The National Broadband Network: from debacle to disaster.
April 11th, 2009 · Greg Atkinson · 27 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 latter.
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 Australian’s have improved access to the Internet. But let’s not twist the argument like Lindsay Tanner did in one of his recent online waffles (See Lindsay Tanner’s blog here) 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.Search terms: negatives of the nbn, nbn shares, negative effects of nbn, australian nbn debacle, the nbn negative impacts, negative effects of upgrading the nbn