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The National Broadband Network: from debacle to disaster

April 11th, 2009 · Greg Atkinson · 29 Comments

Like many Australians I have been frustrated for many years over the slow progress that was made in getting affordable high speed internet connections widely available across Australia.  However in order to get a world class communications network deployed we need the private sector to be in the driving seat and for the government to be involved as little as possible.  Yet thanks to government mismanagement, Australia is now about to spend a fortune of taxpayers money to roll-out a national broadband network.

Unlike “IP Filter” Conroy, I do have a telecommunications background and having worked on a number major telecommunications projects both in Australia and Japan let me state quite clearly, that the network the Rudd Government proposes to build will quite simply be a commercial flop.

I do not need a crystal ball or Criswell-like skills to tell you that Rudd’s national broadband network (NBN) will run over schedule and over budget and at the end of the day, taxpayers in effect will be subsidising the roll-out of a network that should be driven by the private sector. As I stressed some weeks ago in The national broadband debacle the private sector is quite capable at building world class telecommunications networks if governments just get out of the way!

But rather than rant on about the complete madness of the Government setting up an enterprise to build and run a telecommunications network, (to be staffed by comrades I suspect) let’s look at some of the reasons why I oppose the Government’s national broadband network plan.

The Government has no business plan.

What is truly scary about the proposed enterprise that the Government will set up to build and manage the NBN is that they have no business plan. But do not take my word for it; here is an exchange between Tony Jones and Senator Conroy on ABCTV’s Lateline:

TONY JONES: But do you have a business case where you get a return on the – if it’s only half that much, $20-something billion, the Government puts up?

STEPHEN CONROY: We have just created the company today. We will be entering into discussions and negotiations with a range of interested parties. Telstra have indicated they want to have conversations. Optus, other telcos, have said they’d like to have a conversation. So we’re – our business case, our business structure and our business model will depend on those negotiations. To try and suggest that we have to be able to announce a price the day the company is founded is quite ludicrous. And we are at this stage where we are going to commence negotiations in the next few weeks and discussions with companies like Telstra, companies like Optus, and seek that private sector contributions. Because they make a substantive difference to the questions that you’re asking.

Oh my goodness.. did a Government Minister really say that? Here we have a person who will be in some key role in setting up an enterprise handling around AUD $43 billion and he does not think it you should have a business case before you start a company and even worse, before you commit taxpayers money. With people like this in charge do you think this NBN can be anything else but a complete mess?

Just think again for a second what this Minister has said…he has stated quite clearly they do not have a business case yet.  In other words, all the Government thinks it knows is how much it might cost to build the network, but they have no idea how they will ever make a cent.  This is like me going to the bank, asking for a million dollars and then telling the bank manager I have no idea how I will pay them back as I was going to work that out later.

If you think sub-prime home lending was poor policy, then sub-prime Government business planning is even worse.  At least with sub-prime loans they had worked out some type of repayment schedule!

Senator Conroy (who by the way should be back shuffling papers in his old union job) has just highlighted why governments should not run enterprises, and this is because they have NO business sense.  What these clowns will do when they run into trouble is pump in more of our money, and if you think government bailouts of failed companies is crazy then this is crazy multiplied by ten.

The NBN is basically a plan where the Government will spend a fortune of taxpayers money and then need to bail itself out using our money when they find their back of the envelope calculations are wrong.

In simple terms the NBN proposal by the Government has not even passed the feasibility stage and yet the Prime Minister, in order to fund one of his grand election promises, is going to use taxpayers money to try and buy himself out of trouble. This is simply scandalous.

If you want to see what other brilliant insights were set forth from the mouth of Conroy you can read them all here: Stephen Conroy Joins Lateline (7th April 2009)

A high speed internet network is a productivity driver, but it is not the only one.

I have heard a few Government Ministers and supporters of the NBN talk about the link between a high speed internet network and productivity based they say on OECD research.  This is very misleading because what OECD research shows is that a modern communications network is just one of many productivity drivers, it is not “the” key driver or so important that is requires intervention by governments on a massive scale.

A modern communications network does not equal the proposed nation broadband network.  A modern communications network has many components covering such things as a high speed data backbone, a telephony network and mobile cellular network: it is not simply just an Internet broadband network.

According to a speech by the OECD Secretary General “Lifting productivity: lessons from the OECD” there are some other key drivers of productivity growth that also require attention such as:

The degree of competition in product markets. Here the OECD Secretary-General states:

“Our analysis has shown that strict product market regulation undermines productivity growth.

Now how exactly is a Government enterprise going to help competition? Instead of open competition in terms of broadband we are gong to have some massive government enterprise running the show.

Open markets for trade and investment. Here is another quote from the address by OCED Secretary general in New Zealand last year that I find particularly interesting:

Open markets for trade and investment also facilitate the diffusion of technology and favour productivity growth. Labour market regulation, in particular the stringency of employment protection legislation (EPL), matters for innovation and productivity too. Excessive job protection makes it costly for firms to restructure and also reduces the incentives for the employee to exert effort and to move to higher productivity jobs.”

I would guess Rudd and Co. might not what to chat too much above these above areas since they seem to be doing their best to do the opposite of what the OECD suggests.

In any case, for anyone to stress that the NBN is a key productivity driver means they are simply being misleading and are taking what OECD research indicates completely out of context.  In fact I would argue that the money being spent by the Government in improving one part of the national communications infrastructure via the NBN will be negated by the other measures they have taken such as unwinding Work Choices.

The NBN will be somewhat dated by the time it is completed.

The network that the government will build will offer speeds up to 100 Mbps and be completed in 8 years time.  By that time Japan will be offering speeds like this via mobile & wireless networks and who knows what speed will be available to Japanese homes via fibre in even just a few years into the future. (I hear 1 Gbps is on the cards)

I am not saying that 100 Mbps is a bad thing, in fact it is more than enough for the average home user.  I have such a connection here in Japan now and it is running a home network of 4 PC’s, an IP phone line, an IP fax line and is also the connection we use to our PayTV/Video on Demand (VOD) service.  Yes the NBN will be a step forward, but it will be an expensive one and by the time it is finished Australia will still be lagging behind many other OECD nations in terms of broadband speeds.

We do not need a “super” high speed broadband everywhere.

At the moment one of the biggest problems with broadband in many urban areas in Australia is not so much speed but price and download limits.  For example I used a Telstra cable broadband connection (20 Mbps) a few years ago and it worked just fine however the main issues I had were with the high monthly fee and the fact that there were limits on downloads.  I would suggest that if these issues were addressed this type of connection would be more than sufficient for the vast majority of home users.

I am not saying this is good enough everywhere, but as market forces demand, Telstra and other companies operating in a free and open competitive environment (as the OECD suggests is good for productivity) would be able to crank up the speed and offer a premium services going well past 100 Mbps if that made business sense.  The simple truth is that a high speed broadband network sounds fantastic, but many homes and users simply do not need it…so why build such a network nationally?

I can also think of many other areas of national infrastructure that need more focus and would be a better value for taxpayers.  For example how much productivity do you think is lost in Sydney every day as people sit in their cars (and trucks) stuck in traffic or move around in an inefficient and poorly managed public transport system? Or how about spending some money to upgrade major highways? Not only is this a productivity driver but it will also save lives. Building and maintaining national highways is something the government should be involved in, building a network to allow people to download videos is not.

Let me be quite clear and stress that as a person from a technology background that I would of course like to see Australians have improved access to the Internet.  But let’s not twist the argument like Lindsay Tanner did in one of his recent online waffles and compare the NBN to the introduction of electricity.

What we are talking about is the method by which Australian’s will be able to access a higher speed Internet backbone network in the future and having the government build this network is quite simply the wrong approach.  We are not talking about introducing a basic utility where one did not exist before. (You really need to move into the 21st century Lindsay)

What we are witnessing is Kevin Rudd taking measures to fund one of his own election promises because he simply made a promise without thinking in too much detail how he would ever deliver it.  But we have to face facts sometimes in Australia; we do not have a true high speed rail network linking the eastern seaboard for example not because it would not be a major productivity driver, but simply because it is not commercially viable and this is much the same as the national broadband network.

Just because Kevin and his mates say it is viable and is needed does not make it so.  The sad reality is that you and I will be paying for another one of Kevin’s ego trips for many, many years to come.


29 responses so far ↓

  • 1 8020 Financial // Apr 11, 2009 at 6:15 pm

    Couldn’t agree more Greg.
    Yet more pork from Saint Kev.
    Which will be paid for by Other People’s Money.
    I shudder to think what this country will look like after five years of him and his comrades at the wheel.

  • 2 Greg Atkinson // Apr 12, 2009 at 11:16 am

    What is interesting is the whole tender process. The government prepares the RFP/RFQ; a variety of companies respond and then the government decides it does not like any of the responses. Having been involved in plenty of such tenders when I was working in telecoms this tells me that the problem was not with the telco’s, but rather there was a problem with what the government (RFP/RFQ) asked for. In any case I would suggest that the government (even with a few million spent on consultants) would have basically no idea how to evaluate in any meaningful way the responses they received.

    So now to cover the fact that Conroy has bungled yet another assignment we are going to spend billions on a network that will be motivated more by politics than necessity. This is the worst possible outcome for Australia.

    I wonder what Rudd’s next move will be? Perhaps he will create a government owned supermarket if he does not see food prices fall?

  • 3 Andrew // Apr 12, 2009 at 8:45 pm

    Apart from a few exceptions the media have given this farce a free pass. Reject an $8 B proposal that they drew up in the first place and replace it with a $43 B proposal whose price is based on an educated guess. Based on typical government project price estimates the actual cost will probably be $100 billion.

  • 4 Greg Atkinson // Apr 13, 2009 at 3:43 pm

    Andrew most of the discussion in the media is off the point and fails to focus on the fact we are creating a huge liability for taxpayers, also a lot of the so called “experts” are in “fantasy land” with their comments about how broadband will change our lives. It reminds me of some of the rubbish people use to say about third generation mobile networks years ago. (we were suppose to be checking the contents of a fridge via mobile by now!!)

    Yes we need an improved IP/Internet services in Australia, but the NBN proposal we have now is not the way to achieve the best outcome for Australia.

  • 5 Greg Atkinson // Apr 15, 2009 at 1:45 pm

    Here is a good article on the NBN in the media. I think the author makes some valid points.

    Rudd flouts rules with market play

  • 6 Greg Atkinson // Aug 17, 2009 at 11:44 am

    Well it seems that the NBN is already turning out to be a costly and wasteful venture. A report in The Australian today says that “The first national broadband network rollout, in Tasmania, will cost an estimated $20,000 for each premises that takes up the superfast internet connection — and business leaders say its impact may be minimal”

    In addition the take up rate is very low..so far around 17% but what does the Tasmanian Premier think about that? According to the report in The Australia he reckons “it doesn’t matter”

    Isn’t it great to hand billions over to people who think it isn’t important for a public enterprise to make money!?!

  • 7 Pete // Sep 15, 2009 at 10:07 pm

    ! Did you hear they are breaking up Telstra?

    It’s only a few decades overdue, but I think this is excellent news.

    The company I hate the most is finally getting broken up as it should have been when it was privatised.

    Shame it is one of only a few good things to come from the Rudd Government since the election.

  • 8 Greg Atkinson // Sep 16, 2009 at 7:54 am

    Pete I am not 100% sure that having the Government come in and forcefully break up a publicly listed company is healthy in a free market. Yes Telstra probably is a little too dominant but so are companies like Woolworths and Qantas.

    If the Government makes Telstra split away their cable TV business for example will they make Optus do the same? Or is Optus special because it did not upset the Government?

    The move by Conroy looks to me like a way for the Government to try and ram through their NBN venture and effectively remove a major competitor.

    Personally the move worries me. The Government on one hand is breaking up a private sector enterprise and this will probably result in losses for Telstra shareholders, while at the same time setting up a Government monopoly to deploy and operate a National Broadband Network. Sounds like nationalisation by stealth.

    I am also curious about the timing of the sale of Telstra shares by the Future Fund a couple of weeks ago. Did the managers of the fund know something?

  • 9 Pete // Sep 16, 2009 at 11:29 am

    Greg:

    Pete I am not 100% sure that having the Government come in and forcefully break up a publicly listed company is healthy in a free market.

    But the difference is that Telstra started as a Government service, and thus controlled all the infrastructure, but was then later made private.

    It is because of this starting advantage that Telstra has been able to maintain a strangle hold on things. I really despise having to use a Telstra landline in order to have ADSL at home. I don’t even use the landline phone (and yes I know there are other alternatives, but they are not better in my case).

    If Telstra has to pay line-rental like every other telco, this levels up the playing field a lot.

    However, you make a good point about the NBN. Personally I feel the Telstra breakup is well-overdue (they should have done it at the time it was privatised), and if it is done to maximise some benefit to the NBN scheme then that is a negative i’d be willing to wear just to never have to deal with Telstra again.

    I really despise Telstra and think they are a disgusting company, with pathetic customer service. Maybe now they will have to play the same game as everyone else.

    I too did wonder about the insider trading component of the Future Fund. Shares only dropped 5% though, it’s not like they dropped 50% (I know that is still a significant amount of money though).

  • 10 Greg Atkinson // Sep 16, 2009 at 12:05 pm

    Pete a lot of the infrastructure Telstra inherited from the old days is well and truly past it’s use by date and much has already been replaced. Companies pay to access the Telstra’s network because Telstra has to invest in these assets. The other telco’s always rattle on about interconnection costs but what do they expect..free access? It would be like asking Qantas to give free seats on flights to a travel company.

    Yes Telstra can be frustrating to deal with, but so can be some of it’s competitors. Are we suggesting that the Government is free to break up enterprises with poor customer service outcomes? If so, then the public hospital system should be on the chopping block.

    I am not big fan of Telstra and I do not hold shares in the company any more, but I think there is more at stake here than meets the eye. (hence my new post today)

  • 11 Valda Cross // Sep 25, 2009 at 12:59 pm

    Can’t agree that breaking up Telstra is a good thing. It is a publicly owned company sold to taxpayers that is going to have part of it nationalised (taken over by our government by force or regulation). For government to set such a precedent is wrong, wrong. It may be sugar coated by statements such as “national broadband”/”better competition between telcos”/”lower prices for consumers”/and so forth, but it smells of we know what’s best for you, and if we can’t do what we want by fair means then we will do it by foul.

    No ASX or private company should be nationalised, even banks which Chifley threatened to nationalise years ago. Governments can’t run profitable railways or anything else for that matter, so, why should broadband be any different? I find the idea of blackmailing any company to do what a government wants APPALLING, and am amazed that there are not more people saying this, or journo’s making my point either. What is happening to this country?

    If this current government really believes in its “fair go” policy, it should buy the assets back and repay shareholders, or just leave things as they are with Telstra, or start another company (either a private or public NBN) to build their broadband infrastructure and actually create genuine telco competition.

    We don’t need Nationalization of any industry in this country. Such a precedent makes one wonder what could be next……

  • 12 Pete // Sep 25, 2009 at 5:05 pm

    Valda:
    I see your point but I think Telstra is a special case. It used to be a Government service that was then sold. Mistakes were made at that time giving Telstra a monopoly over telephone infrastructure.

    I think this should have been done a long time ago. The Gov at the time (remember who that was…) would have been happy to rake in ~50% of profits – some of those profits a result of the monopoly Telstra had. The losers being the Australian public (although some others here disagree with that point).

    I really don’t think Telstra is a precedent that can be used in other areas. Although if there is any potential for similar action it is probably with Woolworths or Wesfarmers – and I doubt that.

    Question: Are you a Telstra shareholder? I am not (at least not directly).

  • 13 Senator13 // Sep 25, 2009 at 10:09 pm

    Valda, I agree with a lot of what you said. I don’t like the precedent and don’t think that the Government should be stepping in to split up private companies – just as I am not a fan of bail outs either.

    I also agree that if the Government wants to be in the telecommunications business they should either build their own or buy back TLS. By the time this NBN debacle is finished the final cost will be getting pretty damn close to what it could pay to buy back TLS.

    At the end of the day the NBN is going to be an out of date, over budget and slow network. Why be building a fixed line network when everyone is moving towards wireless.

    The Government is very shady about all this. No business plan, no cost benefit analysis, no mention of who is going to take a stake in this venture, no take up projections, no estimates of what they are going to charge. Do they have a PDS – no.

    I currently do not have shares in TLS. Had T3, made 50% and ran. Sol was the main reason – he had dodgy written all over him from day one. TLS have been in a long term share price decline for a very long time now. Their earnings have not been that crash hot either when you look the results over 5 years. I would expect a hell of a lot more from something that is as dominant in the market as TLS.

    I just don’t like they way the Government has gone about all of this. Yes, the way it was sold originally was not the best and the way it operates currently is not the best but you can’t just have governments come in and blackmail them all because they are trying to build a dodgy network. I just don’t think it is good.

    But hay, let’s hope I am wrong. In a few years Conroy with all his years in project management and telecommunications may have produced a well managed broadband network serving the bush and I could be sitting at a 100mbps connection for $30 per month. Ah, it is nice to dream…

  • 14 Valda Cross // Sep 26, 2009 at 10:32 am

    Pete

    Thanks for your reply. No,I’m not a shareholder of Telstra. My gripe is solely about the tactics being played out on this issue.

    What has been done should not be undone by threat, blackmail or (whatever excuse) by either a Coalition or a Labor government. I’m not into the politics of who did what, just what is currently being forced upon one of our industries. After all Qantas was sold, and their monopoly then broken down by allowing other airlines into the Australian market place.

    With Telstra, a far better way would be to invite other overseas telcos into the government NBN to break Telstra’s monopoly (similar to what was done with Qantas), and not just ignore the little people who now own an ASX company together with our Future Fund. Maybe I am a little naive, but Conroy’s attitude should be deplored by all.

    And, how much did it cost taxpayers with Conroy’s cancellation of the contract put in place by the previous government with (I think) Opel. There was a solution to the broadband/wireless problem and money for the bush put aside. I’ve heard nothing about this. Maybe you have?

    Senator 13
    Thanks. Seems you and I agree. And, you are right “bail outs” should not happen either. Sol, of course, was a disaster. Anyway, let’s hope your dream comes true because nothing we say here will make the slightest difference to what happens unless the media becomes critical too. So much for democracy!

  • 15 Greg Atkinson // Sep 26, 2009 at 10:52 am

    Valda, I agree with you and Senator13. The break-up of Telstra is simply a way to cover the blundering Conroy as in wrote in: The Telstra break-up smoke screen and the NBN

    If it is truly about competition then let’s see the Government clearly articulate the rules by which they feel they can break up companies. (and in the process scare foreign investment out of the country)

    Let’s also reflect on the attack on the private hospital/health care system as well which is in fact designed to push people into the government system….now there is a true monopoly! In fact unlike Telstra our public hospital system can kill you!

  • 16 Greg Atkinson // Feb 4, 2010 at 9:03 am

    Well the NBN story just get worse. According to an article published on the ABC’s website Senator Conroy has managed to waste $17 million of taxpayers money on a tender process that achieved nothing. See: Broadband tender cost taxpayers $17m

    So not only will be the NBN be late, but already the costs are blowing out.

    This is a good example of why Governments should stay away projects best left to the private sector! If Telstra had undertaken this tender process it would have cost taxpayers nothing!

  • 17 Ralph // Feb 4, 2010 at 9:35 am

    Yes, it’s quite tragic. Couldn’t agree more with your points, Greg. It would be even funnier if taxpayers had not just been dudded $17m.

  • 18 Greg Atkinson // Feb 8, 2010 at 6:07 pm

    And it gets worse. Now they NBN is hiring ex ALP MP’s for positions that were not even advertised and paying them $450K. Truly amazing! Imagine the outcry from Rudd & Co is anyone else did this. See: http://www.theaustralian.com.au/politics/i-recommended-mike-kaiser-for-nbn-job-says-stephen-conroy/story-e6frgczf-1225827983520

  • 19 Senator13 // Feb 13, 2010 at 11:58 pm

    Conroy at it again:

    http://www.news.com.au/national/minister-in-secret-snow-dinner-with-mogul/story-e6frfkw9-1225830083475

  • 20 Greg Atkinson // Feb 14, 2010 at 8:28 am

    So let’s review what Conroy the blunderer has done so far in terms of the NBN as the head of the Ministry of Silly Walks.

    1. Cancels the Howard governments regional broadband plan that would have cost taxpayers just $958 million and given regional areas a high speed internet connection by now. Conroy will end up spending about the same amount on consultants, studies and start up costs for the NBN.

    2. Comes up with fellow business genius Kevin “the bucks stops with me” Rudd (but don’t ask me about the hospitals) a plan to spend $40 billion dollars of taxpayers to build a broadband network before checking to see if it will commercially viable.

    3. Hands over free spectrum to Kerry Stokes just after they spent a few days skiing together. Does that sounds like open and transparent government to anyone?

    4. Recommends a “mate” (ALP member) for a $450k executive role in NBN Co. The position is not advertised and the mate has never worked in telecoms, but the mate of course gets the job.

    So after more than two years in the job Conroy (and his staff & consultants) have not delivered a single broadband connection or been able to come up with a business plan that justifies the case for deploying the NBN.

    What a national disgrace.

  • 21 Senator13 // Mar 17, 2010 at 11:08 am

    This is pretty dodgy:

    http://www.theaustralian.com.au/australian-it/conroy-set-for-clash-over-nbn/story-e6frgakx-1225841689131

    Another tax payer funded review not being made public. This is a very scary trend. First the Tax Review and now the NBN.

  • 22 Greg Atkinson // Aug 14, 2010 at 9:06 am

    Senator I see the NBN is still a hot issue but as yet there is still no detailed business case available. The NBN business model just assumes that public will embrace it’s version of high speed internet and no serious competitors will emerge. In other words the Government is aiming to create a monopoly. I wonder where the ACCC is when you need them?

  • 23 Senator13 // Nov 22, 2010 at 10:37 am

    I thought this was an interesting article:

    http://www.smh.com.au/business/nbn-plan-has-the-signs-of-a-historic-stuffup-20101121-182ld.html

    Gillard and Co blindly push ahead even as Ireland is getting bailed out.

  • 24 Vince. L // Nov 23, 2010 at 9:19 am

    If Conroy isn’t prepared to show his business plan then obviously something is very wrong. Can you imagine a private sector company trying to raise billions but then refusing to tell anyone how they plan to make the business viable! Crazy days, and it’s taxpayers money the government is gambling with.

  • 25 Senator13 // Nov 24, 2010 at 5:01 pm

    “Case Summary” – http://images.smh.com.au/file/2010/11/24/2061700/NBN%20Co%20%20Business%20Case%20Summary.pdf

    Any views?

  • 26 Greg Atkinson // Nov 25, 2010 at 2:56 pm

    It certainly is a summary. I reckon at best there are 5 pages of real content in there. The rest if waffle or blank spaces. Not sure what the growth of broadband in Asia has to do with a domestic broadband network rollout, I guess they needed to pad the document out a bit.

    All in all a pretty useless document. Looks more like someones assignment homework for a business degree.

  • 27 Greg Atkinson // Aug 6, 2012 at 8:07 am

    Here is an article from The Australian in February 2012 that discusses the mix of technologies that will be used by people to get on-line & why the NBN will be outdated by the time it’s deployed. (as I wrote back in 2009) – NBN may soon be as obsolete as canals in age of rail

  • 28 Greg Atkinson // Jun 7, 2013 at 8:13 am

    From the AFR today:

    “Construction of the wireless section of the national broadband network is running so far behind schedule that less than half the planned homes and offices will be connected by its June 30 target.

    NBN Co has blamed tall trees blocking signals and a lack of accurate addresses for the slow rollout. But experts said inadequate planning and poor management were also to blame for the delays, which now mean that two of the NBN’s three delivery systems – wireless, fibre and satellite – will miss their original targets.

    No new premises were given wireless access between December 2012 and April of this year.”

    Source: More delays for NBN as wireless rollout falters

  • 29 Greg Atkinson // Aug 5, 2014 at 9:58 am

    Now 5 years after I wrote the post about the NBN project being a mess an audit finally confirms my fears were warranted.

    Labor’s NBN planning ‘chaotic and inadequate’(AFR) http://www.afr.com/p/technology/labor_nbn_planning_chaotic_and_inadequate_0G3KQqGxnJIinu1NIbAtUJ

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