National broadband provider Internode today revealed it had asked Telstra repeatedly for wholesale access to its Next G mobile and HFC cable networks, requests which the larger telco has consistently turned down.

Telstra’s Next G network was constructed starting from 2005, under then-chief executive Sol Trujillo, replacing several other previous Telstra networks, including its rural CDMA coverage. According to regular tests, it boasts the fastest speeds of any Australian mobile network, as well as the broadest coverage.

Up until recently (and unlike Optus), Telstra is not known to have expressed any interest in providing wholesale access to its mobile network, as both Trujillo and current CEO David Thodey have seen the network as providing Telstra with a competitive advantage over rivals in the largely unregulated mobile telecommunications market. However, iTNews recently reported that Telstra had started discussions with other carriers to allow wholesale access to the network.

Unlike its copper network, Telstra’s HFC cable network — which stretches throughout a number of capital cities — will continue to operate in future to provide pay TV services through Foxtel, although its $13 billion contract with NBN Co will see broadband customers on the network progressively migrated onto the National Broadband Network’s fibre infrastructure.

In a post on Whirlpool today, Internode managing director Simon Hackett said his company would ideally like access to both — the same way it currently has access to Telstra’s copper network for broadband and telephony services. ” … to date, Telstra Wholesale have turned down our repeated requests to consider any provision of wholesale service offerings via their HFC or Next G networks,” Hackett wrote. iiNet, too, has expressed an interest in wholesaling Next G.

The Internode chief’s comments came as part of an ongoing critique being levelled at Telstra by Internode and fellow ISP iiNet for the handling of its fibre infrastructure rollout in South Brisbane, where the existing copper cable is being ripped up to make way for a new hospital.

Although the first wholesale customers were connected to the fledgling fibre rollout last week, and the South Brisbane area will eventually become part of the wider NBN rollout at some point, under current planning, the ISPs object to specifics around Telstra’s pricing and services on the fibre network — for example, a lack of multi-cast ability which would facilitate IPTV being delivered.

Telstra general manager of wholesale products, Graham Bate, has described the South Brisbane rollout as “the perfect opportunity for the industry and Telstra to derive some learnings about fibre”. And with respect to the complete suite of services available over copper: “The challenge is for us to replicate in our fibre product, something which customers have implemented in their own network — something which we haven’t implemented in our own network previously,” he said this week.

opinion/analysis
There are several fascinating issues at play here.

Firstly is the dynamic between an incumbent telco (Telstra) and an upcoming challenger (Internode). On the one hand, Hackett has consistently been a critic of Telstra over the years — forcibly bringing the telco before regulators like the Australian Competition and Consumer Commission, complaining loudly and often about its pricing and access to exchanges, and generally acting like a tough challenger.

On the other hand, it looks like the executive and his team at Internode have simultaneously been asking Telstra for access to several of its crown jewels — its prized Next G network, and the HFC cable network which facilitates its lucractive Foxtel bundling deals on the other.

I’d have to say this approach is a little inconsistent.

Internode has grown very fast over the years. It isn’t short of money, and it isn’t short of an ability to gain investment — through a public listing, sale to a private equity company or other sources of capital. It could start investing in its own mobile phone network — perhaps through a partnership with one or more other telcos, as Telstra, Hutchison, Vodafone and Optus have all done — if it chose to do so. Instead, Internode’s approach appears to have been to let Telstra invest in mobile infrastructure, and then request access to it, in a similar way as it has access to its copper network.

From Telstra’s point of view, this would appear to be a little like being threatened with the steel hand in the velvet glove. In public, Hackett is a strident critic of Telstra. But behind closed doors it looks like Internode would like to benefit from a little of the Telstra mobile largesse.

The HFC network case is also fascinating. The fact that Internode wants to resell services on top of Telstra’s HFC network lends a great deal of credence to Shadow Communications Minister Malcolm Turnbull’s claim that Australia’s HFC cable (Optus also owns a similar network) could be upgraded and made to fulfil a far greater role than it currently does, in lieu of building out fibre to the home around Australia.

Now, I’m sure, in both these cases, if you questioned Hackett or his counterparts at other major non-Telstra ISPs about their somewhat inconsistent approach to dealing with Telstra, they’d say they have no choice. Telstra’s ability to invest and market power is so great, they would likely say, that there is no way to invest in substantial infrastructure — because Telstra could just overbuild it, as it did when Optus rolled out its HFC cable in the late 1990′s.

However, I’m not sure just how courageous this response would be. On the day after Apple supremo Steve Jobs retires, it is perhaps fitting that we begin to ask ourselves whether Australia’s challenger technology corporations could perhaps be a little more audacious in their vision. Sure, Telstra’s an 800 pound gorilla that it’s hard to mess with.

However, I can’t recall seeing El Jobs going cap in hand to many of the gorillas he has recently taken down … Nokia, Research in Motion, HP and the music industry, to name a few. Yes, these are tough words. But it’s a tough industry — and it’s not always enough to paint Telstra as the great Satan when you’ve got the ability to do something about it.

For those who say that’s impossible, I refer you, as Turnbull also did this week, to a little-known company called TransACT, which competes on an infrastructure basis with Telstra in Canberra and a few other cities. It’s never been impossible to directly compete with Telstra in rolling out networks … it’s just bloody hard.

Image credit: Internode

Related posts:

1. “Crazy” Telstra prices limit Internode S. Brisbane plans
2. Govt blocks Internode FOI request for Telstra/NBN deal
3. Telstra declines “public battle” with customer Internode
4. Telstra ‘price squeeze’: Hackett slams ACCC inaction
5. Coalition victory could trigger Internode fibre rollout

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1. Dbremner
   Posted 26/08/2011 at 5:45 am | Permalink | Reply

   I thought it was obvious many ISPs would like to have access to HFC.
   You seem to be suggesting that rather gain access to HFC they roll out something to compete? Are they actually legally allowed to?

   • Renai LeMay
     Posted 26/08/2011 at 5:47 am | Permalink | Reply

     “Are they actually legally allowed to?”

     Of course they’re allowed to. They can roll out whatever infrastructure they goddamn want. It’s a free world!

     And yes, I am suggesting they could do so. Hutchison, for example, did, as has TransACT. And of course Vodafone and Optus as well. Internode has even rolled out regional wireless solutions in South Australia already.

     • Dbremner
       Posted 26/08/2011 at 5:50 am | Permalink | Reply

       Oh sure, wireless. But a competitor to HFC. So how do you go about getting the rights to dig up roads and front nature strips or hang cables from power poles?

       • Renai LeMay
         Posted 26/08/2011 at 5:53 am | Permalink | Reply

         … somehow TransACT did. I’m sure it’s not impossible.

         • Chris Knight
           Posted 27/08/2011 at 5:44 am | Permalink | Reply

           They engaged at local and Territory government level to seek the necessary permits, unlike Telstra who have Federal legislation on their side to build whatever, where-ever.

     • Clinton O'Hara
       Posted 26/08/2011 at 5:54 am | Permalink | Reply

       but that would result it numerous incompatible networks. transferring between suppliers would be horrendous.
       surely it would be far better to have a single infrastructure open to all resellers.

       :)

       • Dbremner
         Posted 26/08/2011 at 5:57 am | Permalink | Reply

         Yes, what a good idea. Maybe we could call it something that showed that it was one standard Australia wide. National… NIT national internet thingy.

2. Gwyntaglaw
   Posted 26/08/2011 at 6:02 am | Permalink | Reply

   All fair enough. But if anyone remembers the HFC rollout debacle of the 90s, the thought that you might have open access on a single cable was pooh-poohed by Telstra and Optus alike. Hence the locked down, exclusive ownership mentality which made the whole thing uneconomic.

3. alain
   Posted 26/08/2011 at 9:01 am | Permalink | Reply

   Well you know the old saying, if you cannot beat them join them, Internode have become more BigPond like over the years, I remember Hackett saying they would never count uploads like BigPond does, but they eventually did.

   I think a few ISP’s are looking at the post NBN world where all ISP’s can flog vanilla flavoured NBN FTTH at the same ACCC set wholesale price points and deciding the bulk of the margins and revenue is only going to come from the add-ons.

   The best add on at the moment to have in your package is Telstra NextG , the next best add on will be Telstra LTE, the writing is on the wall with high ARPU’s from fixed line with the two biggie ISP’s holding 70% of the retail BB market and 193 others fighting over the crumbs.

   I don’t see much change to that ratio post NBN, in fact chances are it will get worse

4. Renzy
   Posted 26/08/2011 at 12:29 pm | Permalink | Reply

   “However, I can’t recall seeing El Jobs going cap in hand to many of the gorillas he has recently taken down”

   Ahem, cough

   http://news.cnet.com/2100-1001-202143.html

5. Jack Webster
   Posted 26/08/2011 at 10:56 pm | Permalink | Reply

   Interesting Article. I’d say however, that there’s nothing wrong with requesting access to all available mediums in order to deliver services to premises across their most efficient medium. I know for a fact, there are houses with HFC and Copper access, and Copper is sometimes better than HFC and vice versa.

   Also, don’t critique for Internode relying on other’s infrastructure to deliver their services. They have built pioneering wireless networks in SA before, which still corner the market in some regional areas. They also continue to have the best operating DSLAMs in the country.

6. Pepe
   Posted 26/08/2011 at 11:50 pm | Permalink | Reply

   @ jack, yeah that’s the way it works. one company has something another needs, so the company who needs approaches the company who has, to lease, at commercially agreed rates.

   but, there is the clincher, ‘commercially agreed’. because there is no compulsion in purely business terms, leaving the emotive and clouding issues of pots out of this because it’s a different kettle of fish, that telstra or any company anywhere, have to accept any wholesale proposals, in relation to their property.

7. Marp
   Posted 27/08/2011 at 6:13 am | Permalink | Reply

   “For those who say that’s impossible, I refer you, as Turnbull also did this week, to a little-known company called TransACT, which competes on an infrastructure basis with Telstra in Canberra and a few other cities.”

   So why did Transact stop at just Canberra ?
   … because its just not economical to duplicate infrastructure on a national basis, which is where Turnbull’s policy falls over – even he admits only Telstra could do FTTN

8. toshP300
   Posted 27/08/2011 at 7:26 am | Permalink | Reply

   the most interesting bits are always in the footnotes:

   “(*1) Velocity fibre optical termination units (including those in SOTH exchange) have an RF emulation port that emits Foxtel (and only Foxtel), which is not available for wholesale access in SOTH even though the data and voice ports are.”

   “(*2) Noting that the Telstra/NBNCo deal involves Telstra turning off Internet access via HFC progressively, but retaining the use of the HFC network to sell Foxtel at a lower cost base than the NBN’s pricing for iP Multicast. Its an interesting definition of a (future) level playing field, isn’t it.”

   so, boys and girls…

   what do we learn from this little public confession on WP?:

   1/ because the NBN is so expensive to build and so expensive to access, there will be little money (margin) to be made (or competitive differentiation) from flogging stand-alone, equal-cost, plain vanilla broadband plans;

   2/ NBNco’s business model forces resellers to adopt multi-product platforms which leverage off a fixed cost base (HQ, management, marketing, etc), e.g. bundled triple-play*;

   3/ the spanner in the works for most players in pursuit of this triple-play product bundling strategy is that Foxtel’s competitive advantage is non-replicable:

   i/ the NBN will never be able to compete against Telstra HFC and Austar satellite as a cost-effective means of delivering pay-TV;

   ii/ because building the NBN doesn’t result in a cheaper pay-TV distribution platform, both the economics of pay-TV delivery and the existing delivery/content alliances will remain unchanged;

   4/ NBNco will fail to tap into the most likely source of future demand for the NBN’s high bandwidth capacity, i.e. multicast revenue from pay-TV delivery, due to competition from low-cost HFC;

   5/ in Internode’s and iiNet’s fantasy worlds, they would like to be able to resell 3G, 4G, Foxtel and just about every other service offering that makes Telstra a stand-out in the post-NBN market. (their idea of “competition” is “legislated, cheap access to someone else’s product portfolio”.)

   * Dodo is even going further (and rightly so) with plans to market other utilities such as gas, electricity on a common platform or account.

   • Duideka
     Posted 27/08/2011 at 5:18 pm | Permalink | Reply

     I think you are too quick to dismiss pay-TV distribution over the NBN as expensive.

     iiNet’s $15 a month FetchTV1 plan with 26 SD channels would require roughly 130Mbps of Multicast Data to deliver. This also counts the movie channels which would loop, and FTA channels.

     NBNco charge it in 100Mbps increments so iiNet would need 200Mbps which is $500.

     Over 121 POI’s – ie national distribution, that’s $60,500

     There is also a $5 charge for ‘access’ to multicast data, this gives 20Mbps of capacity, so the ability for houses to have multiple units downloading at once would be possible.

     iiNet have 650,000 DSL customers.

     Some numbers:
     100% take up || $5.09 per end user || 650,000 FetchTV customers.
     50% take up || $5.18 || 325,000 FetchTV customers.
     10% take up || $5.9 || 65,000 FetchTV customers.
     5% take up || $6.8 || 32,500 FetchTV customers.
     1% take up || $14 || 6,500 FetchTV customers.
     0.5% take up || $23 || 3,250 FetchTV customers.

     the $$ is the wholesale costs for each user. As you see, unless you have absolutely zero market share it’s really not that bad.

     With 200Mbps of multicast data at each POI, you could theoretically broadcast 39 SD channels to each of those customers and still have enough left to take care of overheads, and they could stream 4 at once with the Multicast AVC size provisioned.

     Unfortunately I don’t know how many people have taken up the FetchTV packages, nor do I know their wholesale costs for delivering it, but just some food for thought.

     I hope my math is working at 1am :-)

     • alain
       Posted 27/08/2011 at 11:50 pm | Permalink | Reply

       “Unfortunately I don’t know how many people have taken up the FetchTV packages,”

       Well that’s always the key point about Pay for TV services whether it be the existing Foxtel over cable and satellite or IPTV over broadband.

       Will punters pay for it in enough numbers to help bolster NBN revenue or will they be satisfied with existing free to air with its increasing multiple digital channels and on BB the free to air channel rerun facilities such as ABC iView, 7Yahoo TV etc and the overwhelming dominant free past TV episodes and video of all flavours world wide product of all them all, YouTube.

     • toshP300
       Posted 28/08/2011 at 1:08 am | Permalink | Reply

       well, you have to reconcile those calculations with Internode’s statement:

       “retaining the use of the HFC network to sell Foxtel at a lower cost base than the NBN’s pricing for iP Multicast.”

       from a broader strategic viewpoint, the major industry players will be very reluctant to migrate their services over to the NBN. why? broadcasters need long-term platform distribution cost certainty.

       this is something NBN cannot provide because even NBNco has no clear idea how it’s going to generate the revenue they require to service the massive capital burden underpinning 93% FTTP roll-out.

       they have been given a political mandate to push fibre to Whoop Whoop, they have some idea of the level of revenues they require to service the capital costs based on unrealistic building costs but they have no idea how attractive the various product segments are to the market, what revenue they will generate and how pricing has to evolve to meet their targets.

       as a result, broadcasters (both FTA and pay-TV) which already have substantial sunk costs invested in existing distribution platforms (which work just fine) would be insane to abandon their current proven business models with cost certainty and jump on the rickety NBN bandwagon with no proper/unrealistic business plan and little certainty over future viability*.

       more to the point, NBNco’s SAU has already revealed that they are currently underpricing (below-cost) access to the NBN, capitalising those losses at fully-commercial ROI, and ultimately, positioning themselves so that they can extract as much rent as possible from the market by jacking up the real prices of premium services over time to recover those losses.**

       who’s to say NBNco isn’t also initially underpricing multi-cast services in order to attract service providers and won’t subsequently raise pricing over time to extract more rent from pay-TV services to meet their revenue targets? (of course, experienced industry players are too smart to fall for this ruse.)

       * when NBNco personnel turn up at industry conferences reportedly saying things like “we haven’t got all the answers, we’re open to suggestions on how to make this work”, it tells you they haven’t got a f****** clue what they are doing (other than executing a political mandate and gambling with taxpayers’ money).

       ** a private business attempting to follow this insane business model would either find zero lenders or go bankrupt within a few years. of course, NBNco’s massive capital or borrowing needs are rolled into the Federal Government’s overall infrastructure funding programme and enjoy Commonwealth guarantees (i.e. taxpayers are in the hock for the entire build cost). also, private businesses do not enjoy the privilege of competition-killing legislation which allows the monopoly to charge at will.

9. Greg
   Posted 26/09/2011 at 5:45 pm | Permalink | Reply

   Unfortunately I find this article to be quite bad/misleading.

   I guess it comes down to me disagreeing that another company could just go and build another network. What a waste. The last thing I want is a 3rd HFC network going through the cities, the last 2 are largely considered a competitive failure (why did they wire up the same streets?). The costs don’t add up. And in regional areas at least the NBN is argued as required because it’s uneconomical for multiple competing networks (or even for one network).

   And you’re asking a much smaller marketshare ISP to just go out and build their own? Monopolies don’t matter in markets where there are low barriers to entry – so Apple built a music player, then a phone, and a tablet. They didn’t need to be able to get 40% marketshare to make it worthwhile (though it turned out their marketshare grew).

   Oh, and Apple IS suing Samsung AND doing business with them at the same time, though they seem to be trying to move their business elsewhere where it’s possible as fast as they can.

   There’s nothing contradictory about an ISP saying “we’d like to resell your faster network” and also saying “you are not treating us fairly in our current dealings”. It’s fine when there are multiple real choices to stop using one provider based on past experience, but when they are the only game in town you have no choice. Again then the argument of whether it’s economical for other companies to build their own network.

   So none of your criticism really is aimed at Internode. You’re really saying “I believe there can be a 4th or 5th data networks in every street, and that this competition will result in the best result for us all”. And from that follows the criticism of Internode specifically.

   Disappointing article.