The NBN trainwreck

Robert Candelori writes on his blog of the disaster that is Labor's NBN.

The last three years of communications policy in this country have arguably been some of the worst on record. The Australian Labor Party, in opposition, promised to build a $4.7 billion fibre-to-the-node broadband network which was to provide minimum speeds of 12mpbs to 90% of Australians.

When the ALP was subsequently elected, Stephen Conroy set up an expert panel tasked with initiating a request for tender process for the purposes of deciding which company or consortium would be given the $4.7 billion government grant. The process was a disaster, from start to finish. The major stumbling block was the absurd notion that the government would be supplying $4.7 billion to a third party in order to bring fibre from Telstra’s exchanges to street-corner nodes. Somehow, the fact that Telstra owned the exchanges and 99% of the copper network infrastructure escaped Stephen Conroy’s mind, let alone the $60 billion that Telstra shareholders paid to secure ownership of those assets.

Telstra was then excluded from the process after it failed to comply with a trivial ‘small business plan’ requirement. Telstra’s share price has never been able to recover since that decision. To add insult to injury, the ultimate outcome of the panel was that none of the remaining tenders were deemed acceptable.

Faced with this embarrassment, Stephen Conroy and Kevin Rudd did not do the honourable thing and abandon the policy, or simply continue with the $958 million Optus-Elders policy announced by the Howard government. Instead, they did what all big-government parties like to do – when a policy fails, spend more money regardless. On a short 90 minute plane trip, Conroy and Rudd devised a $43 billion broadband plan which would entail rolling out a fibre-to-the-home network to 90% of homes and businesses (later extended to 93% in the NBN implementation study).

Immediately, the rent-seeking ISPs jumped on the bandwagon. After all, not only had the original commitment increased by a factor of ten, the lure of a government-backed open-access FTTH network was just too difficult for them to resist. None of them had been particularly interested in building their own infrastructure – since engaging in price and access disputes with Telstra in the ACCC over the years was deemed a less costly and time-consuming exercise than….actually taking a risk to build a competing network. Fancy that.

The real kicker was that in one swoop, the government abandoned all competition principles by stating that the National Broadband Network would be a guaranteed monopoly, with all competitors banned from building a competing fixed line network. Not only that, Telstra would be banned from bidding on 4G wireless spectrum unless it structurally separated and transferred of its copper customers to the fibre network.

When examined from afar, it’s difficult to avoid the conclusion that the government is building Telstra Mark II. The Labor party had long-opposed the privatisation of Telstra, so unable to mount the case for a buy-back, they simply committed $43 billion to replace it. Worse, Conroy reinforced his equally ridiculous plan to impose a mandatory internet censorship regime of the likes of North Korea on this new 100mbps network.

Of course, even if a principled argument could be made against spending such an enormous amount, only to censor it and impede speeds, the Liberal Party consistently fell apart by looking aloof on the technical details, let alone the technology. What also did not help was the failure of the party to have a policy on internet censorship until 2010, some two-and-a-half years after Conroy had announced his intentions. As a party that has individual freedom at its heart, it is unthinkable that it took it so long to come to a position that should have been obvious from the start.

Nevertheless, the primary government sales pitch for the NBN has included the supposed benefits it will bring in health, education and utility monitoring. What’s hilarious is the startling lack of critical analysis of these claims by most media commentators. For example, Conroy has constantly pontificated on the new wave of e-health to beset us all as a result of the NBN, but nobody questions him on who is going to pay for the expensive camera & monitoring equipment that will enable high-definition remote video medical examinations. In regards to education, most major universities already have access to high-speed fibre connections, as do most hospitals. It beggars belief that the only way to improve connections to schools and other institutions is to spend $43 billion building fibre connections to 90% of homes as well, whether they want the connection or not and whether there is market demand or not. Then, finally, there’s the oft-repeated ‘smart meters’ meme, where all commentators fail to mention that smart metering is possible today with current technology. In fact, a 160 byte SMS can provide all the information, no expensive 100mbps fibre required.

Mark Newton, an Internode employee who came to fame at the peak of the internet censorship debate, unsurprisingly agrees that the NBN should be built. However, he at least had the honesty to dismiss the imbecilic hyperbole of the government when it comes to the benefits of the NBN:

Firstly: cut out the hyperbole. We’re all told that South Korea is “leaving us behind” in the broadband stakes, having had 100 megabit per second fibre to the home for years. But that means we know that most of the pie-in-the-sky innovative new services that NBN boosters wax lyrical about are probably hyperventilative garbage. Having had near-ubiquitous high-speed broadband for so long, the South Koreans use it in more or less the same way that we use our own internet access, only faster. It stands to reason that we’ll probably use it in the same way too.

That’s not to say that innovation won’t happen, but let’s get a grip: It’s hard to believe that the NBN will transform schoolrooms given that most schools already have broadband internet access; and I’ll believe that we’ll all make widespread use of telemedicine as soon as malpractice laws are amended enough to make my GP feel comfortable about prescribing a glass of milk and a good lie-down without an in-person consultation.

Leaving aside the government’s platitudes, we then come to the actual scrutiny of the project by the parliament. The opposition, quite legitimately, has consistently argued for a cost-benefit analysis to be conducted on the network and the size of the spend. The government has refused all such requests using ‘nation building’ propaganda, Scott Steel, author of Crikey blog Pollytics, has vehemently argued that a cost-benefit analysis would be pointless because, among other things, we cannot know what the future will hold given that potential uses for the NBN have yet to be invented. The examples of this are fairly easy to derive – copper was never envisaged to be a medium for high-speed broadband via ADSL; indeed, the internet itself was never envisaged when copper networks were rolled out. That may well be true, but the weakness of this argument is clear – are we all to remain silent, in unquestioning acceptance, when the government proposes tens of billions of expenditure on infrastructure because….we cannot know the future? That is not acceptable.

Fast forward until after the election, Malcolm Turnbull has been elevated to the front bench again as Communications shadow and has been landing several punches on the inept minority government led by Julia Gillard.

After first demanding Senators sign a 7-year non-disclosure period to see the business plan of NBNCo, Julia Gillard today capitulated, somewhat, by releasing a 36 page summary of the plan to the public in order to secure the vote of Nick Xenophon. The history leading up to this point reveals a comical aversion to transparency by the government in relation to this policy. Far from letting the light shine bright, Gillard and Conroy have systematically stonewalled attempts by the parliament to gain access to the information critical to informing their vote. They have demanded a swift vote on the legislation this week, yet refused to release the plan until December.

What is simply unforgivable, however, is the idea that a company pledging to expend $43 billion would release a business plan 18 months after inception. Under any normal situation in the private sector, no investor in their right mind would risk their money without so much as a business plan. But see, this has been the problem from the outset of this upscaled broadband policy – it was policy on the run with largesse so immense that it was hoped all serious scrutiny would be avoided.

In any event, when delving into this ‘summary’, we find that all of the pertinent detail has, in essence, been redacted. As Malcolm Turnbull wrote today:

It is a curiously inadequate document. It does not include any financial statements at all – no profit and loss statement, no cashflow statements, no balance sheets. There are a few numbers. We are told that as a result of paying $13.8 billion to Telstra in decommissioning and infrastructure payments (p.29), the estimated capex to build the NBN will be reduced from $37.4 billion to $35.7 billion (p.28)

This puts a $49.5 billion price on the total project ($35.7billion in capex plus $13.8 billion in payments to Telstra).

Wait, backup a minute. $49.5 billion. So, the project is $6.5 billion overbudget before it has even extended beyond the few select trial markets. And this is unquestioningly accepted by most commentators. Incredible.

More depressing is the fact that no semblance of rigour can be applied to any of the reported figures because there are no financials provided. All in all, the aversion to transparency has left even the most vehement supporters of the project questioning the government’s motives.

Turnbull goes on to say:

But the fundamental, threshold issue which the business plan does not and cannot address is whether the NBN is the most cost-effective means of realising the objective of universal and affordable broadband. That is why a Productivity Commission inquiry is so vital. Its main task would be to ask the question the Government has ignored: What is the most cost-effective means of achieving universal and affordable broadband? The NBN is, so it is claimed, one way of getting there. But there will be others and surely none could be more expensive than this plan.

Nobody has trumpeted the need for rigorous cost benefit analyses of major infrastructure projects more than the Rudd and Gillard Governments but on this, the biggest project in our history, they are determined to avoid any scrutiny for fear that the answer they will get will be that this is yet another ill considered, wasteful white elephant.

I’m instantly critical of any suggestion of making particular goods/services ‘universal’ – mainly because it ignores basic market principles of supply and demand. But assuming it is an objective worth realising, people in remote and regional areas would already have much faster broadband today if the OPEL project was allowed to continue. With a government commitment of just $958 million, it is a mere fraction of the cost of the Labor Party’s NBN while improving services far more rapidly.

When viewed through that historical lense, an expensive white elephant seems the likely outcome. However, even Turnbull concedes that business plans are seldom negative about the future prospects of the business in question. As such, the government’s approach is nonsensical given that it would have been far easier to defend a cost-benefit analysis that was over optimistic than defend not doing one at all. At the very least, the perception of proper due diligence being performed would have been exuded.

As it stands, the government is left deservedly bruised and battered because the opposition has the temerity to ask for rigourous justification of the government’s numbers and assumptions – and the government simply says no. Gillard has indeed thrown Xenophon a 36-page bone, except she acted out of desperation, not adherence to principles of honesty and transparency.

Robert Candelori is a law student at the University of New South Wales with a passion for technology, politics & food. This article is from his personal blog which can be found here: http://rcandelori.wordpress.com/

Comments

[Rog]

1.

An excellent post Robert. Well said!

[Louis Hissink]

2.

The question which should be asked is why are the ALP so adamant that the NBN must be made - is it to monopolise the transmission of information into each dwelling so that, when it's completed, and remaining in government ownership, the ALP/Greens will then renege about privatising it?

Remember that the ALP and Greens are ultimately driven by a policy of eliminating private property rights, and owning the physical conduit that brings information into each and every dwelling, and thus controlling what goes through it, might be more important than ensuring everyone has equality of access to information.

But then they sincerely believe everyone has a right to a job, and a minimum standard. The only problem is at whose expense; not theirs to be sure.

[.]

3.

How much have they spent thus far on the Tasmanian portion?

[Jason]

4.

Right Louis. And the NBN will help them run their internet censor as well. Big Brother.

[Vikas Nayak]

5.

The document was sparse and explained too little. I think the government and coalition should stop wasting time with documentation and actually look at a productivity report (not CBA) on gains to Australian Productivity from this endevor.

All these documents are just political point scoring matches for the coalition and government and costing a lot of money to keep people distracted from the out of control spending of government.

[Mikko]

6.

Heard the headmaster of the first Australian school in Tasmania connected to the NBN, speaking on ABC JJJ news yesterday. He was not impressed and said the speed in reality after the first day was about 30mps not the promised 100.

[Robert Candelori]

7.

Your download speeds will only be as fast as the server from which you are downloading. The headmaster's claims are consistent with that fact as few people in Australia have 100mbps speeds, let alone 30mbps.

Although, I am luck to have Telstra Cable at 38mbps. :)

[Vikas Nayak]

8.

On a side note, the NBN bill passed the Senate, 30 ayes, 28 nays.

So its passed both houses now. BTW, im surprised 9 Coalition MP's decided to abstain from voting.

[Rog]

9.

Vikas I think you'll find they were 'paired' in the Parliament. That means that some Senators were given official leave and one from the other side is paired with them and doesn't go to the chamber. Probably explains how Senator Mark Arbib made an announcement at the cricket in Brisbane at lunch time...

Even though they were never going to win, if someone simply didn't turn up all hell would break loose within Party ranks.

Cheers

[Graham]

10.

>>Remember that the ALP and Greens are ultimately driven by a policy of eliminating private property rights.

Hahaha...what?! Cranksville.

[Vikas Nayak]

11.

Current make up of the senate is:

Labor : 32
Liberal/National : 37
Greens : 5
Family first : 1
Independent : 1

After July 1st it'll be:

Labor : 31
Liberal/National : 34
Greens : 9
DLP : 1
Independent : 1

even with pairing of 9 labor to reduce the vote of the liberals, it brings the vote to 28-28. I blieve there were some absentees.

I cant find the voting record here, but the bill is up.

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4422%22

[Michael Sutcliffe]

12.

Remember that the ALP and Greens are ultimately driven by a policy of eliminating private property rights.

Hahaha...what?! Cranksville.

Hey Graham, in the UK there are around 150 reasons why the government can enter your property without warrant eg. to check if your hot water system is environmentally compliant. You don't think the Greens wouldn't support that? Don't consider that an erosion of private property rights?

(For that matter, you don't call Conroy's efforts 'censorship'?)

[Brett]

13.

Wow, good luck stopping ANY pro-internet censorship legislation now. "If it wasn't for us you wouldn't even have the internet now so stop complaining and let us ban what we subjectively decided was "offensive." "

[Georgina]

14.

Good sensible article Robert. Mikko - On the radio I also heard several from Tasmania complain that since the roll out of NBN there, phone conversations are constantly cut off with a bep, beep, beep. Also where are the Greens - they won't allow the countryside to be dug up for the most vital asset for this country to be piped/canals etc, - that is flood waters which go straight out into the ocean to be desalinated back at enormous expense, yet the country is being devastated by being dug up to put in cabling. One of the "testers" of the NBN, a small country town of 100 are most dismayed at the way their roads, footpaths etc. have been devastated. Others have spoken of Council's nature strips being left in deplorable conditions. What will happen by 2020 the time it will take to roll out the NBN with the advance of technology? What will the cost then rise to??? And it now appears that the points of entrance have been cut so someone in country NSW will have to go through a point in Sydney. The NBN is a failure waiting to happen and yet there are people who are not sensible enough to see the folly of such a scheme.

[Graham]

15.

Oh erosion? I thought the original post said eliminating! My bad...wait...

[Pip]

16.

I was surprised at the quote that met me when I visited your blog;

>>The supply of Truth has always been in excess of the demand

http://rcandelori.wordpress.com/

I don't know the quote but it seems redolent of the lapse of values that has been widely promoted during the era of excess, of liberalism, of laissez-faire. An era that I hope is behind us.

I am personally celebrating the demise of the ALP in the Victorian State Government. I hope more than anything else that it is true, that this corrupt Government is well and truly behind us.

A victory for truth.

I also hope that the philosophy of "the means justifying the ends" is over.

[Pip]

17.

Sorry, reverse that....

"the ends justifying the means"