Will it be third time lucky for the NBN?

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If we continue with the NBN based on conservative neoliberal policies, then NBN 3.0 will also fail, writes Paul Budde.

SINCE EARLY LAST YEAR, I have commented on the potential write off that is needed in order to get the NBN back into a more viable business model.

Subsequently, others such as PwC, Standard & Poor and the Productivity Commission have all made similar comments. With a looming election and a possible change of government, it is now opportune to look at this in more detail.

Based on presentations and discussions on the social and economic benefits that such a national infrastructure project had to offer, there was government interest in broadband as a common good back in 2005. 

We discussed the digital economy, e-health, e-education, e-government, smart energy and so on. While these were all important elements that were discussed, even in a range of personal meetings with various cabinet ministers when it came to the crunch during election times, these issues were put in the too hard basket. They were very hard to grasp for those steeped in neoliberal economics — those benefits were often even laughed at by economists and finance experts. None of the political parties dared to launch a cost-benefit analysis taking such national benefits into account.

This, in my opinion, is the key reason why we have ended up with the current NBN mess. It is impossible to build such a network purely based on neoliberal economics. If you want to truly promote this as critical national infrastructure you will have to take the national interest into account and put a value on productivity, innovation, cost savings and so on.

I doubt that there is anybody out there trying to say that a national broadband network is not in the national interest. But just saying that is no longer enough, we need to be far more specific about this and determine what is required in a national, cost-benefit analysis. Yes, it will be difficult to come up with hard economic figures that exactly calculate all those benefits, but politicians should be brave enough to accept the best national effort on this. In the end, they are the ones who have to show leadership and make the decisions — economists, financiers and others are simply there to advise. For this we need progressive, not conservative politicians to take the NBN to the next stage.

As the investments made so far have not been based on a proper national infrastructure plan, it is no wonder that the NBN is in a mess. I and others have predicted this both publicly, in blogs and the media, and in private conversations with politicians, such as former PM Malcolm Turnbull.

But there is little use in crying over spilt milk, so we now need to look forward. As more and more people and organisations have noted that the current financial model is not well suited for the next step, a willy-nilly write off is certainly not what is needed, either.

Before any serious decisions are taken in relation to the NBN, we do need to have all the financial facts on the table. So far, NBN Co has only publicly provided selected data. Furthermore, we must come back to the dreaded cost-benefit analysis and address the fundamental issues. This is needed in order to find out what part of the investment can be done in a commercial way and what part needs government investment based on the benefit it will deliver to the national good. The latter will see its return through productivity increases, cost savings and other economic benefits — such as new jobs and business activities. Over a longer period, the commercial part can be financed along well-established commercial processes.

As in the 2005-2009 period, this should include broader society input, which at that time, was unified in its advice to the government on how to move forward with plans for what became the NBN. The plan had 80% public support and 70% business support.

So will it be third time lucky and will we this time get it right? Will we find the political will to do it properly this time?

As a ballpark figure, my estimate is that roughly 50% of the NBN investment can be earmarked for the national good and the rest can be financed commercially, based on a long-term utility investment model. This would fit in nicely with predictions from others that roughly 50% of the current investment needs to be written down, re-evaluated or reclassified. This is in order to make it a proper investment for the upgrade of the network that needs to take place over the next five to ten years.

As has become clear from the recent ACCC 'NBN Wholesale Market Indicators Report', this will largely involve the FTTN part of the network, again totally in line with earlier predictions. In other words, this write-down could have been avoided if the project was done right from the beginning.

Obviously, such a plan will need to be looked at in detail by economic and financial experts. However, it will require political leadership and a solid progressive cost-benefit statement from the Coalition Government. If we continue with the NBN based on conservative neoliberal policies, then NBN 3.0 will also fail.

Paul Budde is managing director of Paul Budde Communication, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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