It is hard to find anybody who argues the Australian National Broadband Network has been a success, after a decade of turmoil. On the other hand, broadband upgrades have presented a difficult business case in many large countries with relatively low density and serious competition. As easy as it might be to criticize apparent failure, the difficulty is not to be underestimated.
Since wholesale networks seem to have worked elsewhere, albeit in smaller countries, it is hard to argue that the wholesale model itself is the issue.
To be sure, high construction costs are a real issue in a country as large as Australia, with so many low-density areas. But many would say the unexpectedly high costs have other causes.
The Australian Communications Commission plans to revamp wholesale pricing. But ACCC believes the NBN--even if changes are made--will not be profitable until 2040. The new plan hopes to recoup accumulated investment losses by that point.
Some might argue the better course is to amidst failure and allow the equivalent of a bankruptcy. There seems no political appetite for doing so, despite the advantages. For more than 20 years, private connectivity firms that have amassed unworkable levels of debt have been allowed to fail.
There is much pain for lenders and shareholders when this happens, but successful restructurings that eliminate the debt problem often allow firms to create business models that have a chance of succeeding.
In other cases firms simply find they are unable to continue, and assets are sold. Many forget that the company once known as AT&T was itself acquired by SBC, which rebranded itself after the acquisition.
That demise was, in turn, fueled by high debt AT&T took on in an effort to rapidly create a national access strategy based largely on the use of cable TV physical plant.
The strategy failed, in part because the debt burden was too high; in part because the cost of upgrading the cable TV plant proved too daunting in the timeframe AT&T required.
AT&T’s big move into cable TV in the mid-1990s came at a time when the long distance provider was seeking a way to reenter the local access business with its own facilities. The thinking at that time was that a largely one-way cable TV plant could be upgraded to become full communications facilities, supporting home broadband and voice.
Given that development by virtually all cable TV companies in North America and Europe, the thinking was sound. But timing and huge capital investment costs were issues.
On June 24, 1998, AT&T acquired Tele-Communications Inc. for $48 billion, marking a reentry by AT&T into the local access business it had been barred from since 1984.
Beside TCI, at that point the largest U.S. cable company, AT&T also bought MediaOne, the cable asset holding of US West.
US West had in 1994 purchased Wometco and GTC cable operations and then Continental Cablevision, creating MediaOne Group.
US West also participated in a joint venture agreement with Time Warner Cable to form Time Warner Communications (later known as TW Telecom).
In 1993 MediaOne purchased a 26 percent stake in Time Warner's entertainment operations including Warner Bros. and HBO. Those assets also wound up at AT&T.
AT&T also purchased Teleport Communications Group, a $500-million-a-year local business phone company, for $13.3 billion; MetroNet, a Canadian phone system, for $7 billion; and the IBM Global Network, which carries data traffic, for $5 billion.
AT&T also signed a joint venture with Time Warner Cable ( to carry phone calls over the entertainment conglomerate's cable TV systems, and with British Telecom to serve multinationals overseas.
Nor was AT&T the only telco to consider the cable TV strategy. Since 1994, major telcos had been discussing--and making--acquisitions of cable TV assets. In 1992 TCI came close to selling itself to Bell Atlantic, a forerunner of Verizon. Cox Cable in 1994 discussed merging with Southwestern Bell, though the deal was not consummated.
US West made its first cable TV acquisitions in 1994 as well. In 1995 several major U.S. telcos made acquisitions of fixed wireless companies, hoping to leverage that platform to enter the video entertainment business. Bell Atlantic Corp. and NYNEX Corp. invested $100 million in CAI Wireless Systems.
Pacific Telesis paid $175 million for Cross Country Wireless Cable in Riverside, Calif.; and another $160 to $175 million for MMDS channels owned by Transworld Holdings and Videotron in California and other locations.
AT&T also made its first investment in DirecTV in 1996, owned and spun off Liberty Media.
But the debt burden was too high and AT&T reversed course in 2004 and sold most of those assets. AT&T Broadband (the former TCI and US West Broadband assets) were sold to Comcast, making that firm the biggest U.S. cable TV company.
By 2005 AT&T itself was acquired by SBC Communications, which promptly rebranded itself AT&T.
The point is that broadband upgrade strategies that might have seemed reasonable at the time often turned out to be unworkable in the time frame required, with the hoped-for costs. Excessive debt almost always was among the chief problems.
As it turned out, there often was no quick, affordable alternative for telcos looking to create broadband networks that were ubiquitous, capital efficient and timely.
That “get there fast” mentality remains, as the cost and time to completely revamp the fixed network plant remains an issue. That is why 5G fixed wireless now looms so large. Some believe 5G and future untethered networks will provide further complications to NBN profitability.
No matter how one looks at the business case, fixed network broadband remains expensive, time consuming, with a difficult business case. It never is surprising that firms look for shortcuts.
The whole argument made by cable operators, in fact, has been that hybrid fiber coax provides a faster, cheaper way of getting to gigabit broadband on a mass scale, compared to fiber to the home.
Multi-gigabit speeds are coming, so a tough business case will not be getting much easier.
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