Globally, no more new HFC networks
In the global telecoms industry, it looks as though 2013 will be remembered as the year when construction of new greenfield HFC networks came to a halt. Of course, there will still be upgrades to existing networks but the cost of fibre deployment – linked to its much lower operational cost – is now convincing cablecos and telcos alike to build new fibre networks wherever possible. This is not necessarily directly driven by customer demand, but by network costs and network efficiencies. There is increased evidence (e.g. Netherlands, China, Japan, Korea, France, Israel, Switzerland, Norway and Sweden) that customers will come forward once affordable FttH services become available.
While the DOCSIS 3.0-upgraded HFC networks theoretically can deliver 100Mb/s the reality is that most are delivering speeds of between 20Mb/s and 50Mb/s. The shared nature of these networks and the extra cost involved in providing consistent services at higher speeds to mass markets makes HFC increasingly less competitive with FttH networks. The older HFC networks in particular are facing serious problems with upgrading, and it is questionable if it is at all economic to do so. Cable companies that are now experiencing higher customer uptake of high-speed internet access services are facing problems delivering these speeds, reliably and at a high quality level, to a growing number of customers. True, in many situations they can continue to upgrade, but they are also aware that they will eventually have to replace their plant.
Stretching out the life of copper cables
Aging problems are also affecting copper-based DSL networks. But here, also, new technologies are able to stretch the life of copper for a while longer. Nevertheless, the options are becoming increasingly limited.
Telcos which do not suffer too much competition from cable companies will continue to upgrade their current DSL networks to FttN using VDSL, VDSL2 and VDSL2+ technologies wherever possible. Upgrades are done in a selective way, based on local geographic and market conditions.
There are some serious problems with FttN, both technically and regulatory:
- The physical aspects of VDSL2+ networks (using the so called VDSL vectoring technique) limits and complicates the level of competition that can be provided.
- The distance between the FttN cabinet and the dwellings needs to be ever shorter the further you go with upgrades: from ADSL2+ (within 2kms of the exchange) to VDSL and to VDSL2, and ultimately VDSL2+ (around 300-500m from the node).
- Technologies such as cable bundling require access to good quality copper cables, which are not always available.
VDSL vectoring looks promising, but it is still in its early testing phase, with general commercial deployments not expected for maybe three to five years.
In addition, operators providing these upgrades want to maintain their higher charges, so they are also limiting these upgrades to the more affluent parts of the cities. Where there is strong competition from cable companies we do see several telcos expediting their deployment of FttH. This is becoming a more wide-spread trend, as we can see in Israel, France, the Netherlands, Switzerland and Norway.
The FttH tipping point
The gradual decline in these copper based networks is due to the fact they cannot effectively compete with HFC networks, and that the overall maintenance costs for FttN networks is becoming greater than the cost of constructing FttH networks – especially if these are seen over their usual 25+ year investment periods.
Cable companies are in a better position than FttN operators to deliver high-speed broadband services, based on the technology they use. Competition between these two technologies in the USA – where the telcos are struggling to compete with cable companies – has resulted in a strategy by which copper-based networks will be closed down in those areas where they become less profitable to run. This is a clear indication that telcos do not see any long-term future in FttN. The problem the US is now facing is that this would lead to a cable monopoly on fixed broadband services, and a sharper divide between the ‘haves’ and the ‘have nots’.
Virgin in the UK has said repeatedly that if it were to expand its footprint it would deploy fibre networks and operate DOCSIS technology over FttH.
Countries such as Switzerland and Norway, which started to deploy FttN a decade or so ago, are now upgrading these networks to FttH. Ukrtelecom (Ukraine) suspended plans to deploy a large-scale FttN network, instead switching to FttH. The company’s studies showed that deploying FttH was more cost effective than FttN in some conditions, and was overall cheaper and more future-proof in the long term. FttH networks in the Netherlands and France have seen significantly higher uptakes of their services over the last 12 months.
Nevertheless it also needs to be said that because of the GFC the roll out of FttH networks has been delayed in many European countries while more emphasis is put on using the existing networks longer On the other side the Gulf States countries are all rolling out FttH at great speed.
FttH is the only long-term solution
Because of the relatively high retail prices charged by cable companies (up to $125 per month), truly high-speed services are currently only taken up by perhaps 20% of the population – essentially limiting services to those who can afford such high prices. The majority of subscribers will stick to lower speeds up to 20Mb/s at prices under $50. Under these low volume conditions HFC can handle traffic over existing, ailing infrastructure. However as soon as penetration go up – which will happen in tandem with prices coming down – the operators will struggle to maintain quality of service over these networks within acceptable infrastructure cost structures, especially since the maintenance costs of these old networks will be substantial.
So, from a purely infrastructure investment point of view FttH is the only long-term option.
Good quality HFC and FttN – interim solutions
This is not to say that the existing HFC and FttN networks will immediately die out. Diesel trains started to replace the steam train in the 1930s – this happened at the height of steam train technology (reaching 220km per hour) – but it was not until 1960 (30 years later) that the last steam trains disappeared in the USA and Europe. Good quality HFC and VDSL2+ networks could possibly survive for 10 to 20 years. The problem is that there are only a limited number of areas where this is technically possible or economically viable.
The relevance for Australia
All of this is very relevant for Australia. The major Australian telcos are supporting the current rollout of FttH, so it will be interesting to see how the Opposition would manage to convince them to change their long-term investment and business strategies. The industry is already asking the Opposition some tough questions about their plans. Rather than fighting the industry the Opposition should engage with it. It is the industry, not the politicians, who have the right knowledge to make these technical decisions.
If the Opposition wins the election it is possible that, like the steam train example, HFC and FttN networks will be used for a while in selective circumstances, and the industry would be well qualified to discuss those options with the Opposition.
For example, as BuddeComm has said before, good quality HFC networks can continue to be used, and FttN can be deployed, for example, in some multi-dwelling units. However this will require good quality HFC and copper-based networks to start off with – and in perhaps as many as 50% of situations these networks would first need to be upgraded before they could deliver the promised high-speed, quality services.
Given the physical HFC infrastructure that has been rolled out over the last twenty years in Australia, the low penetration rate of cable broadband (8% of households) is a clear indication that HFC operators have never been keen to maximise the use of these networks.
Some commentators are raving about a number of HFC upgrades we have seen from Telstra and iiNet – and these are indeed excellent – but it is important to realise that they affect less than 1% of Australian households. The Opposition will have a struggle to use this as a spearhead to speed up its version of the NBN across significant and larger parts of the country
Also important to realise is that over the last decade the number of actual HFC subscribers has remained static – so much for infrastructure-based competition. And the decisions by Telstra and Optus to not further pursue HFC were made well before anybody started talking about the NBN. If the industry is not keen on pursuing HFC it will be interesting to see what the Opposition will do to make it change its mind.
The key issue – regulation, not technology
Perhaps an even more serious problem than the technology issues will be the regulatory environment, which will need to be adjusted under a reversal of FttH policies. It is interesting to see how Germany is struggling with this as VDSL vectoring is incompatible with the German telecoms regulations. All of this will most likely also require new legislation in Australia and a renegotiation with Telstra and Optus. This can be done, of course, but based on Australia’s regulatory history such changes could easily take between three and five years.
Yet no matter how we look at it, FttN and HFC technologies are the modern-day equivalent of the steam train, and their days are numbered. Customers who would be affected by a reversal of the FttH decision under a possible change of government will most certainly want to know the plans for their services once the old infrastructure finally begins to run out of steam.
The best solution would be to keep the current legislation in place and treat these HFC and FttN options as selective interim solutions. It might be possible to facilitate this within the current framework, without requiring changes to the legislation – the interim regulatory regime could perhaps be used to cope with that.
But this would require the Opposition to make a commitment to keep FttH as its long-term solution, albeit stretched out over a 15- rather than a 10-year period. In this respect it is important to state that this will be a government responsibility since – because of failed government policies from the 1980s and 1990s – Australia never had in the past, and will never have in the future, a competitive infrastructure regime that will drive the upgrade from FttN to FttH.