The NBN is money well spent

Yesterday, Telstra shareholders voted in support of the deal offered by the federal government and NBN Co. At a glance this deal appears to offer Telstra $11billion compensation for access to its infrastructure facilities, and for the decommissioning of the copper network.

For me, the technicalities of this deal are almost immaterial in terms of public welfare.  Welfare is improved by having the infrastructure in the ground and using it.  The corporate and market structure for achieving this is mostly a way to shuffle the costs and benefits between parties.  I personally see no problem with government pursuing the NBN, even though I suspect there are more cost-effective ways to provide the intended level of service.

So what do I see as the key issues?

First, there is the question around why government investing in a new telecommunications monopoly when the past three decades have seen almost all other government monopolies privatised.

I don’t have the answer to this question, but I do hold the opinion that this is an appropriate intervention by government justified by basic economic principles. There are a number of reasons I support government involvement, including:

  • Government control brings forward fibre network investment compared to private provision, which may have taken another decade to eventuate.  With network investment there is always gaming by private enterprise – every company wants someone else to go first because once another company has invested in the infrastructure, there is a chance to declare the asset for open access through the Trade Practices Act 1974 (Part IIIA).
  • High-speed internet is a means to improve equality through access to information and services.  This is why the NBN has objectives for national coverage.Private investment would not have the social equality element that seems so important when access to a service is considered by many as a public service.  The flip-side involves the various disagreements about the ‘fairness’ of the rollout timing between the States, and accusations that the roll-out is being targeted are politically sensitive electorates.
  • Cost savings may be possible for other government services through provision online enabled by faster interenet access
  • Ubiquitous access to high-speed internet will facilitate productivity gains in other sectors.  Of course most private investment also has external productivity benefits, so this alone should not be a justification for government owned production
  • Economies of scale for construction of the network may be possible at a degree not available to smaller private enterprises

These all sound like very noble reasons for government involvement.  In fact, I would argue that much of the privatisation movement was more a product of ideology than rigorous analysis of social benefits (how’s private banking working out?).  One critic at the recent Telstra shareholder meeting noted this very point:

I don’t think a company that’s been sold should be able to be dictated to and told what to do,” one shareholder said. The Government made a mistake by selling it in the first place and now they don’t know what to do because Telstra owns all the infrastructure. They should have thought of that before they sold it.

A secondary issue is the question over the cost at which these benefits being provided.

We know that $40billion is ballpark figure being discussed as the total cost of the network.  One could reasonably interpret this as a bare minimum estimate. It is often forgotten that the NBN will likely provide a commercial rate of return to the government, so the cost is actually being borne by households that prefer slower internet at a lower cost, rather than the taxpayer generally, or those who prefer the faster, but more expensive, internet service.

I would argue that this revenue structure is not optimal.  Given that many of the arguments in favour of a government provided NBN are related to external benefits and equity concerns, why should this cost be borne by direct users?  In fact the greater the uptake of broadband, the greater the external costs. One could easily argue that the requirement for the NBN Co to make a positive return on all capital undermines the social objectives of the investment.

My personal view is that if, say, 25% of the total social benefits of the NBN are external to users – comprising reduced costs of government services provision, equality concerns, and the bringing forward flow-on productivity benefits – then this portion of costs should not be funded directly fron users, and prices for NBN users should therefore be derived from a lower cost base.

If we look at current NBN prices from my provider, Internode, we can see that the price for comparable speeds and quotas as existing ADSL2+ is very similar, if not higher (ADSL2+ prices in the bottom table).  If NBN wholesale prices were based on a reduced cost base, then it is likely that the service provided would be both cheaper and superior in terms of quality.

In the end, the debate boils down how best to provide a fibre-optic network.  The NBN plan as it stands is probably a gold-plated option, but if we look through the history of government infrastructure provision, new private owners have rarely complained about over-engineered features of their facilities.  Also, we need to be assured that unlike the household budget, there is no direct impact on the funds allocated to other government services.  So while we debate about shuffling benefits and costs around between interested parties, the big picture is that government facilitating the provision of this fibre network is probably in the public interest.

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Comments

  1. ” Also, we need to be assured that unlike the household budget, there is no direct impact on the funds allocated to other government services. ”

    Is this MMT ?

  2. Fully agree, a gov triggered and owned initiative is the only way to ensure a nationwide roll-out of future-proof high-speed infrastructure with a level playing field for all competing retail providers (including bigpond).

    Telstra had it’s chance to do just that, but failed miserably resulting in the current mess were’re in.

    The NBN basically corrects the strategic error of the Howard Gov of privatising Telstra WITHOUT keeping the utility infrastructure in Gov hands.

    Maybe we’ll catch up with South-Korea 🙂 and let’s hope the Coalition doesn’t scrap this project.

    • Who needs a nationwide rollout ?

      Over 90% on the population live in 10% of the area, so we are all subsidising people in rural areas.

      • That’s a much larger philosophical argument. We’re already subsidising rural areas when it comes to telecomms, post, roads and many government services.

        • Yes, the current NBN design has wireless & satellite to 3%. The earlier proposal was for that to cover 7% of the population, but I think the difference wasn’t all that much to give 4% more coverage.

      • I would argue people in the bush wants a national roll.

        City folks are so selfish… “Why should the government spend MY tax dollars, when I have a good enough service”

        Then they try to justify their selfishness with dodgy magnanimity with comments like, “Tax dollars should instead be spent hospitals and schools”.

        • Tax dollars SHOULD instead be spent on hospitals and education.

          How selfish that they are instead spent on pet projects like broadband internet.

          It is utopian to continue to demand the desires of everyone will be meet by central planning.

          • That is better then letting the ramble decide.

            Most of the time they don’t know what they want.

            Not to mention their short attentions spans.

            Sometimes people need to be lead.

          • Telecommunications infrastructure is as important in the modern world as power and water.

            To argue otherwise represents either spectacular ignorance, or spectacular short-sightedness.

          • Education and health, two sectors that will leverage the advantages of a high speed broadband more than any other.

            People just don’t appreciate the possibilities and productivity that the NBN can provide.

      • Tassie TomMEMBER

        My folks live in Murray Bridge (15,000 people, 70km from Adelaide), and they pay Telstra about $80/month for a phone/ Internet/ wifi bundle, and the Internet is slow and slows down much more in the evenings.

        I live in Warners Bay – a suburb of Newcastle 15km from it’s CBD (population around 400,000 depending on where you draw the line.) We get internet and VOIP with Internode at 2mbps, and it works pretty well, but we can’t get Naked there, so we have to pay Telstra $21/month (just gone up to $25/month I think) for the connection fee and nothing else.

        I don’t think either place is particularly rural. Bring on the NBN!

      • Yeah, that’s right,

        You’re subsidising all those bludgers in the country who produce the food you eat and the energy that keeps all your pretty bright city lights on.

        Stick it to ’em!

  3. Wow, the first person I know outside of Canberra who thinks the NBN is money well spent.

    The $50bil price tag is very steep, and you’d have to be a blinkered fool to think that this government project will come in on time and on budget.

    We already have broadband and ever-increasing wireless speeds, so the marginal gain of this project has to be pretty small.

    • Who is ‘we’ ? Try getting an ADSL2+ connection in a new estate where Telstra is sometimes the ONLY provider because those estates are connected via a RIM (copper sub-station) – resulting in a lack of competition, and a limit of only 8 Mbps. You call that broadband ?

      With all respect, but assuming that a ADSL1 8 Mbps connection is ‘good enough’ for broadband obviously hasn’t studied the situation abroad to observe the numurous applications when 20 Mbps or more is ubiquitous.

      On top of that, there are many, many houses in normal residential areas where you can’t get broadband at all because Telstra’s substations ran out of capacity.

      I agree the AUD 50 billion is steep (New Zealand does fibre a lot cheaper), but arguing AU does not need fibre is like saying you don’t need electricity.

      Wireless is not a substitute for high-speed fixed connections.

      • Fallacy #1.. 8mbps is inadequate for any households.

        Fallacy #2.. there are numerous applications which need over 20mbps

        Fallacy #3 .. broadband is as essential as electricity and must be provided by the state.

        • #1: 8 Mbps may be adequate for some households NOW, but it certainly is inadequate for next-generation applications; how you ever seen those in e.g. Europe or South-Korea ?

          #2: 20 Mbps (actual speed) would be fine for most households for the next 5 years, problem is in the current tech setup that depends on Telstra’s copper, 20 Mbps CANNOT be realised to most households.

          #3: broadband indeed is as essential as electricity and needs an utility-like infrastructure which in turn for the moment works best if it’s owned by the Gov (and paid for by its subscribers), creating a level playing field for retailers and back-haul providers. Or do you suggest we sell-off the electricity transport network as well ?

          The NBN provides only local fibre network access, but it’s the individual private ISP’s that provide the internet access.

        • IP TV, IP phone, Web apps and content – multiplied by an average family of mum, dad and 2.5 kids. You’re thinking in yesterdays’ world.

    • Where are you getting the $50bn figure from? The budget is $42bn, but the way you’re stating it suggests we’re starting at $50bn and going from there. For that matter, 50% is not government IIRC.

      And for that matter, what price would you pay?

      With regards to “ever-increasing wireless speeds”, the problem with wireless is well documented: the spectrum is shared, so the more users you get on it the slower the data goes out to each user. Technology is advancing, but the physical laws cannot be broken. Finally, we need some way to get the data to the wireless base station in the first place.

      • rational investor

        The solution to what you are saying is also well documented:
        Adequate cell size planning…

        I am sick of hearing “you can’t argue with the laws of physics” by people who aren’t physicists or engineers and have no general understanding of the technology.

        Also you will find that almost all base stations are already provided backbone comms by optical fibre..

        • *hand up* I do have an understanding of the technology. The “adequate cell size planning” to deliver 100Mbps over LTE consistently would require an FTTN rollout anyway + significant investment from the mobile companies, with the final result being something in the neighbourhood of what is being spent anyway, not to mention the technology to do so is yet to be proven.

        • I’m a physicist and I got my BSc from Curtin Uni. And I’m telling you that 100mbps LTE is only achieved in a lab environment. Real world application +5 years away and still unproven.

          Currrent LTE is about 24mbps shared with everyone using that tower. FYI, Perth has a 4G wireless provider and it’s not that great and that what Turnbull is trying to sell us.

          Do you want a tower on every street corner to achieve decent throughput?

    • Broadband is Oz is a joke. It’s slow, unreliable and certainly useless for most somewhat more advanced services such as working from home, on demand streaming, running servers etc. That’s IF you can get it (plenty of blackspots in the Adelaide metropolitan area). It’s certainly not ready for promising future technologies such as smart electric grids (helpful in places with many micro-producers of solar energy such as Oz).

      I actually see the whole discussion (with opponents focusing on downloads and video) as itself being an argument for government initiative in this. Apparently it is not clear to many people what decent intranet infrastructure enables. It certainly goes beyond downloads and my opinion is that it even changes society itself.

      The NBN in my opinion is one of the few long-term government policies based on a sound vision to improve Australia’s economy, education, etc.

  4. Diogenes the CynicMEMBER

    Still a poor justification for the NBN.

    With the coming financial crisis and squeeze on government budgets this $50bn (probably $80 bn given typical blowout, corruption and mismanagement) could have been spent on doing many other things. Seen and Unseen. Sure in isolation a high speed internet based on fibre optics seems fine, given wireless we could probably do it cheaper with that technology but what is not seen is what we could have spent the money on.

    How many Molten salt solar power stations/wind/geotherml/wave energy etc could have been built with $50bn (or 80bn)? How many new rail lines could have been built? How many new water recycling stations could have been intalled? How many …insert your favourite infrastructure project here. That is what is unseen. Make no mistake we won’t have $50bn to waste in a couple of years time the money will be gone…

    • arescarti42MEMBER

      “How many Molten salt solar power stations/wind/geotherml/wave energy etc could have been built with $50bn (or 80bn) etc…”

      This is the thing that I wonder about. $40 billion or whatever it will cost is an awful lot of money when it comes to public infrastructure. No doubt ubiquitous high speed internet will be beneficial, but ultimately you can only do so much over the net.

      • I think the point is that once it is ubiquitous, or near enough to, the services that can be delivered over the net can increase. The short history of the internet shows us that we can’t easily predict the future applications from where we’re currently standing.

        • Yes and its up to entrepreneurship and the private sector, not the central planners, to find a new way to innovate.

          Government has an appalling track record at R&D and innovation.

          • “Government has an appalling track record at R&D and innovation.”

            What do you mean by that? Government funded research and private research have both produced lots of useful things over the past century.

            I agree that the private sector should innovate. I also agree that in most circumstances the incentive structure of private enterprise motivates innovation better.

            But there are circumstances where markets don’t deliver goods and services that it would be in the public interest to produce. I believe the NBN is one of these situation where the public interest is better served with government involvement.

          • Yeah, while we’re at it, let’s get those entrepreneurs to figure out how to profit from building rural roads and delivering mail to country folk.

            To me the argument is not government versus private sector for the NBN (or course all the retailers will be private anyway) – it’s whether we want to provide an equal service to people away from major metropolitan areas.

            Like I said earlier, we already do it in many other areas and given the failure of governments to provide infrastructure in the cities, I think it’s a great idea to do anything we can to help support decentralisation.

            Leave it completely to the free market and we’ll end up with multiple services covering the same (highly-dense and profitable) areas. Just like what already happened with Optus and Telstra cable.

          • Don’t forget it was a team at the CSRIO that developed WiFi technolgy and are on their way to winning a court case against Intel and others for patent rights.

            They might even settle out of court and that means royalties from all major computer manufacturers.

            Now the government did that!

            Think about it.

          • “Government has an appalling track record at R&D and innovation.”

            This is so wrong it’s not even funny.

            Unless by “innovation” you mean “profit”.

          • Govt. funding and R&D provided the technologies to get the Internet up and running.

            Private enterprise developed the technologies to expand its usefulness to the man on the street.

            In the same way, Govt. investment will get the NBN up and running and private enterprise/innovation will find new ways to use the bandwidth to provide ever greater benefit.

            Plus ça change…

    • +1

      If we must provide blisteringly fast broadband to everyone on the vague promise that it will make us all happier and better off, I don’t see why we can’t just have a subsidised augmentation of the existing network.

      I also don’t see how this isn’t Telstra screwing over the taxpayer.

  5. Those plans are too expensive!

    $50 Billion Bucks for a nation wide rollout! In 6 years time we’ll hear about the NBN’s $149.56 Billion dollar blow out, with all the inquiries, commissions, investigations, federal member back scratches and credit card gifts,…. Wish someone would corrupt me.

  6. So the point is?
    If the Government is providing the best use of money for this piece of infrastructure, the cost is not an issue to the punters and over engineering is a good thing, then why do we have anything done by anyone else other than Government? The arguments above could be put to anything so why do we tolerate private enterprise? It can be done better by Government so get rid of everyone else.
    I found the arguments above extremely tenuous at best. NBN may well be a great piece of infrastructure but the arguments put forward above do not make it so.

    • 1. If I am a private business and design and built a new computer, car, machine, toothpaste, you name it, I can not only protect my idea with patents, but no one can come along and be granted access to my products by appealing to the public interest (as one can do through the Trade Practices Act). If I build a railway, pipeline or port I can be declared for open access and be required to submit an Access Undertaking to the ACCC (or relevant State body). As a private owner this will mean I have a greatly limited say on the price and use of the asset.

      2. If the investment saves government money elsewhere. You wouldn’t have a problem if government built their own office buildings if it was cheaper than renting or buying from the market.

      3. Social policy. Governments fund health, education, roads, prisons etc on the basis of equal access to services. There is an element of thinking that equal access to high speed internet has a social benefit. You don’t have to agree with this philosophy.

      The history of government service provision is not as poor as you might imagine if you go back a bit further in time.

      http://ckmurray.blogspot.com/2010/08/competition-series-part-iii-history.html

      John Quiggin develops these points very well. As he explains –

      The case for public ownership is strongest where market failure problems are likely to be severe. In the case of infrastructure industries, several market failures are important. First, because of the equity premium and the associated problem of short-termism, private providers of infrastructure may not invest enough, or in a way that maximizes long-run benefits. Second, infrastructure facilities often generate positive externalities that are not reflected in the returns to the owners of those facilities. For example, good quality transport facilities will raise the value of land in the areas it serves. Finally, there are problems associated with the natural monopoly characteristics of many infrastructure services.

      Conversely, the case for private provision is strongest where the efficient scale of operations is small enough to allow a number of firms to compete and where markets function well, rewarding firms that innovate to anticipate and meet consumer demand, and eliminating those that produce inefficiently or provide poor service. In particular, in sectors of the economy dominated by small and medium enterprises, where large corporations cannot compete successfully, it is unlikely that government business enterprises will do much better. My home state of Queensland provides historical support for this claim, having experimented, unsuccessfully, with state-owned butcher shops, hotels and cattle stations early in the 20th century.

      There will always be a range of intermediate cases where no solution is obviously superior. Depending on historical contingencies or particular circumstances, different societies may choose between public provision (typically by a commercialized government business enterprise), private provision subject to regulation, or perhaps some intermediate between the two, such as a public-private partnership.

      http://crookedtimber.org/2010/01/15/bookblogging-nearly-done/

  7. The question is really do we want a high-quality broadband network with universal access, or not?

    If we do, then a public-build is probably the only option. The costs to the budget will be small (less than $25 bill) and far less than the very many direct and indirect social and economic benefits it will create.

    In my view, people should not be so hung up about whether assets are owned in the public sphere or the private sphere. what matters is whether the benefits exceed the costs over time and whether the (internal and external) returns are consistent with the risks and opportunity costs of the project.

    Considering the funding costs incurred by public entities are less than would be incurred by private entities, on the face of it, it will be cheaper (and the net benefits will be greater) if such large scale monopolistic ventures are publicly funded.

    There is another dimension to this as well. If the NBN delivers the productivity gains that usually accompany investments in communications, then the future economy will be more productive than would otherwise be the case, and therefore better able to support demands for future infrastructure investments and supply of social services.

    • Well the government did build the nascent “Telstra behemoth”.

      Are you saying they can’t build anything right?

      Are you saying hospitals should be privatised, because it reduces the burden on tax payers?

      How about privatising all schools?

      Cause it’s done wonders for America!

    • Ronin8317MEMBER

      Malcolm Turnbull’s solution was similar to ALP’s original position as well, until Telstra torpedoed it with their ‘we won’t build it, and we’ll sue for billions if anyone else builds it’ promise.

      For those living in Malcolm Turnbull’s electorate (Waverly/Bondi Junction, where I work), there are good broadband from either cable, ADSL2 or wireless. The place where I live in Wentworthville (Western Sydney) have no cable, no ADSL2 (can get 3mBps on ADSL on a good day), and the wireless broadband is only 256kps. The place my Mum is living at 5 minutes away is on a RIM that cannot get ADSL until Telstra upgrade the exchange. Telstra did not upgrade it for the past 7 years. As Telstra makes more money from selling a wireless broadband, they have no incentive to upgrade.

      You cannot rely on market mechanism in a monopoly. The history of the NBN is a sorry saga of monopolistic rent, with Telstra’s action an exhibit of classic monopoly abuse. John Howard’s government started a planning on a fibre rollout plan back in 2005. When the government offer to pay Telstra to build the network, Telstra will only do so on one condition : it must be exempted from competition, and every other ISP can no longer install equipments at the exchange. All existing customer with another ISP will have their service disabled during the upgrade, even for existing ADSL connections because ‘the exchange cannot fit the equipment from other ISPs’. Vertical integration and a natural monopoly will always result in anti-competitive behaviour. I don’t think you can get more anti-competitive than this.

      If Australia is to have a fibre network, NBN is the only way to achieve it.

  8. “Sool

    So the point is?”

    The point is that monopolies should not be privately-held. Our economy is already subject to oligopolistic concentration.

    Apart from this, the cost of capital attaching to state-ownership is less than applies to private-ownership. So the break-even-point, from a financial perspective, is lower.

    Think of electricity. If the States had not put their financial weight behind the construction of electricity infrastructure in the 1950’s, it is doubtful postwar industrialisation would have been achieved so readily.

    Think of international telecommunications in the early 20th century. If the State had not sponsored this, it would not have occurred.

      • My reading of the early days of undersea cables is that governments bailed out, subsidised and guaranteed many of them. There were also concerns about the effectiveness of the scheduling and security of telegrams which led governments, especially the British, to begin funding their cables. They subsidised the first cable to Australia and the first cables down the east and west coasts of Africa.

        • Yes, some cables were funded by governments. I did exaggerate a bit. But the initial impetus was private, across the profitable trans-Atlantic route. Governments generally only chipped in where private companies couldn’t make the sums add up. I would have no problem with the government doing the same with broadband here. Daft to rip up the Telstra and Optus hybrid coax, though. I think they should generally leave urban areas to the market.

  9. 40 Billion. Zillion, Gabillion.

    Whats it mean to me?

    (Take the following to be my guess at “Median” numbers without invoking inflation)

    Income tax: 14,000$/yr
    Working life: 45 years
    Life income tax: $630,000 per person.

    Number of Life income tax’s per NBN: 64,000

    Imagine walking in to a medium sized city like Rockhampton, Launceston or Bendigo and call a town meeting. You announce that everyone in this city will work their entire adult lives so their income tax can pay for some very important infrastructure.

    Good so far…..

    Then explain it duplicates a service that most city based people are entirely happy with. And that it will enable faster Porn, more pay TV and other neat stuff that no-one has even thought of yet.

    Does it sound like such a winner anymore ?

    • Government revenue in 2010-2011: $303bn.

      Government revenue over estimates 2010-2015: $1,836bn

      NBN expenditure over 2010-2015: $29bn (rough estimate 70% of $42bn)

      Percentage of government revenue spent: 1.6%

      Does it really seem that bad now?

      • “Does it really seem that bad now?”

        Nope.
        But the Federal Govt does not have a “Turkey Quota” thats capped at 1.6%. Insulation, BER, Water buy back, Stimulous #2, Asylum compassion and the Fresh air initiative. Thats a few medium sized towns wiped out by my count.

        K,
        Toyota’s quality auditor Armando Rossi, once told me “we can’t trust anyone who trusts others”. I didn’t like hearing it at the time but he was right. I want to see a cost benefit analysis or go the full German approach and give me an itemised receipt for my tax.

        “Trusting others” just isn’t part of my makeup anymore.

        • Insulation was only a “fiasco” because dodgy installers with limited training did shoddy work. That was a case of the government providing room for the private sector, which promptly and royally botched it. I’ll not deny there’s been waste in the BER and the Water buyback, but I think within the parameters of the stimulus and its goals a certain % of waste – my understanding is that it’s a low single digit % – is likely.

          I’m not suggesting that we go on these things by “trust”, but that the money put into this isn’t money being flushed down the drain. Recently the NBN Co. pulled some work from tender because all bidders had quoted well above the expected rate – when the tenders were reinstated, prices magically dropped to within parameters. Putting someone in charge with the balls to do that kind of stuff says to me we might have a chance to deliver something worthwhile.

    • The same can be said to welfare, education and health…

      Are you saying the government shouldn’t pay for those too?

      The funds of the NBN have already been allocated based on existing budgets, so it’s not like the government is spending an additional $36.1 billion.

      It’s all coming out of a pool of tax dollars, so your analogue doesn’t apply.

      Nice straw-man thought.

  10. For the NBN vs. ADSL plans, compare the 25/5 plans to the ADSL ones. ADSL2+ provides a theoretical maximum of 24 Mbps down, and is far closer to 12 Mbps. The NBN is calibrated to 100 Mbps, with a theoretical 1 Gbps (!) maximum, so it’s likely to actually deliver on the 25/5 promise.

    A like-for-like comparison saves you $5 a month. I know the plans above aren’t the cheapest around for ADSL, but the increased utility for a lower price should be a winner in any mathematically oriented person’s book.

  11. Completely agree. The private sector in telecommunications has failed Australia miserably. Internet connectivity infrastructure should never be delivered by the private sector.

    • You’re kidding. Telecoms and technology in general, are industries that have continued to deliver customers incredible improvements whilst cutting costs.

      Telecoms and technology are one of the few industries that haven’t been completely taken over by the state.

      Meanwhile, health and education continue to be mismanaged by our central planners at state and federal level, with falling standards and rising costs.

      Only 15 years ago, we weren’t using mobiles, we had dial up internet, slow computers and clunky TVs.

      Clearly technology has roared along in leaps and bounds since then.

      What gains have been made in any public sector behemoths since then ?

      • The US experience with private health care provision doesn’t help your example Jono. I’m happy to compare like with like, but that’s a stretch.

        The point is, State owned enterprises also adopt new technology as it develops as the history of publicly owned telcos post-WWII demonstrates. Even China has a government run telco using the latest technology – why wouldn’t a government entity adopt new technology?

        In an ideal world, perhaps the government wouldn’t need to be involved at all. But we don’t live in an ideal world, and we should judge policy against real world possible alternatives, not ideal alternatives.

        The alternative here is minimal private investment, deterioration of the copper network, and a competitive wireless access environment that gets congested and limits expansion web services.

        I agree that technical options for delivering a similar service at lower cost should be examined.

      • “Meanwhile, health and education continue to be mismanaged by our central planners at state and federal level, with falling standards and rising costs.”

        This is a misstatement of the facts – at least, in respect of the WA health system. (I cannot comment on other States.) It is certainly true that healthcare costs as a share of GDP are rising everywhere. But this is a reflection of increasing possibilities in diagnosis and treatment, and greatly increased lifespans. We could reduce costs, but only by choosing not to adopt the best technologies. In this sense, our health spending reflects the importance we attach to our health and the value of providing comfort to the old and infirm.

        By any standard, healthcare in Australia is a success and the structure – an innovative hybrid public/private funding and management model – works to deliver access for all. I speak from firsthand experience of emergency in-patient care as both a public and private patient. The system did not fail me: it worked far far better than I could ever have expected.

        Regarding education, there is no doubt it could be better – a lot better. I have some contact with one of the tertiary institutions in WA. It is quite obvious to me that the Commonwealth has not seen much point in spending real money on the education of young WA workers for many years.

        • ¡Hola, amigo! I too am WA based and would agree with your comments on the WA health system. Generally a success I would say.

          Equally the questioning of the efficacy of the education system is warranted. I have quite particular views on the inadequacies in education I will not go into here. A bright spot – some Schools at UWA achieve solid results and impressive grads. On a wider scale, far less inspiring.

  12. The money is ‘NOT’ being well spent unfortunately. I think we’re past debating whether we need a NBN, we do, but to spend this amount of money is not justified when there are so many better ways to do broadband, and also given we desperately need money for clean energy. Say 20 Billion to clean energy, and 30 Billion to the NBN …sound better?.

    Telstra as a monopoly never delivered what the nation needed, and nor will NBN IMO, and we’re replacing one monopoly with a new one with even greater legal protection. Check out the NBN salaries and you’d struggle to find a more over paid corporation. There will be little oversight of NBN so they’ll do what they like just as Telstra did. How many people would prefer mobile LTE 100Mbps wireless to a fixed fibre connection. In time Telstra/Optus(eventually) will win with it’s LTE IMO.

    The EU are going to install fast broadband to the whole of Europe for a similar amount of money. Conroy, and Quigley won’t want to hear this…
    http://www.zdnet.co.uk/news/networking/2011/10/17/billions-earmarked-for-eu-fast-broadband-push-40094197/

    • You’re comparing a technology proven to work now with one that’s currently not even in a working model, just a theory and some prototype products. Fiber can also be scaled to 1Gbps with just an exchange of the end-point connector – LTE is a long way to getting to that. See also my comments about shared Wireless bandwidth.

      As for the European thing – How big is Europe, exactly? The biggest part of the cost is actually doing the installation, which isn’t proportional to population but rather to land area covered.

      • Karan, LTE is operational on the Telstra network right now, and you can buy the broadband USB dongle at any Telstra shop, so no I’m not talking about a ‘just a theory’. I did say LTE is not a fibre equivalent.

        Also, Europe is a lot bigger than Australia in terms of homes to connect for a start.

        • But since Europe is much more densely populated, the cost per home is definitely a lot lower.

          There’s no way that wireless broadband can replace a wired connection for reliability and simplicity. If it could, why would you need a fibre optic backbone?

  13. Wow, so much noise about NBN’s $40 billion bill.
    .
    Yet I heard only the sound of crickets when the very same government borrowed and spent half that amount ($20 billion) to buy dud RMBS from private non-bank mortgage lenders.
    .
    Just goes to show how screwed up are our nation-building priorities.

  14. Correct me if I’m wrong, but doesn’t Telstra have a P/E of about 10%? So if they are worth $40billion, they would pay out around $4billion in dividends each year.

    And if that natural monopoly was still owned by government, they could pay for a $40billion NBN in ten years. In other worlds, if a rent seeking huge corporation had re-invested a bit more in Australia’s telecommunication infrastructure (or had never been created) we would have fibre to the home without all this hullabuloo.

    Yes it would have been fantastic if that money was invested in renewable energy technology instead,we can only hope the Clean Energy Finance group can muster a lot more investors.

  15. This forum seems to be full of rent seeking interests bidding on how to spend $20bil, $40bil, $50bil.

    Each idea being proposed is so wasteful and inefficient so the government is being asked to fork out huge sums, because no company or investor in their right mind would commit one cent to these projects with such a low chance of seeing a profit any time soon.

    Not one person in the comments advocates the government actually maintain or reduce its spending and allow the private sector to keep more of its wealth.

    You do realise our government is in debt and that each dollar spent is a dollar sucked out of other priorities ?

    • Government isn’t a zero-sum game. If there’s something with a higher priority to spend on, sure, spend the money there – but that doesn’t mean money can’t be spent elsewhere, and borrowed if sufficiently high priority. In this respect at least, governments should be treated like private citizens or corporations – who go into debt to finance worthwhile projects – and repay it later. I feel people take disproportionate offence to having to repay debt collectively even though they enjoy the outcomes (i.e. improved infrastructure) of it.

    • “You do realise our government is in debt and that each dollar spent is a dollar sucked out of other priorities ?”

      Yep, I’m happy to start sucking money out of our overseas military adventures and the AOFM purchases of RMBSes for a start. I’m sure given a few minutes I could easily come up with enough to cover the cost of the NBM.

    • I just don’t think of 40 bil as a big number any more. It’s less than the welfare provided to the politico-housing complex each year in the form of CGT, land tax, and neg gearing concessions.

  16. Not the most cogent of arguments and ignores the fact that NBN is a layer 2 network and to make it layer 7 ( QoS and apps) it will require another 50 billon dollars to roll out. The NBN wholesale price and the cross subsidy means it will be more expensive for metro users of Australia to use where the major ecnomic advantages can be realised apart from remote montoring of mining or other activites from Melbourne or any other city.

    The productivity feature is a non starter as no study shows, and the government has no idea what it will mean in terms of productivity. In fact the department of broaband etc does not know what productivity is based on their latest documents on the matter.

    There are also no applications or solutions being developed currently that require NBN. The current phase develpomnet requires ADSL2 and that is not even the minium for those apps which will come onto the market in the next 5 years.

    With mobile growing and Telstra’s continued position in that market assured, NBN may be like Japan and Sth Korea’s broadband network: over 90% homes passed but 32% of homes use it.

    • +1

      Which is why I believe that LTE will be chosen more when people see the performance. When you have LTE on your mobile phone/laptop/iPad etc. the benefits will become apparent. It’s also early days for the 3GPP spec so I expect better performance before long. It’s not that it will ever be a replacement for someone who wants fixed fibre (and can pay for 1GBps), but it will provide the fast mobility option that fibre can’t.

      • Ronin8317MEMBER

        Read up on the Shannon–Hartley theorem. Once enough people get onto the network, the performance degrades due to power limitations. LTE is generally good for up to 200 users per cell. Australia have a population of 22 million and 7.8 million households. It will be easy to do the maths to see how many mobile phone cells we need…

        • I didn’t want to go into communications theory, but since you have I’m very familiar with Shannon’s law and network planning, and I have worked on LTE implementation. All I’m saying is that we can do it cheaper, and a fixed fibre NBN is not the complete solution, nor is the way it’s being done the best or cheapest way.

          • So why didn’t your firm put up it’s hands and bid in 2008?

            Big talk like most of the tenders after the fact.

            Coulda, woulda, shoulda…

    • Ronin8317MEMBER

      What is this nonsense with ‘layer 2′ and layer 7’? You realize that each layer in OSI is built on top of the one below? QoS is not ‘layer 7’, and NBN is going to offer QoS over Ethernet, so you can run VoIP and other products on it.

      Where is the figure on South Korea from? their broadband penetration rate is 95%+. Their network was built by the government, and they have the fastest and cheapest broadband in the world.

  17. This debate reminds me of Japan in 1999. The place where I worked didn’t have a single computer. Then again, nor did the local branch of the bank – everything was done using pocket calculators. We got a lot of telephone inquiries from overseas but only had two English speakers, including me, so I put together a proposal to build a website but the dinosaurs making the decisions didn’t even have email addresses.
    Fast forward to 2009 and the Japanese government has invested heavily in one of best broadband networks in the world. In the last place I lived before I moved back to Australia I settled for a 200 mbps service because I didn’t want to wait six weeks for the 1 Gbps service. For people who think 20 mbps is fast, let me try to explain what 200 mbps feels like. Basically, you don’t have to wait for /anything/. Pretty much any modern website loads instantly, no matter how much Flash or Java script it contains.
    “But I only have to wait a few seconds now… I can live with that” I hear you say. Well, I can’t. I’m an information worker and I download an average of about one web page a minute, for eight hours a day (most of the time I’m just looking for a name, or a technical term). Six seconds delay each time and that’s a 10% drag on my productivity (48 minutes a day!). I work via the cloud, and although I had no problems with cloud-based tools in Japan, here I feel constantly frustrated.
    I work in a semi-rural part of Australia, where good jobs are hard to find, but telecommuting allows me to take my job with me when I move. I translate technical documents for a Japanese technology giant that is now in the process of exporting its cloud computing solutions around the globe, and which is forecasting JPY 1.5 trillion in revenue from cloud services by 2015. It could only do this because of the infrastructure that the Japanese government built, which enabled these kinds of technologies even though nobody could have predicted them when the rollout started.

    • Well said!

      Maybe Google and others will invest in server farms here once the NBN is in place and whe can be the internet hub of Oceania.

      One day we could own all the internets of South East Asia.

      Assuming we don’t elect Abbott who has charged Turnbull with “demolish the NBN”