By menacing Telstra's pay TV, Foxtel could liberate NBN-era HFC

Content-equivalent IPTV services diminish the value of Foxtel's HFC network – and could push Telstra toward an open-access wholesale broadband model that would benefit both the NBN and itself.
Written by David Braue, Contributor

The most interesting thing about Foxtel's new IPTV service, Foxtel Play, isn't the service at all. Rather, it's the way that this service alone could finally dismantle Telstra's pay-TV monopoly — and, in so doing, revolutionise Australia's pay-TV market by opening up Telstra's hybrid fibre-coaxial (HFC) network to competition for the first time ever.

That may sound like a long bow to draw, but consider for a moment the disruptive force that an IPTV-based Foxtel service will create. The biggest problem about IPTV so far, after all, has been that licensing agreements prevented past providers from offering a comparable lineup of channels.

Foxtel's IPTV service will free customers from reliance on Telstra HFC.
Image: Screenshot by David Braue/ZDNet

By offering a casually available service to anybody, and stocking it with everything you normally get over cable, Foxtel has finally given IPTV the shot in the arm it has been so desperately wanting.

Ironically, it is Telstra that will suffer, although the damage will be more strategic than financial, given Telstra's continuing share in Foxtel. While it will thus gain some revenue from broader availability of Foxtel, Telstra faces some serious soul searching around its HFC network: Once it's no longer necessary to get a Telstra cable connection to enjoy a full Foxtel service, the value proposition behind that connection will diminish significantly.

After all, it will no longer be a mechanism for customer lock-in and network-based content exclusivity. That's something that Telstra has fought hard for, for years: Remember, among many other efforts, its application to the Australian Competition and Consumer Commission (ACCC) for special dispensation to offer service exclusivity to its broadband customers.

The shunting of Foxtel content away from Telstra's HFC network could not only diminish the network's value, but eliminate it altogether.

If Labor manages to save its collective posterior in the upcoming election, and its contract to dismantle Telstra's HFC is preserved, the shunting of Foxtel content away from that HFC network under its AU$11 billion NBN contract could not only diminish the network's value, but eliminate it altogether.

Were that to happen, it would have significant implications on Telstra's HFC decision making and future.

After all, the promise of losing its HFC access and Foxtel revenues was enough to help get Telstra to acquiesce in its negotiations with the government over the NBN, so it's fair to say the company values the network. However, if it is banned from providing broadband services over HFC, and Foxtel Play lets consumers switch to a more performance or price-competitive ISP while retaining its TV services, what will Telstra then do with that network?

The way things are going with the NBN rollout, it would be silly for NBN Co to not consider a deal that would use Telstra HFC to deliver faster services under open-access terms similar to those on the NBN itself.

Reinvention of Telstra's HFC might be even more likely under a Coalition government, which has long talked up the potential of HFC — although it has repeatedly stopped short of explaining how it might force Telstra to open up its HFC network.

If Foxtel Play threatens Telstra's HFC cash cow, its introduction could prove to be a much-needed feather in Malcolm Turnbull's cap — making real one of the more fanciful elements of his alternative-NBN policy, whilst giving the Coalition a leg up on its vision of 25Mbps for all. All it would need to do is follow the lead of observers like telecoms analyst Dermot Cox, who, CommsDay recently reported, is lodging a submission to the ACCC asking it to consider declaring HFC services.

Even Telstra can't be unaware of the long-term need to chart a path away from the HFC network: although it has preserved the network's physical integrity within its NBN contract, there's little value in the long term in paying to maintain an HFC network that only carries pay TV.

If equivalent Foxtel services can be delivered to customers on any NBN or non-NBN network, Telstra can grow the overall Foxtel pie whilst planning an end-of-life path for its ageing HFC network. Telstra's future, after all, lies in content rather than network ownership.

The financial impact of such a move might have been prohibitive in the past, but the perfect storm of disruption seems to be brewing as Telstra's fixed-line consumer markets undergo fundamental change. Support from Telstra might be the thing to tip the scales — finally giving Australia the HFC competition it so desperately needs.

What do you think? Could IPTV Foxtel finally force Telstra to open its HFC?

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