Telstra's 100Mbps: The great PSTN robbery

Many Australians are drooling at the prospect of 100Mbps broadband, but Trujillo seems to have a bigger endgame in mind. As Telstra poaches customers from the PSTN and NBN, he'll leave more poison pills than we've seen since Phar Lap.
Written by David Braue, Contributor

If necessity is the mother of invention, Telstra is quickly closing in on "octomom" Nadya Suleman in the maternity stakes.

Since it was unceremoniously ejected from the NBN tender process, Telstra has fought a plummeting share price; the departure of its COO and pending departure of its CEO; ongoing union problems; and a myriad of other issues.

The company has countered these issues with a flurry of announcements trumpeting its innovation: in the past month alone, we've had announcements about Telstra's contactless mobile technology, the seemingly useful Voice2Text service that converts voicemails to text messages; a major roll-out of big-bucks telepresence gear, the boost of Next G to 21Mbps, and an escape from the IT services business with its sale of Kaz.

Yes, Telstra is firing on all cylinders — and no more so than with its intention to boost its hybrid fibre-coax (HFC) network to 100Mbps (for up to 1 million Melbourne residents, to start with) by Christmas.

Telstra won't be claiming a world first, as it did with the Next-G upgrade; 100Mbps services were already widely available when I lived in Singapore back in 2006, for example, and they're now on offer in several countries. However, nobody outside Telstra's marketing department cares about world firsts anyway: people want services that are reliable, strong-performing, cost-effective, and most of all available.

This latest announcement is a poison pill that will have Telstra rolling in dough while the government and NBN winner fund an FttN roll-out through Australia's least-populated (and least profitable) geographical areas.

Knee-jerk reaction to Telstra's announcement has been that its cable network leaves the NBN in the dust. Yet comparisons between the two networks are poorly informed for two reasons: (1) 12Mbps is not the speed of the NBN, but a minimum specification that Senator Conroy has long indicated bidders are free to exceed; and (2) Telstra's HFC network only reaches capital cities, and is therefore utterly irrelevant to the rest of the country. The NBN's purpose is to set a new common denominator for internet access nationwide, not to be the be-all and end-all that renders better services irrelevant.

That said, Telstra's cable will have an impact on the market. That's because the schism between government and Telstra is widening as Telstra focuses on differentiating parts of its infrastructure that aren't subject to competitive concerns and legal wrangling. This latest announcement is a poison pill that will have Telstra rolling in dough while the government and NBN winner fund an FttN roll-out through Australia's least-populated (and least profitable) geographical areas.

While the NBN worries about reach, Telstra will focus its efforts on making money — and on sabotaging the NBN's value proposition wherever possible. Or something like that, judging by Trujillo's comments during a conference call with analysts and journalists on Tuesday. Telstra's strategy, Trujillo conceded, includes the steady abandonment of the local loop, control over which it has spent years defending.

"We can essentially replicate the [landline] services and features that we have today, but we're going to take them to another level where we think we can go on this platform," Trujillo said, referring to the PSTN-on-cable offering as "PSTN-plus". "There are customers on ADSL2+ in this footprint, and customers on PSTN in this footprint," he explained. "Our strategy will be aimed at moving people across to these better, new services to give them far more value for money."

If I may translate loosely, PSTN in Trujillo's new parlance seems to be short for "Permanently Stuck with Telstra Now". Cable is, after all, inherently a stranding technique: it delivers TV, broadband and landline-equivalent services over a single wire and obviates the need for an actual landline service. Customers may have copper running into their house, but if customers are taking services via cable Telstra has little interest in keeping that copper serviceable.

If I may translate loosely, PSTN in Trujillo's new parlance seems to be short for Permanently Stuck with Telstra Now.

The spectre of PSTN-plus represents a major problem for competitors. After all, if customers can get all the communications services you need from one provider — including the PSTN connection and standard phone service owned by Telstra for decades — why bother even considering other providers?

In taking this approach, Telstra is set to repeat the major battles between cable and telephony operators in the US, where cable operators began providing local voice services and stonewalled when competitors lobbied for access to cable networks to target customers with competitive offerings.

By taking up to 2.5 million of Australia's most profitable households off the PSTN, Telstra's reborn HFC interest will remove those customers from the PSTN debate entirely. After all, Telstra can do whatever it wants with its HFC network: Optus has its own, as Trujillo pointed out, so concerns about monopolistic control no longer apply. Telstra thus has strong ground from which to argue against efforts to gain access to its customers — who will, in theory, be so rapt with their ultra-fast broadband that they won't care about the NBN anyways.

And what of the 7 million or so households that aren't on Telstra's network? Tough luck, it would seem, for now, and business as usual.

Roll-outs of both Telstra's network and Optus' (which also passes several million homes, many of them also served by Telstra) ground to a halt years ago and neither company has promoted their cable services heavily, given the focus on ADSL and ADSL2+ for most of this decade. But with Telstra breathing new life into its HFC network, Optus will face pressure to respond in kind (although its initial reaction was negative) — and customers may well begin lobbying Telstra (and recalcitrant local councils) to extend the network.

None of this kills the case for the NBN, as some observers have speculated, but it does complicate things by potentially taking many NBN customers off the market. Telstra's competitors will no doubt undercut it on price as they have always done, but with the potential for intelligent service bundling and an enforceable infrastructure monopoly it's clear that Telstra is far from out of the game when it comes to next-generation infrastructure.

What do you think? Will 100Mbps be enough to switch you to Telstra? Will new HFC investment leave the PSTN to atrophy?

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