Telstra's last-mile strategy: Broadband limbo

Should Telstra be investing in a pre-emptive defence against the NBN? Or should it go slow and wait like everybody else?

Let's say a competitor of yours was planning a major new initiative, and you had a few years to get ready before the battle began. You'd probably start bolstering your defences, strengthening your products and working hard to secure customers so you'd have the best defence against whatever new product they were bringing to market.

Anti-tank Russian cannon(ISU-122 image by Andrzej Skwarczynski, royalty free)

As the announcement of the Tasmanian start date pushes the NBN on its slow, ponderous way towards reality, however, Telstra is investing not in bolstering its existing solutions — but, rather, is easing into an extended waiting period.

At least, that's how it sounded when I sat down with several Telstra executives this week amidst proclamations that the company's robust Next IP backbone is 90 per cent complete and that they're planning big things for their hybrid fibre-coaxial (HFC) network later this year.

Telstra's push to revive its HFC network has been seen as a natural outcome of the NBN's announcement: the company needs a comparable network, everybody says, and existing copper and HFC services won't cut it.

Just don't tell Telstra that; as Michael Lawrey, managing director of Telstra Network Services, pointed out in his PowerPoint presentation: "80 per cent of the Australian population are able to get broadband access at up to 20Mbps using either HFC or ADSL2+".

In other words, you're all set for broadband for now, right? Yeah, right. Asked about this seemingly optimistic statement, Telstra chief technology officer Hugh Bradlow offered a cryptic answer: "Blame our competitors," he said. "We aren't the ones out in the market saying 20Mbps. [Slower speeds] are a simple law of physics."

Hold on: this was said just after Lawrey put up a slide claiming that it was providing speeds of up to 20Mbps to 80 per cent of the Australian population. But Telstra isn't "saying 20Mbps"? Huh?

I don't think I'd be going out on a limb to say that most Australians are getting far less than 20Mbps from their ADSL2+ services, and many still have no broadband access at all. HFC provides more headroom — witness Telstra's plans to upgrade it to 100Mbps in Melbourne before year's end — but that doesn't mean either solution will be relevant to you in the near future.

Given the gap between theory and reality, Lawrey's comments sound ominously like George W Bush's infamous "mission accomplished" back in 2003. Here, the words "up to" are Telstra's hedge against the reality of Australian broadband: even my 2.5Mbps ADSL2+ service would be classified as "up to" 20Mbps, in its parlance.

Telstra's go-slow strategy
Given that the NBN will eventually enable a range of alternative, cost-competitive broadband 100Mbps services, you'd think Telstra would be working hard to capitalise on its HFC network to reach places where ADSL2+ is still slow and substandard.

Short HFC spurs would be an ideal pre-emptive strike against the NBN's promised 100Mbps services — especially for customers stranded in broadband blackspots, potentially winning long-time customers who will be less eager to jump to NBN-driven services down the road since they'd already have their 100Mbps services. Just imagine the marketing: "The NBN promises you 100Mbps in one to eight years, but we can deliver it to you tomorrow."

Asked whether this was actually going to happen, however, Lawrey got cagey. "We're really waiting to see how the [NBN] environment unfolds before we make those sorts of decisions," he explained.

"So we're all in limbo for now?" I asked. His response: "Yeah."

Unless Telstra's HFC already passes your house, and you live in Melbourne, Telstra won't be upgrading the connection to your home any time soon.

Just to recap, Telstra claims its 80 per cent of its customers are getting robust broadband, but they're not. Telstra has no plans to improve its copper or HFC networks to reach the other 20 per cent, nor will it invest in its networks to ensure customers actually get the speeds they're paying for. Faced with the immense challenge and change the NBN represents, Telstra's new last-mile strategy is simply to sit on its hands.

You can look at this in two ways: one, the NBN threat is still far off and Telstra wants to see how it shapes up before investing capital in its end-user network. Or — and this seems more likely all the time — Telstra is leaving its network investment in limbo simply because it plans to be a major buyer of the NBN's wholesale services as they are released.

This makes cold, hard business sense: why invest to expand the HFC network when there's a ready-made infrastructure you can access at the same prices as your competitors? Well, there isn't one yet, but there will be. In the meantime, Telstra will let its copper network rot in the ground, maximise the value of its existing fibre, and wait to buy NBN services heavily as they become available.

For customers, this suffer-in-your-jocks strategy means just one thing: unless Telstra's HFC already passes your house, and you live in Melbourne, Telstra won't be upgrading the connection to your home any time soon. If you have no broadband coverage at all, expect that to continue for years; there won't be any improvement until the NBN comes your way.

For the industry, the situation presents scary reality: the NBN has been seen as a competitor to Telstra's network, but seems ill-prepared to consider the effect if Telstra buys heavily into the same economies of scale on which they are depending.

In an open wholesale market, volume speaks volumes — and Telstra will be able to bring its heavy hand into purchasing negotiations that could spell major problems for competitors. Until then, Telstra's abandonment of the copper loop, and its decision not to expand its HFC network, will indeed leave customers in limbo.

Should Telstra be investing in a pre-emptive defence against the NBN? Or should it go slow and wait like everybody else?


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