From business spectator. Hard to argue with...RE DEATH OF...

From business spectator. Hard to argue with...

RE DEATH OF NBN

Telstra’s decision to upgrade its cable definitely now means that the National Broadband Network won’t get built.

It has been the beginning and end of communications policy for two years, but this policy is no more. It has ceased to be. Bereft of life, it rests in peace. It’s run down the curtain and joined the bleedin’ choir invisible. This…is an ex-policy.

Well, to be precise it is now a bush broadband subsidy policy, rather like the previous government’s Broadband Connect policy, which was gleefully cancelled by the new minister, Stephen Conroy, last year in favour of a “12 megabits for 98 per cent of Australians” election promise policy.

This has gone through the motions, but it was already in trouble when the global financial crisis hit because the rest of the funds, on top of the Government’s $4.7 billion, will be hard if not impossible to get.

Now that Telstra is spending $300 million installing DOCSIS 3.0 on its cable system in Melbourne as the first stage of a national rollout, it’s all over. By the way DOCSIS stands for Data Over Cable Service Interface Specification, and is the software needed to use hybrid fibre coaxial cable for symmetric internet services (that is, going both ways – from and to the premises). DOCSIS 3.0 was released in 2006.

So why didn’t Singapore Telecom Optus use it to upgrade its own HFC cable before now, and compete with Telstra? Because it very sensibly decided to use the cheaper, regulated ULL (unconditioned local loop) service instead. ULL is where you buy access to Telstra copper to supply ADSL broadband.

So did most other telecommunications companies. As a result we now have very healthy competition in ULL-based ADSL, which is cheap, high-speed and a generally excellent service, thanks to the ACCC.

The NBN is designed to build on that. ADSL works best if the exchange is no further than 1.5 km from the customer, so the plan is to bring the “exchanges” out into the suburbs and towns so they’re all less than 1.5 km away from houses and businesses, and to call them “nodes”. Thus – fibre to the node, or FTTN.

The first problem with FTTN is that by going straight to the nodes, the fibre will bypass all the hundreds of millions of dollars worth equipment that has already been put into the existing exchanges. It’s basically a replacement ULL service – still using Telstra’s copper for the last 1.5km, but missing the existing exchanges.

That’s why all three NBN tenders propose to build the FTTN “outside in” – that is, starting in the bush and doing the cities last.

Specifically, there are 1000 exchanges that serve 75 per cent of the Australian population very profitably: they will get FTTN in, oh…2016? Maybe later. In any case, no government subsidy is needed for supplying fast broadband to those 1000 exchanges – it’s only required for the other 25 per cent of the population.

As Lord Carter, the UK Minister for Broadband has said in his 'Digital Britain' policy document, the only thing needed for broadband competition in the cities is open access to all underground ducts.

In addition to copper to every house and business, which is now used for competitive ULL-based ADSL, Australia has two cable networks covering about 2.5 million of those houses and businesses in Melbourne, Sydney, Brisbane and Gold Coast. One of them – the Optus one – is in mothballs because ULL ADSL also levels the playing field with Telstra and makes more sense, cost-wise.

If there’s one thing Telstra hates it’s a level playing field – thus the $300 million on DOCSIS 3.0 for its cable in Melbourne, with the rest of the network to come.

To get a return on this investment, Telstra will work hard to switch all of those customers over to cable and away from copper.

That means there won’t be enough customers left to make it worth spending money on nodes in Melbourne, Sydney, Brisbane and Gold Coast, and chucking away all the existing ADSL equipment in the exchanges – especially considering how hard it is to raise money these days.

Imagine the scene. Eager young NBN sales person knocks on suburban door: “Excuse me, I’m from the government and I’m here to help. Would you like to buy this lovely 12 Mbps broadband internet Norwegian blue parrot? Beautiful plumage, although it’s just resting at the moment.”

“No thanks, dear. I’ve already got a very lively 100 Mbps parrot from that nice Mr Trujillo who went home to California.”