts it, Telstra can’t become the gatekeeper here, and as an open access body, NBN Co will have to take charge of operations.

If NBN Co’s future lies in becoming an operating company, then getting Telstra to build the FTTN network will certainly start the wheels turning in the right direction.

However, Brown warns that we are sailing in uncharted waters.

“It’s the Conroy model meeting the Turnbull model,” Brown says -- and the end result is anybody’s guess.

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