NBN Co's announcement last week that it would cease selling services on its hybrid fibre-coaxial (HFC) network has revealed one of the biggest errors in judgment the company has made under a Turnbull-Abbott led government.
The government-owned NBN Co blamed "interference" — which was leading to dropouts and unacceptable broadband service on a minority of users' services — for the decision, which will result in an average delay of between six to nine months for millions of households looking to sign up.
But NBN Co first discovered that interference might become a problem down the track in mid-2016, Fairfax Media has learned, when the first HFC asset transfers occurred between Telstra and NBN Co.
At the time, NBN management made the risky judgment call that it would not be a huge an issue. While it suspected that interference would cause some headaches in the rollout, NBN management didn't fully realise the extent to which Telstra's HFC network was in need of repair, or in the words of NBN Co engineers and management, "optimisation".
Regardless, NBN ploughed through activating premises and dealing with issues later, until they became too large to ignore. NBN had originally envisioned doing network repairs once the network was in full operation and had been released for sale to service providers. To this point, the optimisation work had been part of its post-activation servicing rather than part of the construction schedule.
Of course this isn't what ended up happening, and now optimisation work — or repair — is having to be conducted in many areas before HFC services are released for sale.
While NBN data showed that only 1 per cent of end users were reporting faults via their service provider, alarm bells began to ring after an internal NBN Co commissioned consumer satisfaction survey found up to 15 per cent of users were scoring their HFC service close to 0 out of 10, meaning that they were having the absolute worst time on HFC but that their provider wasn't necessarily reporting it as a fault to NBN Co.
Furthermore, some affected users were high-profile, inner city journalists who began making their voice heard on social media. Given this and the reputational damage it was starting to have on the NBN, and with the HFC fault rate increasing by the day as more users were activated, NBN Co decided late last month to finally act. It advised the Communications Minister the week prior to its announcement that it would imminently announce the delay.
A letter was sent to the minister on Wednesday November 22, one day before a senate estimates hearing where Labor was set to quiz management on the NBN and the issues it had faced to date. The matter didn't come up during the hearing. NBN then announced the delay the following Monday.
What is causing the so-called 'interference'
The interference on the network is caused by three separate issues. The first is that the spectrum NBN acquired from Telstra (15-40MHz spectrum) is not, according to critics, designed to be used for super-fast broadband. This leads to the second issue, which is that the spectrum is far more prone to interference. While some Telstra HFC customers were having a great broadband experience prior to being switched over to NBN HFC, this became worse after the changeover, because of the new NBN spectrum they were placed on.
This interference occurs in the joints — or the "taps" as they are called by engineers — between the HFC cable in the street pit and the cable that goes to your house. Because of their age, some of these are deteriorating, causing so-called "leaks". And because HFC networks are a shared service, these leaks then spill over into your neighbours' connections as well, causing their internet to potentially drop out and speeds to deteriorate as well.
The third interference issue is the wall-plate in peoples' homes being damaged. The most common way this can occur is by household objects, most often vacuum cleaners, running into them and damaging them. This then causes the same issue as the first, leading to dropouts and slow speeds, sometimes for your entire neighbourhood given there are normally 400-550 people connected to a HFC node (they can handle up to 650).
Although the same HFC spectrum is used by other global operators, including cable TV players, they are able to use the spectrum successfully because they keep their networks tight and therefore keep interference to a minimum, the plan NBN is now moving to.
The main issue, it seems, was that NBN was activating HFC users faster than it could deliver the required network repairs to combat interference.
NBN Co recently examined an area with 100 users and found that in two thirds of cases, it could reduce the noise to a satisfactory level by just fixing the taps. For the other one third, or 30 cases, it is likely that it may need to enter the homes to fix wall-plates or replace the HFC cable between the street pit and house. Alternatively, it may choose to "isolate" users' connections by splitting them off a cable run to reduce noise on their neighbours' connections.
According to the financial modelling used by one of NBN's corporate plans, the impact such a delay would have on NBN peak funding is between $423 million to $790 million.
Meanwhile, Telstra cut its expected earnings for fiscal 2018 by $600 million as a direct result of the announcement. Despite this, Telstra chief executive officer Andrew Penn "applauded" the NBN's decision to delay, claiming that, while it affected Telstra financially, the implications would not be "long-term" and were in the interests of providing a better service for customers.
A critic would argue, however, that NBN Co is potentially now spending a lot of money repairing a network that wasn't fit for purpose in the first place.
Remember how NBN Co dumped the $800 million Optus HFC network due to it not being "fit for purpose"? While the reasons were different (it was becoming increasingly expensive to connect the network to the NBN points of interconnect, often in Telstra exchanges, while also being "oversubscribed" by Optus, meaning it would lead to congestion issues), the delay to HFC and inevitable cost blowout gives Labor further firepower to question whether re-using an ageing network in the first place was such a smart idea.
As independent telecommunications analyst Paul Budde said earlier last week in an email entitled The next NBN debacle, "the problem with the NBN multi technology mix (MtM) policy is that they are using old technologies. And if you are going to upgrade this you will come across lots of nasty surprises, as already has become clear in relation to the FTTN part of the project".
Budde continued: "Some parts of the cable infrastructure is even more than 50 years old. In relation to the HFC network, this dates back to the 1990s, so also old infrastructure."