The most expensive HFC deal in the world

In The Australian NBN Co's $1.6 billion HFC remediation deal with Telstra is discussed and how the multi-tecfhnology mix National Broadband Network is benefiting Telstra should be a worry for the telecommunications industry.

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NBN Co and Telstra’s $1.6 billion dollar Hybrid Fibre Coaxial (HFC) deal may be important in getting Malcolm Turnbull’s multi-technology National Broadband Network (NBN) across the line but for many in the telecommunications industry it’s just further evidence of how the odds are stacked in favour of Telstra.

NBN Co’s largesse unfortunately further complicates an already chaotic telecommunications market, with successive deals serving to undermine the NBN’s promise of delivering an open and fair competitive telecommunications market

Over the past two years NBN Co has entered into agreements with Telstra for a FTTN deployment trial ($150M), copper fault repairs ($80M) and now for HFC design, remediation and upgrade ($1.6 billion). In 2014 NBN Co-signed a revised $11 billion definitive agreement with Telstra that would see NBN Co “progressively take ownership of elements of Telstra’s copper and HFC networks in those parts of the country where it represents the fastest and most cost effective way to deliver fast broadband to families and businesses.”

The decision to use Telstra’s copper and HFC networks predicated to some extent that the telco was going to be tapped as the prime contractor during the HFC upgrade and the Fibre to the Node (FTTN) rollout.

The new deal means that the amount being paid to Telstra by NBN Co is close to $13 billion and we should expect further contracts between NBN Co and Telstra adding to the approximately $13 billion already committed before the NBN rollout is completed.

Apart from the pots of gold destined for Telstra’s coffers there are fears that the telco may receive a competitive advantage, especially if it ends up having access to better information than other service providers or if it’s able to use the infrastructure built for the NBN before it becomes available to other retail service provider

Telstra’s HFC network was built more than a decade ago to provide pay television in competition with Optus Cable and it was anticipated that about 30 per cent of people in the rollout areas would subscribe so this had an effect on the design of the network at the time. Over the past decade Telstra upgraded the HFC network to provide broadband as well as pay television and the HFC network now provides connection speeds of up to 100/2 Mbps.

An industry curiousity

Internationally the decision by NBN Co to use HFC as part of the MTM NBN would be seen to be a curiosity, as most nations and large telecommunications companies have embraced the ‘gigabit race’ and embarked on Fibre to the Premises (FTTP) rollouts, many using the vastly superior and cheaper to operate passive optical network technology known as NG-PON2.

A couple of weeks ago in the United States, Verizon launched a major television advertising campaign pointing out why HFC was not competitive when compared to its FTTP based Fios network and how Fios was the future of broadband delivery. The Verizon TV advertisements can be seen on YouTube (Link).

In a statement Verizon claimed that “over the last ten years, Fios has received more awards for internet speed and customer satisfaction than all cable networks combined. Specifically, 52 awards for Fios compared to seven for cable. Those awards include the #1 rating in PC Magazine’s Reader’s Choice Survey for internet speed for 10 years running, and the J.D. Power Award for ‘Highest in Customer Satisfaction among Residential internet Service Providers in the East Region’ for three years in a row.”

Telstra’s HFC network allocates the radio frequency spectrum into an upstream band from 5 to 65 MHz and a downstream band from 85 to 1000 MHz and within the bands the spectrum is used in 7 MHz channels for television or data. For HFC broadband the Data Over Cable Service Interface Specification 3.0 (DOCSIS 3.0) is used to provide broadband connections of up to 100/2 Mbps.

The DOCSIS 3.1 effect

NBN Co has announced that the HFC network will be upgraded to use spectrum out to about 6000 MHz and when DOCSIS 3.1 is implemented later this decade it is anticipated that DOCSIS 3.1 will be able to provide up to 1000/400 Mbps connection speeds for NBN customers.

There has been a lot of hype about what DOCSIS 3.1 lab testing has achieved so it is important to realise that the NBN HFC network performance will be affected by the number of customers connected via a single cable, the distance to the nodes and how much fibre transit capacity is available.

In the US HFC operators and telecommunication companies have entered into ‘gigabit race’ battle for broadband customers with HFC operators promising a DOCSIS 3.1 upgrade to HFC networks over coming years and the telecommunications companies racing to replace existing ADSL2+ networks with the much more capable and cheaper NG-PON2 based FTTP that is available now.

Concerns about the high cost of a HFC network DOCSIS 3.1 upgrade have been raised recently both here and internationally focusing on the need to reconfigure much of the existing network to reduce the number of connections on each cable and to bring more fibre further into the network to provide the transit capacity needed to support gigabit connections.

The reallocation of spectrum use on the HFC network will mean that existing equipment accounting for most of the fixed infrastructure will need to be replaced.

Keeping faith with HFC

In other major markets the only incumbent telco holdouts that haven’t commenced FTTP rollouts are BT in the UK and Deutsche Telekom in Germany. Both are seeking to prolong the life of existing VDSL2 based FTTN networks and are coming under increasing criticism and pressure from competitors that are now rolling out FTTP. In the remainder of Europe, where large investments in VDSL2 based FTTN were not made during the 2000s, the shift to FTTP has progressed rapidly and some of them are now more than 50 per cent FTTP.

In the Middle East and Asia a large number of nationwide FTTP rollouts have been progressing steadily or will commence soon. In our region, Australia stands alone with the decision to upgrade HFC and rollout FTTN.

The telecommunications industry should be concerned with the possibility in 2020 that Telstra will buy all or part of the NBN using the $13 billion or more it will have received from NBN Co for the HFC and copper infrastructure, infrastructure remediation and upgrades and a 30 year or so lease to access other fixed infrastructure including telephone exchanges.

Having introduced the MTM NBN it will be difficult for the Coalition government to address the potential for Telstra to entrench its dominance of the telecommunications market and this can only bode ill for those looking for cheaper broadband.

Mark Gregory is a senior lecturer in the School of Electrical and Computer Engineering at RMIT University.

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