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NBN Digs a Hole for Itself

Robert Clark
News Analysis
Robert Clark
3/26/2014
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Not many holes are being dug right now for Australia's NBN (national broadband network), but the project is certainly creating fresh ones for the country's new government.

The latest is that a small telco, TPG Internet Pty, is planning to connect fiber to 500,000 apartments in major cities such as Adelaide, Brisbane, Melbourne, Perth, and Sydney.

That should be a positive for a country that ranks 52nd in global broadband speeds, but it's not part of the script. The centerpiece of the NBN plan, launched five years ago by the previous government, is to put a FTTH monopoly in the hands of the state-funded NBN Co Ltd. (See Australia Unveils $31B FTTP Plan.)

But TPG is exploiting a loophole that allows telcos to extend their networks to buildings within 1km of their rollout at the time the law was introduced in 2011. And if TPG is allowed to continue, then Telstra Corp. Ltd. (ASX: TLS; NZK: TLS), the dominant service provider, is likely to do the same thing.

These are just further complications for the conservative government elected six months ago on a platform of both speeding up and cutting the cost of the project. (See Australia's NBN: Will Fiber Get Voted Out?)

Since coming into power, the government has ousted the old NBN management and installed ex-Telstra boss Ziggy Switkowski as chair and former Vodafone Japan chief Bill Morrow as CEO. The government has also capped its contribution to the NBN at A$29.5 billion (US$27.2 billion) -- well short of the latest official total cost estimate of A$41 billion ($38.8 billion).

Mixed media
To reduce costs, it has killed not only the previous government's plan of running fiber to 93% of households, but also its own proposal, which relied solely on copper to take up the slack. (See Australia's NBN Looks Copper-Colored.)

Now the Communications Minister, Malcolm Turnbull, is keen to bring the Telstra and SingTel Optus Pty. Ltd. HFC-based cable TV networks into the equation. Under this plan, 24% of households will connect with fiber, 41% with FTTN/C, 28% with HFC, and the remainder with wireless and satellite.

But this creates another problem. Under NBN version 1.0, the HFC network was supposed to be progressively shut down as the NSN rolled out, and Telstra was to be compensated for that shutdown. The NBN has reached fewer than 2% of all households, so the incumbent's HFC network is still in place: Turnbull will have to strike a fresh deal with Telstra.

Tony Brown, senior analyst at Informa Telecoms & Media, says that unlike copper, which has an existing unbundling regime, the HFC networks are not opened up for sharing by multiple service providers. Turnbull will have to find a way of opening up them up without either giving Telstra too much power or unduly favoring the NBN Co.

Brown also points to the difficulty of selling broadband service across multiple technologies, requiring operators to create several service packages. And while FTTN copper can deliver 30-50 Mbit/s, "you can't guarantee those speeds. You will have to market it on service rather than on headline speeds, which is what the current practice is."

Rush job
Brown attributes the problems to the previous government's attempt to "rush into" the NBN without the support of Telstra or other political parties. "You are going to need bipartisan support for a 20-year project like this."

Even the scaled-back FTTH project is still a huge task, covering 2.8 million homes. Brown says the UK's Openreach , the operationally-independent access network division of incumbent telco BT Group plc (NYSE: BT; London: BTA), initially planned FTTH trials, but quickly scaled those back because of the difficulties, while Australians were promised FTTH before anyone had even tested or trialled the feasibility of such a plan.

Such plans often fall foul of unforeseen physical impediments. For its FTTH connections, the NBN will be trying to blow fiber through old conduits across people's yards, "which may have collapsed, or a tree root has grown through it or someone may have built a fish pond," notes Brown.

Because of these unknowns, the cost of the project is still not clear.

To cut the bill, incoming NBN boss Morrow is keen on doing joint rollouts with Telstra and reducing the NBN workforce, but that raises questions over the role of Telstra, which currently dominates the broadband market as gatekeeper.

"The big problem is we just don't know the cost, and there's a A$29 billion cap," notes Brown. "So what if it ends up costing more than that? What if we use all of that cash and end up with only half the country connected?"

— Robert Clark, contributing editor, special to Light Reading

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sortius
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sortius,
User Rank: Light Beer
3/26/2014 | 10:44:19 PM
Re: Over-integrated
For sure, when I worked for Telstra the techies, support staff, and designers were all baffled as to why Telstra wasn't split into a wholesale and retail company. It's too late now and any attempt is being met with resistance from Telstra.

I fear the intention of the NBN is being lost in the political battle that has ensued, for now I don't have much hope of a positive outcome.
R Clark
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R Clark,
User Rank: Blogger
3/26/2014 | 10:28:57 PM
Re: Over-integrated
Looking back, the past 20 years have been a textbook 'how not to deregulate' - create a duopoloy, let the dominant player roll out HFC and then privatise it, so inevitably all those services would be cut.

Agree, the best idea about the NBN was to try to make it a wholesale non-Telstra network, but really Telstra should been separated from its networks a long time ago. But it wasn't possible to build it without Telstra's help as the previous govt tried to do.

 

 
sortius
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sortius,
User Rank: Light Beer
3/26/2014 | 9:07:15 PM
Re: Over-integrated
Yep, it was a terrible time under Ziggy's rule (I was working in Telstra Plant Assign/Activations at the time), Customer Network Improvement pretty much died, and they reaped the rewards of underservicing the bush.

The point of the NBN was to stop this convergance/vertical integration of Telstra, however the Liberal party seem to be happy with it.

It doesn't bode well when the Comms Minister owns a boat with an ex-Telstra director does it?
R Clark
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R Clark,
User Rank: Blogger
3/26/2014 | 8:49:24 PM
Over-integrated
Blame has to go to those who allowed Telstra to become the developed world's most vertically integrated telco, owning the biggest HFC network and 50% of the major pay TV provider as well as all the other kit, right across the country.


This will take a long time to sort out. Google's balloons might be faster.

 

 
sortius
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sortius,
User Rank: Light Beer
3/26/2014 | 5:42:33 PM
re:
There's a few glaring errors with this story.

Firstly, the HFC rollout will be closer to 35% of the total build, yes, 35%.

Optus was to shut their network down, Telstra wasn't. Both HFC networks have not been extended in a decade, and while basic upgrades have happen, the speeds are still lacklusture. There's a 600 premises to 440Mbps ratio for Telstra, Optus is far higher premises:speed, although they are cagey about this. Most of Optus' network maxes out at 30Mbps.

Also the line "while Australians were promised FTTH before anyone had even tested or trialled the feasibility of such a plan" is patently false. The senate had a lengthy inquiry into the technology to use for the NBN, if you aren't aware the original technology was FTTN, which was rapidly canned due to the lack of future-proofing, the poor quality of Australia's copper (acidic & saline soils coupled with a lack of investment from Telstra have done this), and the inability to deliver ubiquitous service.

The key is, the lack of bipartisan support comes from our current Prime Minister, Tony Abbott's, intentions back when he assumed leadership of the opposition. He taksed Malcolm Turnbull, who he rolled as leader, with destroying the NBN.

Whether there was bipartisan agreement or not is moot, as Tony Abbott would have done the same thing as he did with the Emissions Trading Scheme: remove support when he became leader.

Not only this, the original "option" from the opposition was to "let the free market build it", something that has failed Australia for over a decade now. Telstra was privatised by the Liberal government and has since refused to ugprade without heafty funds from the government.

In fact, since 2001 there were no less than three attempts by Telstra to get the then Howard government to fund an upgrade to FTTN (there was one for FTTH too). All requests were knocked back.

The objection to the NBN is an ideological one, not a technological one. The last thing the Liberal party wants is people with high speed internet, maybe ask them why they don't want to. I have my own theories.

 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
3/26/2014 | 3:59:52 PM
Ziggy
I love the name Ziggy Switkowski. It's up there with Juan Pedro Fernandez-Palacios Gimenez.
nasimson
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50%
nasimson,
User Rank: Light Sabre
3/26/2014 | 12:29:49 PM
Re: what's the point
What a mess! As the world marches forward, Australians would be underconnected. There are countless examples where Govt went beyond the regulatory role and got its citizens into long term trouble.
mendyk
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50%
mendyk,
User Rank: Light Sabre
3/26/2014 | 10:16:01 AM
what's the point
It sounds like NBN has become a schizophrenic mess. We want to build a national fiber network but we won't allow the private sector to be directly involved. And we aren't going to fully fund the project. But we'll change some rules on the fly if it suits a purpose. Uzbekistan may get a national fiber network sooner.
komatineni
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50%
komatineni,
User Rank: Lightning
3/26/2014 | 7:51:38 AM
re:
Always surprised to see statements like nobody ever done. When countries like Singapore, HK or Korea S can do, why can't Australia do it in atleast cities?

Singapore did it in two-three years time frame and probably at a fraction of cost due to geography, cheap labour, and most importantly the will. But Australia can still do it in a city or two in five years.
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