Warning against a HFC resurrection

A couple of years ago NBN Co and Optus found it to be financially irresponsible to use the telco's HFC in the NBN. The same logic should extend to Telstra's HFC.

At last year’s Australian Broadcasting Summit in Sydney, the shadow minister for communication, Malcolm Turnbull, alleged that NBN Co was guilty of wasteful practices in the roll out of the fibre optic network especially of overbuilding existing broadband facilities that should be re-deployed for broadband services.

It’s a theme he's been working ever since.

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

Well "perfectly capable of delivering high-speed broadband" is a technical assertion in a political context, and these questions need technical answers not political ones. 

Remember the modem ads of a decade ago with broadband being 56 kbs?

Mr Turnbull specifically cited the failure to use the Optus and Telstra HFC (hybrid fibre-coaxial) networks; the Neighbourhood HFC cable already installed in Ballarat; and the replacement of an existing fibre to the home network in the new Canberra suburb of Crase, as examples of wasteful overbuilding of existing facilities.

So, 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?

In principle, yes, but the principle doesn’t stretch very far. 

Some of the factors that led to the decision not to use the existing HFC networks are on the public record. 

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

Under this agreement Optus customers using the Optus HFC network would, in time, connect with Optus via the NBN.

In a series of submissions, Optus explains why the ACCC should approve the agreement.

It’s a somewhat convoluted argument about the diminution of competition, saying that if Optus stays with its own HFC network, it would not be any competition for the NBN, so 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 telco wrote the following in its submission: 

Optus submits that, under the counterfactual where the HFC Agreement is not authorised, there is no evidence or other basis for considering that the HFC Network would be likely to act as an effective competitive constraint.  In Optus' submission, the HFC Network does not have the potential to act as a competitive constraint on the NBN."

This view is supported by the following:

  1. 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;
  2. 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;
  3. The inherent limitations of the HFC Network means that it will be less able to compete against the NBN;
  5. 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.

The corollary is that the 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 connection on pay TV cable installations.

The question of the Telstra network is not so easy to answer.  It is huge compared to Optus, and some parts are technically more up to date, but some of the arguments would apply.  The case of the reported overbuilding of the fibre to the house (FTTH) installation in Crase in Canberra has not yet been resolved, except to say the suburb is listed on both the NBN Co and Transact’s list of suburban developments.

It seems unfortunately true that at least the Optus HFC service cannot be pressed into new broadband service, but it also seems true that it would be a "species of madness and wastefulness" to use Mr Turnbull’s words, if NBN Co were to pay to upgrade it, or the Telstra network rather than just write it off as obsolete.

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

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles