Foxtel vs The NBN: What's That All About?

You may have heard politicians this week throw around two political footballs: the first is the NBN, a ball that will always be in the air, and the second is Foxtel. Labor is accusing the Coalition of siding with Foxtel's owners to build a slower network that won't threaten the Foxtel business model. The Coalition says nothing of the sort has gone on. What's this pseudo-war for Australia's televisions all about?

Emma Dawson from The Conversation elaborates...

No-one would describe News Corp Australia’s view on the National Broadband Network (NBN) as rosy. But if it’s true the company has engaged in repeated attacks on the government because it “hates” its network, as Fairfax columnist Paul Sheehan claimed at the weekend, the big question seems fairly obvious. Why?

Shadow Communications Minister Malcolm Turnbull deserves much credit for bringing the Coalition to the policy position of supporting a national broadband network, albeit one that eschews the fibre-to-the-premises (FTTP) model being executed by Labor in favour of a fibre-to-the-node (FTTN) approach, with a reliance on existing copper infrastructure to complete the delivery of services to the home.

Turnbull rejected the crux of Sheehan’s argument: that Labor’s NBN is a greater existential threat to News Corp’s pay TV company Foxtel than the Coalition’s own policy.

On his website, he wrote a rebuttal to Sheehan’s Fairfax piece, claiming: “[t]he Coalition’s plan for the NBN will bring the day of reckoning [for the Foxtel business model] much sooner”.

Turnbull stated that Foxtel was already adapting well to the “internet threat” and repeated his claim that, by improving broadband speeds more quickly than Labor’s policy, his own approach to the NBN is hardly likely to be favoured by Foxtel or its parent company, News Corp.

All of this has led to a situation in which:

Labor is decrying Murdoch’s criticism of its NBN as being the product of vested interests the Coalition is apparently courting, rather strangely, Murdoch’s disapproval of its NBN policy as some sort of badge of legitimacy.

So, spin aside, let’s try to get some facts on the table.

What’s going on?

Telstra owns the 50% of Foxtel that News Corp does not. Foxtel enjoys a virtually unchallenged position in the provision of pay TV services largely due to Telstra’s control of the means of distribution on its hybrid fibre-coaxial (HFC) network (which combines optical fibre and coaxial cable) in the highly profitable metropolitan markets.

As the wholesale operator of what is currently the only efficient means of delivering pay TV in urban markets — an HFC network (Optus operates another) — Telstra controls the price and conditions by which any new entrant might provide a similar service to Foxtel.

This position was bolstered by Foxtel’s acquisition last year of Austar, the company which delivered pay TV to regional and rural Australia via satellite.

While it’s certainly true Foxtel suffers regulatory restrictions in Australia — primarily through anti-siphoning legislation that ensures premium sport content is offered first to free-to-air television — and that those restrictions have prevented it achieving the same levels of market penetration as it has in other countries, the company remains the only viable option for Australian viewers wishing to access pay TV.

An open, wholesale, fibre-to-the-premises NBN — the Labor version — would undermine the Foxtel business model by allowing new traditional-type pay TV providers and Internet Protocol Television (IPTV) to compete on an even playing field in the pay TV marketplace.

It is true, as Turnbull states, the Coalition’s plan will deliver faster broadband speeds nationwide — enough to support IPTV services as they currently operate – sooner than Labor’s NBN.

But this ignores the reality of broadband use in the home: there’s no allowance for the use of other applications at the same time as the operation of IPTV.

Watching and learning

Despite the over-excited claims of “tech-heads”, there’s little evidence viewers are completely abandoning “linear” (traditional, scheduled programming) TV in favour of downloading content on-demand. Rather, on-demand viewing is an additional activity to traditional TV consumption.

The viewing of news and sport, in particular, will remain an activity conducted “in real time” over traditional linear TV delivery.

If a household were, in the future, to use IPTV as its primary television provider, one must assume it would be operating constantly for several hours a day, particularly during peak viewing hours between 6pm and 11pm. This is also the time that home users of broadband are likely to be using the internet for other purposes.

Quite apart from the issue of how one family member might use bandwidth-hungry applications, such as downloading documents, running online videos, or gaming, at the same time as another family member is watching television via IPTV, the assumptions in this argument ignore the habits of TV viewers, which increasingly involve engagement with other online activity while watching television.

In a 2012 Google study, 52 per cent of respondents indicated they were engaged with a mobile device while watching television. Presumably, in the vast majority of cases, this “multi-screen activity” relies on the home’s Wi-Fi connection over broadband.

In whose interests?

It does appear the Coalition’s FTTN model, with its more limited capacity, is more favourable to the business interests of Foxtel, particularly when one considers the interaction between the NBN and the operation of Australia’s HFC network.

Coalition policy in relation to the HFC network is unclear, stating:

Subject to an equitable re-negotiation of these provisions satisfactory to NBN Co and the government, our goal would be to remove any contractual impediments to the use of existing HFC networks for broadband and voice. A key consideration in such negotiations will be ensuring open access to networks and scope for enhanced competition in the relevant areas.

This position essentially means the ultimate structure of the HFC network will depend very much upon what Telstra agrees to in a new negotiation. That is, the Coalition appears to have committed to giving Telstra another stab at negotiating an outcome that could allow it to maintain wholesale control of the HFC network.

Turnbull has been clear that, in the interests of avoiding Labor’s “government monopoly” model and promoting competition in the provision of wholesale broadband services in those high-density urban areas in which the market can support it, Telstra would be allowed to offer wholesale broadband bundled with Foxtel services over its HFC network.

This determination to support market competition in the provision of wholesale broadband in metropolitan markets is the crux of the ideological difference between Labor and the Coalition as expressed in their approaches to broadband.

Turnbull’s appeal to the ideology of market competition sounds entirely reasonable and is in the best tradition of Liberal party economics. It is, of course, completely antithetical to the market design of Labor’s NBN, which has always been about restructuring the telecommunications market in Australia and providing equal services to regional and rural Australia by achieving structural separation of Telstra.

Turnbull has acknowledged that, for his desired outcome of wholesale competition in urban markets to work, the HFC network would have to be operated on a genuinely wholesale basis – that is, structural separation of the HFC network would have to be maintained under the Coalition plan.

The rub

The problem — and here we come to the element that has largely been ignored since Sheehan’s piece kicked off the current debate on the weekend — is that the Coalition’s policy guarantees no such thing.

In a discussion with Business Spectator’s Alan Kohler on August 1, Turnbull acknowledged that:

[o]ne possibility is that [the HFC network] is operated by Telstra as a wholesale asset, so then you would have a qualification to the structural separation objective … To put this another way, Turnbull is admitting the possibility that the Coalition’s renegotiation with Telstra could end up allowing Telstra to be both the wholesale provider of broadband over HFC in urban areas where the HFC network currently exists and a retail provider of broadband and pay TV services over that same network.

Such a move would essentially reinstate Telstra as a vertically integrated wholesale provider of infrastructure (to compete with the NBN) and retail service provider in those markets. By providing an alternative wholesale service in only the most profitable markets, this move would almost certainly reduce the financial returns to NBN Co, raising costs that would have to be passed on to retail customers across the national network, or – more likely – result in higher prices outside the metropolitan markets.

At the same time, it will allow Telstra to, in effect, “offer” a lower wholesale access price to its own asset – Foxtel – in those profitable markets than either it, or presumably NBN Co, would make available to other retail customers.

While Turnbull admitted he was personally “uncomfortable with that” possibility, the fact remains: the Coalition policy is that, ultimately, the operation of the HFC network will be subject to a new negotiation with Telstra that could leave Telstra to operate the HFC network as a wholesale asset to its own and Foxtel’s advantage.

This outcome would be much more favourable to Telstra’s Foxtel partner, News Corp, than the current deal between Telstra and the Labor Government to decommission both the Telstra and Optus HFC networks and migrate users onto the NBN.

Neither Murdoch’s tweet on Monday, questioning Labor’s plan to finance the NBN, nor Foxtel’s statement this week insisting it’s in favour of fast broadband for Australia, have acknowledged these issues, choosing instead to focus on the benefit of “fast broadband networks” to Foxtel’s recent forays into mobile and on demand services.

It’s a nice attempt at misdirection, and one that leaves consumers and voters in the dark as to the real implications of the competing broadband policies for Murdoch’s business interests in Australia.

News Corp has repeatedly defended its right, as a privately-owned media company, to use its newspapers to campaign for particular policies or political parties. It also has a strong record of calling for transparency and accountability in political debate. But in its arguments against the NBN, it would seem News Corp Australia’s campaign is less than wholly transparent in representing its own interests.


What do you think of the dispute? Is there a legitimate concern or is this just all hot air? Tell us in the comments.

Image via Shutterstock

This article was originally published at The Conversation. Read the original article.

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Comments

    If I got FTTP, I'd cancel my Foxtel subscription and get an online AFL subscription and start using netflix.

    If I got FTTN, I'd keep my Foxtel subscription.

    FTTP can support that type of bandwidth use in a household of 4 internet users, FTTN cannot, not unless I'm extremely lucky and live next door to the cabinet.

    Last edited 09/08/13 10:31 am

      I personally don't want a fridge at the end of my driveway, I think next door is the sweet spot.

      If they put a fridge at the top of my house, i'd keep breaking it until they move it or put it underground.... but that's just me.

        Not sure which 'fridge' you are talking about but if you mean the Street cabinet for the NBN, it's about 70cm high and there's one per few hundred metres.

        If you are referring to the household terminator box, it's about a quarter of the size of your average household power box.

          Where did you get those measurements from?

          Here's a picture of the industry standard cabinet used in FTTN roleouts, they're about 2m by 2m.

          http://delimiter.com.au/wp-content/uploads/2013/04/fttn-cabinet.jpg

          Last edited 09/08/13 12:02 pm

            If the FTTN goes through I'll be starting a nationwide cabinet smashing syndicate.

            Link didn't work for me.

            http://delimiter.com.au/2013/04/12/fttn-cabinets-hideous-say-designers/

            I got the measurements from the one at the end of my street. There may be a bit of confusion as to which cabinet @feroshious was talking about, but I was referring to the street FDH cabinet (link below).

            http://www.nbnco.com.au/blog/corning-new-manufacturing-facility-for-nbn-cabinets.html

              Now i'm confused. Are we talking about the FTTH or FTTN?

                I've got no idea. I got lost a while back.

                  That image you posted was of a FTTH box, basically a (unpowered) splitter, so the fiber can branch off to homes from the main pipe. About one per few kilometres.

                  The FTTH cabinets are big enough to fit inside, have to be powered, and you need one every few hundred metres.

          The Clipsal Starserve panel, and other similar models, that can house the NTD are roughly 700mm by 400mm

          Who the F**K cares about the decor of their garage??

          Opting out of having FTTP because you don't like the look of the 'box' is one of the sissiest things I've ever heard.

          Last edited 12/04/15 6:10 pm

    Why the hell do these companies wana keep shit in the dark ages!. I'm sick of getting movies month and months after everyone else. they would eliminate piracy if this actually went ahead. they are a victim of their own stupidity.

      Totally agree.

        no truer words shall be spoken on this comments section nunya.

    So Foxtel are worried they might actually get some competition and have to treat their customers with respect..? If they provided decent packages with content people will actually want to watch, brought the price down to somewhere people will consider fair and put in less ads, they might have a leg to stand on! As it is right now people are sick of being forced to pay through the nose for packages they can't Tailor to their taste.

    Last edited 09/08/13 10:58 am

      That won't happen. Foxtel even treat people who are not customers like shit. They also deny any responsibility when they take money with out authorisation from peoples bank accounts who are not customers, even when the bank has proof it was Foxtel themselves. They're scum.

        Did this happen to you?

          It sure did. It was a brand new bank account as well, when my first pay went into it, Foxtel withdrew money from it the following day, i've never had a Foxtel service and never plan to. Department of Fair Trading was of no help, all they did was contact Foxtel, spell my name wrong and then tell me Foxtel knows nothing of this. I find it strange that the bank can tell me it went into Foxtels actual account but Foxtel can't tell us why it was taken or how. In the end the bank ended up refunding me, but that's as far as anything for solved.

        Foxtel rep was straight out rude to my missus when she wouldn't buy foxtel off him. She just said no thanks we're not interested and don't want to spend the money on it, and he got in her face and raised his voice while ranting about how cheap it was and dismissing the idea that anyone may not be able to afford it or may not want it.

    Sadly, Rugby Union is singlehandedly my only reason to have Foxtel.

      I used to say the same about the NBA, but then I discovered the League Pass, and maybe view foxtel programming once a week, if that... The rest of the time it's DVD/BluRay or Netflix.

    What a well written document. If only there was a outlet that this could be published that an average Australian may pick up an a read instead of on an it Web Page. Alas Rupert and Gina and co says no. Where is our media superhero to give us an alternative view?

    Great article, thank you.

    Wow, Emma Dawson looks a lot like Luke Hopewell in her user pic :P

    I find it ludicrous that a news agency could call the propagation of propaganda its "right" - that something may not be illegal does not make it ethical.

    To publish an opinion that misdirects a reasonable person about technical matters to ensure an increase in your own profitability is abhorrent. Especially over something as vital as a national fibre optic network.

      Ha.
      That is something that come up recently in my Business Management class about Legal and Ethical requirements in Australia,
      One key thing I questioned was the ethical portion of the class was just something that was apart of the course, or if it was a legal requirement in Australian businesses.
      I asked this with the idea of "Public" News and how they present THEIR views on subject matter.

      I was told flat out that there are ethical requirements that need to be upheld or your business license can be revoked.

      So my question is then... Who in the Australian Government is being greased that is preventing News Corp. from being revoked?
      There is no way in hell that their SOP is ethical in any way shape or form.

    I still don't understand why Foxtel got dragged into this...

    Actually, that's inaccurate... I still don't understand why either party, or the taxpayers for that matter, gives a damn what happens to Foxtel.

      I'm sure you're answer can be found somewhere here :
      http://periodicdisclosures.aec.gov.au/Party.aspx

    I just completed a Fraud and Corruption certificate for my job in the APS - the published opinions of Murdoch fit the definition of corrupt behaviour perfectly. the fact that these opinions could bolster a parties position in government is clear and cut fraudulent activity

    Two important points beyond the bandwidth considerations:

    1) Under Labor's NBN, multicast capability is baked into the POIs, which will make it much easier for pay TV competitors to enter the marketplace.

    2) Under Labor's NBN, the NTUs each feature four UNI-D ports which can independently provide services. So it will be quite easy to, for example, purchase phone and internet from one provider and pay TV from another (or indeed any permutation of services from up to four different providers). Under the Coalition's plan things will work just like they do currently - you can only purchase products from a single provider (unless you pay for a second phone line, and who knows if that will continue to be possible).

    as an average person, on an average wage, i'd be happy to pay even double the current cost in taxes if it ment equal access to FTTH NBN services for all Australians, regardless of their home ownership status (i'm thinking students, low income, renters share houses & the like; prob the people who will need the high speed access more than perhaps the average joe home owner).

    It's essential that all australians get this access. .it'll be a game changer for our country in the long term & i don't see why we should support Murdoch; the billionaire.

    Foxtel. 100's of channels. Nothing good to watch!

    A Foxtel rep came knocking on my door not long ago and started with their usual speel. I asked him, "Can I pay for 5 channels of my choice?" Of course he didn't answer the question, and started blabbing about the value bundle and then I slammed the door. Best feeling ever slamming doors in peoples faces.

    I had Foxtel when it first arrived away back in late 90s for a couple of years. Have not touched it since. Nowdays why bother with Foxtel if you are in the Metro areas getting very fast ADSL2+ with plenty of download. I get to stream from the ABC on Iview for free with my ISP. It's great. Hoyts supply cheap videos from the machine. Am not surprised to hear that there is nothing good on it anyway. TV is such a misused medium still. The Libs certainly wouldn't want to give anyone a good deal except themselves Do think that Foxtel will suffer with the NBN arrival for sure.
    Funny how Malcolm Turnbull has invested in the new French fibre to the home, yet is very meanspirited about same in our country. Something fishy going on if you ask me!!! Dont trust the bastards. Rudd is more real about giving the little man the same opportunities as the big ones.
    Dont forget to vote for him everyone. Trust me it's the right way to go...

    Foxtel's main draw is live sport(incidentally, news corp owns 100% of Foxsports) . Something that for the most part, is not as susceptible to piracy as other media.
    With the evolution of distribution platforms the NBN becomes a massive threat to Foxtel as competitors can provide specialized content(ie no basic 35 channels you don't use) to customers for a much cheaper price. Expect to see a lot more 'online season pass' kind of deals for major sports that will steal Foxtel's primary income source, subscriptions.

    I don't understand why people are shocked by what News Ltd are doing.
    Yes, it's grossly unethical conduct, but it's par for the course with Murdoch's empire.
    His organisation is almost single-handedly responsible for every major breach in journalistic ethics in recent history. They have an unparalleled reputation for bias, and a proven desire to influence elections by using their market share to bludgeon public opinion to their will.

    Anybody with any critical thinking ability is aware of how News Corp operates, and should stop reading their publications. Not even as a boycott, simply because one can feel brain cells depleting while reading one of their publications.

    If only the general public could do the same, then we might actually have an informed public. This isn't going to happen, because they know that light reading about *insert regional football code* and reality TV shows appeals to the lowest common denominator.

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