NBN 2.0 takes a big punt on HFC

Buying the HFC networks from Telstra and Optus will deliver a broadband service to some customers a little sooner, and, possibly, more cheaply. But with limits on future service growth and many areas served by both telcos, why is NBN Co acquiring both?

While in Opposition, the Minister for Communication, Malcolm Turnbull, attacked a failure to use the Optus and Telstra HFC (hybrid fibre coaxial) networks and the Neighbourhood HFC cable in Ballarat, as examples of wasteful overbuilding of existing broadband facilities by the National Broadband Network (NBN).

‘What species of madness and wastefulness is it’, he asked rhetorically, ‘to be over-building existing broadband and infrastructure that is perfectly capable of delivering high-speed broadband?’ 

In February 2013, Technology Spectator asked the question ‘if there is a HFC network in place, can it be used by the NBN to provide broadband services, at least on an interim basis?’ and it seems that answer was ‘In principle, yes, but the principle doesn’t stretch very far.’  And some of the reasons are on the public record courtesy of Optus.

In October 2011, Maha Krishnapillai, the then director of government and corporate affairs, for Optus appeared before the Joint Parliamentary Committee on the NBN.  Part of his evidence should have ended to the (then) Opposition’s policy of supporting fibre-to-the –node (FTTN) (now multi-technology mix) over fibre-to-the-premises (FTTP). 

In response to a question from Senator Cameron, Mr Krishnapillai, was clear:

Yes, there are significant capacity and technical advantages of a pure fibre-to-the-home network over an HFC network…. It [HFC] has significantly higher numbers of shared componentry between the customer and the exchange. That puts some limitations in terms of possible speeds.

Clearly, a fibre network is superior in terms of delivery of performance and numbers of people on those networks at one time. So, although you can say, as I said beforehand, you can get up to 100 meg. speeds on HFC networks, generally that is only if there are small numbers on those shared networks. As soon as you start getting volume and scale, there is a curve, if you like, whereas fibre networks effectively have much, much higher capacity for large numbers of people.

So the HFC is OK as long as not many are using it.

During 2011 there were also a series of meeting between Optus, the NBN Co. and the Australian Competition and Consumer Commission (ACCC) about the ‘HFC Subscriber Agreement between NBN Co Limited and SingTel Optus Pty Ltd and other Optus entities’.

Under this agreement, customers on the Optus HFC network would, in time, connect with Optus via the NBN.  To win ACCC approval, Optus’s submission went into great detail, though some parts of the arguments are redacted from the public record.

There were two basic strands. The first said that if Optus maintained its own HFC network, it would not be significant competition for the NBN due to its limited size and growth potential.  Thus why should Optus continue to maintain an HFC service that would, increasingly, lose money and not be a competitive restraint on the NBN anyhow? 

The second was technical, that is upgrading the network to be an effective broadband service was too expensive for the returns anticipated.

Optus went on: ‘This view is supported by the following:

7.4   (a)         Optus does not currently have the technical ability to supply wholesale access services over its HFC Network and has no plans (or incentive) to upgrade the HFC Network to do so in the future;

(b)        The HFC Network does not currently act as an effective competitive constraint on the Telstra copper network, or on RSPs (retail service providers) supplying services over the Telstra copper network, including Telstra;

(c)        The inherent limitations of the HFC Network means [sic] that it will be less able to compete against the NBN;

(d)       [RESTRICTION OF PUBLICATION OF PART CLAIMED]; and

(e)        The NBN will be subject to strict regulatory controls which limits the impact of any possible competitive constraint that the HFC Network could have on the NBN.’

In essence, for reasons of original design, technical and managerial constraints, and the lack of economic returns on the costs of upgrading the network, Optus sees their most profitable route is to connect to their clients via the NBN fibre network rather than maintain their own existing HFC network.

Now these reasons would also seem to be good reasons to sell the HFC network, if a buyer could be found, but the corollary is that NBN Co would be financially irresponsible to take over the Optus HFC network and upgrade it as an interim service.

The same argument may apply to the Neighbourhood Cable HFC service in Ballarat, though the network has been upgraded to DOCSIS 3 standard, one that does allow high speed internet connections on pay TV cable installations.

The same may apply to the Telstra network. It is huge compared to Optus, and some parts are technically more up to date, but some of the arguments would apply. Certainly some opinions suggest that parts of the copper access network are not in good condition.

So are the agreements between the NBN, Telstra and Optus, to use the Minister’s words, a new ‘species of madness and wastefulness’?

Certainly, some broadband service will be delivered to some customers a little sooner, and, possibly, more cheaply, but with substantial limits on future service growth. And many suburban areas are served by both Optus and Telstra HFC network, so why acquire both?

At a time when there is a lot of belt tightening happening in government, one wonders why the minister has greenlighted the purchase of services that will be hugely expensive to upgrade and maintain? Or is it simply that ‘madness and wastefulness’ is OK if it serves a party political rather than a technical and customer-centred agenda? 

Dr Vincent O'Donnell is the media policy editor at Screen Hub and an executive producer at Arts Alive. 

The author is a Telstra shareholder.