Federal election 2016: The folly of the NBN continues

Bookmark and Share Economics & Deregulation | Evan Mulholland
The Australian 23rd May, 2016

No country has essentially renationalised their telecommunications network as Australia has.

The focus on the Australian Federal Police raids over National Broadband Network leaks misses the policy point of contention of Australia's broadband debate: that the NBN was the worst conceived infrastructure project in federal history.

It is a truism that the private sector is much better at major project development than government.

Private firms are accountable to investors and a board. Public companies are accountable to politicians.

With such a broad original mandate - rollout fibre to the premises everywhere, at virtually any cost - the NBN is effectively accountable to no one. Is it any wonder we hear of blowouts in the billions of dollars?

In this light, Labor's original policy in 2007 - to tender out a fibre to the node network to the private sector - was a far superior policy.

Today, Labor claims it couldn't do so because the Australian Competition & Consumer Commission said it couldn't.

But the ACCC is a government body governed by commonwealth legislation. The ACCC was hardly an insurmountable hurdle.

Nevertheless, Labor made the disastrous decision instead to have the government do the whole thing itself - and, following ACCC advice, go one further by rolling fibre all the way to the premises.

Anyway, it is not clear why the Labor government felt hemmed in by the ACCC's advice. After all, the competition regulator had no experience as a telecommunications technology consultant.

As telecommunications analyst Ian Martin has reflected, "the ACCC knew, or should have known, that its advice in favour of FTTP was both wrong and inappropriate but gave it anyway in order to help bring about a preferred structural outcome for better or worse".

Martin wrote to the ACCC pointing out: "This is a view widely held among those long-term value investors with a good knowledge of the sector."

Anyone who works in the communications sector in Australia will tell you that the minute the Labor government announced it was going it alone in building a nationalised broadband network, private sector investment in telecommunications ground to a halt.

In short, telecommunications investors blame the ACCC for creating disincentives to invest in telecommunications infrastructure.

Looking back with the hindsight of more than a decade of telecommunications politics, it is now clear that the ACCC - and the Howard government - should have granted a regulatory holiday to Telstra to build a fibre to the node network, and then required the new network to be open competition after a reasonable grace period.

Instead, Australian politics is stuck on a path where no alternative telecommunications industry can be conceived. Either the government builds telecommunications networks, or no one does.

Telecommunications activists and even some Labor MPs will claim that, internationally, fibre to the premises is being built everywhere.

This is not true.

Most of Europe is connected via fibre to the node and pay-TV cables. Taiwan effectively has abandoned its fibre to the premises network.

In the US, pay-TV cables are the technology of choice.

Last-mile copper networks are a critical part of the technology mix in the Asia-Pacific region.

Operators deploy a range of fibre to the node technologies.

Emerging technologies are blasting out lightning speeds over existing copper wire and pay-TV cables.

The claim that Australia's copper network is "second rate" is proving completely false.

Many activists latched on to the recent State of the Internet report by Akamai, the content delivery network and cloud services provider, to say that Australia's decline from 30th to 60th in global rankings for average peak internet speed was because of Malcolm Turnbull's approach to the NBN.

This is misleading. Akamai's 2015 fourth-quarter data suggests there is basically no correlation between available peak speeds and average speeds.

Akamai shows Singapore ranked 16th globally for average speeds of 13.9 megabits per second - only 5.7 Mbps faster than the average broadband speed in Australia.

This is despite Singapore having one of the only full fibre to the premises networks and ranking No 1 for peak speeds with 135.7 Mbps.

That people are still using this report to argue Australia should spend billions more on a full fibre rollout is economic lunacy.

NBN Co's 2016 corporate plan suggests that reverting to an all-fibre approach would take six to eight years longer to roll out and cost $30 billion more.

In fact, 80 per cent of users connected to the gold-plated fibre to the premises network are signing up to plans of only 25 Mbps or less.

Australia's telecommunications policy is a regulatory, economic and political quagmire.

The sooner the government finishes rolling out - as cheaply as possible - the NBN, the sooner we can try to reform the industry to encourage investment and innovation again.