NBN is good for Gillard, not taxpayers
Posted : Tuesday, September 07, 2010
Michael Stutchbury's article on the issue was also
published in The Australian
Labor's $43 billion National Broadband Network may be the most
politically rewarding pork barrel of all if it gets Julia Gillard
over the line with the country independents.
like most politically driven investment, it is unlikely to provide
the best return for taxpayers and even telco users. Broadband
Minister Stephen Conroy doesn't really contest this point in
continuing to dodge the simple question of why Labor refuses to put
the infrastructure project through a cost-benefit analysis.
Instead, Conroy points to the study he commissioned from
McKinsey and KPMG that found the NBN could be built with the $43bn
price tag and be "affordable for all Australians".
"We've got on with the job as we promised at the last election
of building the national broadband network," he argued on the Sky
News program Australian Agenda.
Except that the McKinsey "implementation study" was required to
take the NBN as a given, not consider any less expensive
alternatives and not conduct a cost-benefit study as urged by the
Productivity Commission and the Organisation for Economic
Co-operation and Development. And except that the advertised bill
has blown out from $4.7bn at the last election to $43bn.
Shortly after the election, country independent Tony Windsor
suggested the $43bn figure was "fictitious" and he wanted to see
the "real trail" of numbers. But after being briefed, Windsor
backed Labor's NBN on the weekend, describing the Coalition's $6bn
alternative as "retrograde".
The country independents are naturally attracted to Conroy's NBN
promise that "every person and business in Australia, no matter
where they are located, will have access to affordable, fast
broadband at their fingertips". The university town of Armidale in
Windsor's New England electorate is an early release site for the
NBN rollout. "It's too good an opportunity for country Australia to
pass up," Windsor says.
Near-universal high-speed broadband is understandably an
intoxicating prospect. For government, guarantees that everyone
will win, or no one will lose, no doubt scores highly with focus
groups and media sound bites.
The formula initally proved effective for Gillard in defending
Labor's $16bn primary school construction stimulus. Putting
building projects on school grounds would avoid the lengthy
approval processes required for other sites.
A universal stimulus also delivered a political benefit: because
school grounds dotted every electorate, every electorate should be
grateful. Coalition backbenchers could be lampooned in
soon-to-be-reformed parliamentary question time for opposing the
stimulus spending but busting to be identified with new school
halls in their own seat. It turned pear-shaped when the costs of
fast-tracking a nationwide template building program in more than
7900 schools became apparent.
The McKinsey report describes the NBN implementation task of
burying or stringing up 250,000km of optic fibre along most roads
in the country and connecting 5000 premises each workday over eight
years as enormous.
And, to make the numbers come close to adding up, competiton has
to be suppressed in the name of micro-economic reform.
"The structural separation of Telstra is one of the most
significant micro-economic reforms in this country in 20 years,"
Conroy said at the weekend. "It will drive productivity
Vertically separating Telstra's retail and network arms would
have been a big micro-economic deal 20 years ago. But technology is
eroding the monopoly power of Telstra's copper network as people
flock to more competitively provided mobile services.
And Labor's NBN would more likely reduce, not increase,
competition by mandating a government-owned wholesale monopoly that
will pay Telstra $11bn for access to the telco's ducts and pipes,
to shift over its wholesale customers and to shut down its copper
While structurally separating Telstra in this way may increase
retail competition, it is designed to suppress competition in
broadband infrastructure. The deal further requires Telstra to stop
supplying high-speed broadband over its coaxial pay-TV (or HFC)
cable that now passes 2.5 million homes.
This effective destruction of capital is required to support the
government monopoly mandate of one technology (fibre) over the
existing copper or HFC networks.
While fibre is clearly the fastest technology now, Telstra's own
declining fortunes show that consumers highly value the mobility
provided by competitive wireless broadband. It's akin to consumers
being prepared to pay many times more for water out of a bottle
than out of the natural monopoly of the fixed water pipes in their
Most of the IT world backs spending $43bn of other people's
money on a super-duper fibre network. But a collection of telco
suppliers, including AAPT's Paul Broad, two week ago issued an
alternative broadband plan, based on next generation 4G mobile
technology, that rejected the NBN model of "infrastructure
monopolies with retail competition".
The Alliance for Affordable Broadband argues that a mix of
technologies and market-based provision could include 4G coverage
for 98 per cent of Australians at up to 100 megabits per second and
even higher-speed fibre broadband for schools and hospitals. It
would cost perhaps $3bn.
And Committee for the Economic Development of Australia research
head Michael Porter argues that any benefits from Conroy's vertical
separation of Telstra will be swamped by his suppression of
horizontal broadband competition between fibre, the copper network
Tellingly, the Productivity Commission backs Porter by arguing
that "strong competition" between the rival broadband
infrastructure "is likely to provide the best outcomes for the
It says the viability of any one type of broadband
infrastructure should not depend on "inappropriate constraints on
other modes of delivery".
Porter further suggests that Labor's NBN deal could eventually
run into the Australian Competition and Consumer Commission as an
illegal restraint on competition. "I would expect the ACCC to
reject the decommissioning of HFC cable for broadband," he
If so, Labor's NBN plan could involve both a
multi-billion-dollar payment to Telstra to breach competition laws
and a pork barrel to the country independents that helped win their
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