There’s an increasingly circular feel to the debate over the NBN with neither side wishing to deal seriously with facts when making their respective cases.
This was epitomised by yesterday’s media blitz over the Economist Intelligence Unit’s new index of government broadband policies which had some critical things to say about the Australian NBN—especially the dramatically higher call it makes on the public purse compared to other advanced economies. As befits an opportunistic “parachute” press release likely written by an American or Brit somewhere such as Hong Kong or London, the report headlined with a misleading comparison: “Australia’s broadband plan will cost the taxpayer 24 times as much as South Korea’s but deliver services at just one tenth the speed.”
For a start, it is inaccurate to directly compare Korea’s current BB investment plans to those of Australia’s. South Korea’s current national broadband plan is largely an upgrade of what is now predominantly fibre-to-the-basement to fibre-to-the-premises, enabling speeds of up to one gigabit: Australia’s is for a complete turn-key fibre-to-the-premises network to nearly all the population, supplemented by a million square km LTE network and two bleeding-edge satellites. Ditto: Australia’s network will not be “one-tenth” of the speed of Korea’s: both fibre networks will be fully capable of supporting gigabit speeds based on reasonable demand projections.
Not surprisingly a small online army of NBN supporters manned the comment barricades on newspaper websites to shoot down the EIU’s spin, but, as usual, they too were guilty of over-reach.
Australia is 76 times bigger than South Korea they cried, and the network only costs 24 times as much? A bargain it would seem! However, most of Australia is uninhabited—South Korea has no desert and negligible wilderness.
99.5% of the Australian population fits inside 25% of the landmass and most of those reside on around half of one percent of the landmass. Only communities of 1,000 or more or smaller settlements proximate to such centres will get the expensive fibre part of the network, the sheer bulk of the continent will be largely served by satellite: initially to be leased from a private operator. The populated areas of Australia have much more in common with densities found in other countries than it might seem looking at a blank map.
What really distinguishes the Australian NBN from other plans is its 100% reliance on government funding and debt, contrary to even the original intentions for half private equity upon its April 2009 announcement. The $40.8 billion funding requirement of Australia’s NBN is a much more serious claim on taxpayer resources than any comparable project in the world, especially when viewed per head of population and through the prism that perhaps a quarter to a third of the population or more will receive no direct benefit from usage of its specific enhanced capabilities relative to those of today’s PSTN.
Every man, woman and child is exposed to about $2200 of public investment in it, a far cry from the low hundreds of dollars per person pledged in nations with similarly ambitious national broadband plans such as Singapore and New Zealand. Yesterday the government claimed that the private sector had failed to deliver high-speed broadband and that their bids for NBN Mark 1 had all been dismissed as lacking value for money. This seems disingenuous. The private sector has delivered HFC and FTTC 100Mbps speeds within a footprint covering a quarter of Australia, wireless P2P services more: the NBN is not filling a complete vacuum. Plans to build FTTN were abandoned because of an regulatory impasse that was overcome in other nations such as the US and Germany, Australia continued to mandate some of the cheapest unbundling prices in the OECD thus removing any incentive for brownfields investments.
While it may be true that the Optus, Axia and Acacia NBN Mark 1 bids lacked value for money, there was little transparency on the criteria used to determine this. Also, the Telstra bid was rejected by an act of bureaucracy: its failure to make a tokenistic expression of support for SMEs.
As far as I am aware, NBN Mark 2 has never been tested against either the SME or “value for money” criteria used to reject NBN Mark 1 bids.
A serious national broadband network is not chump change and if the whole thing was to be written off as a social investment with some great future externality, well we could have a debate about the merits of that alone. But the NBN continues to be presented as a viable business with a pay-off, albeit on less-than-typical commercial terms.
MISSING THE POINT: And this is where the current terms of the debate often miss the point. To be a positive business with an eventual payday, the NBN has to do things that would not ordinarily be seen as desirable: outlaw cherry pickers, use billions of dollars of public money to compensate potential private rivals and co-opt them as stakeholders and even introduce something not seen on any extant last mile open access network in the world: a charge both for access to a loop and aggregated bitstreamed data sent through it. In this sense, the debate about the NBN should ideally be about whether it can genuinely achieve the affordability, pervasive usage and competition goals set for it by government. On serious contemplation, much of the fine print seems to counteract the good intentions.
But the government refuses to engage in the serious cost-benefit and usage analysis such a large project demands. This includes failure to attempt an actual policy process for how government can use the NBN and a quantification of ensuing social costs and benefits or even a serious attempt to quantify the problems it seeks to solve, instead relying on ad hoc industry marketing spiels and e-generational snobbery (Luddites vs. “getting it” and so on).
Opponents of the NBN tend to do so instinctively because there is little incentive for the government to engage them in an evidence-based debate beyond simple grabs about the limits of spectrum and the known unknowns argument regarding broadband demand—after all, those most likely to oppose the NBN on ideological or economic grounds are usually poorly qualified to mount an “insiders” technical critique of it. For those in the industry who wish to speak out, they are increasingly marginalised or ostracised as spoiling the gravy train. A putative retail service provider might observe that NBN Co is actively forecasting a reduction in current RSP EBITDA margins by up to half as part of its own business case and ARPU projections, but does that RSP really want to flag this to the stock market at this stage?
How can one criticise a future monopoly if one’s business relies on it as a future source of supply and the whole process is so politicised that one’s existence can be changed on the whim of a ministerial direction or even an put-down in the press?
So on proceeds the debate, in a largely fact-free void. Naysayers will continue to oppose and advocates will continue to espouse while in the background, the smart industry players will be weighing up two options: whether they leverage the gift of NBN capex (and compensation) and can bear the eventual costs of using its services to increase their firm’s strengths at the expense of others, or whether they say nothing, aim to maximize short term value and sentiment all the while pursuing an exit strategy. Look around the industry and see what the smart money, depending on circumstances, is doing. It is very illuminating.