NBN Digs a Hole for Itself
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).
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."
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