Turnbull must make the Government accountable for the NBN: Bartholomeusz

Without necessarily disagreeing with my colleague Alan Kohler’s assessment of the politics of Malcolm Turnbull’s appointment as shadow minister for communications and broadband yesterday, Turnbull is indisputably right when he argues in his response that the government should be held accountable for its proposed $43 billion national broadband network. Hopefully Kohler is wrong in his conclusions about Turnbull’s likely effectiveness in holding the Gillard government to account.

The government has committed to spending up to $43 billion of taxpayer funds, or whatever lesser or greater amount the NBN ultimately costs, without any meaningful analysis of its costs and benefits.

The 546-page implementation study produced by McKinsey and KPMG earlier this year wasn’t a cost-benefit analysis – the firms explicitly said so in the introduction to their study. That study was a reverse-engineering exercise for a decision that had already been taken, and a rather unconvincing and rubbery one at that, built on ridiculously optimistic assessments of penetration and demand rates.

Whatever the merits and nation-building potential of a ubiquitous fibre-to-the-premises network, the fact that a government has embarked on the single most expensive project in the nation’s history without undertaking an exhaustive analysis – indeed any, meaningful analysis – of its costs and benefits represents appalling governance. At least there was some obvious and urgent economic justification for the pink batts program.

As Turnbull says, a case could be made that there are social and economic benefits beyond the financial value created or destroyed by the NBN, but that case hasn’t been made and, it appears, unless he can force a change of stance, won’t be made.

Turnbull used a corporate analogy to argue that governments should be as accountable as companies for their spending of shareholders’ money. While, as Kohler responded, there are broader issues involved than purely the financial merits of an investment of public monies, government spending should be subjected to even more demanding scrutiny than private sector decisions.

Shareholders voluntary invest risk capital; taxpayers have no choice in the extent to which governments expropriate their hard-earned and only some very indirect influence, once every three years, over how and how effectively it is spent. They rely on the parliamentary processes to impose accountability in the meantime.

If, as Kohler said in his response to Turnbull’s response to his column, the politics of the NBN were really about creating a new regional subsidy to replace the existing universal service obligation, why are we spending $43 billion, or whatever it ends up costing?

Just give the bush subsidised high-speed broadband, whether fibre, satellite or wireless – at a cost of perhaps $5 billion or $6 billion – and save a few tens of billions of dollars to spend on health, education, transport infrastructure and other more obviously and more urgently vital services.

There is, as AAPT’s Paul Broad told Business Spectator recently (KGB TV, 10 September) an enormous amount of under-utilised fibre (and two HFC networks, a copper network and multiple increasingly higher speed wireless broadband networks) already in urban Australia.

AAPT itself has 24 strands of fibre running along the eastern seaboard – but uses only two because of the lack of demand. It has written off $900 million of the $1 billion it invested in laying that fibre. Most businesses in urban Australia either have fibre or access to it if they are prepared to pay for it, as do most schools, hospitals and government departments.

Why duplicate/strand/make redundant/devalue existing infrastructure that is capable of delivering profitable and fast-enough services if there is the demand for them?

In fact it would seem the politics are more complicated than simply supplying broadband to the bush. There is a large element of the urban population which just likes the idea of very high speed broadband. They may not have any idea of what they will do with it when they have access to it, but that’s part of its appeal.

The US author and columnist, Michael Lewis, at the height of the dot-com bubble, wrote about the “state of pure possibility” in relation to the inflated value of the dot-com stocks. In a bubble (when emotion generally overwhelms commonsense) he argued a company had to be “ever so slightly unknowable” to be desirable. There an elements of that in much of the enthusiasm for the NBN.

In fact the reality of the NBN may not meet the expectations. Most of the cost of the NBN will be in bringing the network close to premises and then connecting them. In that sense – where the bulk of the money is spent – it will be mainly a consumer network.

It isn’t yet clear whether NBN Co will “pass” homes and then invite householders to connect. Nor is it clear who will pay for the final connection and the internal cabling needed to make use of the network. Will households be prepared to pay significantly more for broadband in order to download and upload videos faster?

The implementation study – and NBN Co – have said the NBN can be priced (at the wholesale level) at prices comparable to entry level prices for the existing services, or around $30 to $35 a month for a 20 Mbps service.

If the big retailers with existing broadband infrastructure are prepared to sacrifice some margin, consumers would therefore pay roughly the same price for the same speed they can receive today. If they want the higher speeds – up to 1Gb, NBN CO says – they’ll pay more. Potentially a lot more.

In other countries where they have had fibre networks delivering 100Mbps speeds for some years, like South Korea and Japan, consumers have been reluctant to pay more for those speeds, even with significant public subsidies. Ubiquitous high speed fibre hasn’t produced economic miracles in the handful of countries that have it.

Turnbull could do us all a service by pressing the government to go beyond the platitudes, the references to e-health and the like, and explain the demand side of the NBN equations.

That would enable us all to understand better whether spending $43 billion will materially improve national productivity or just allow affluent households to download several videos simultaneously. It shouldn’t be sufficient justification for spending that much money to base the decision on “pure possibility.”

There may, as Turnbull says, be a case that justifies spending up to $43 billion of taxpayers’ money, or whatever it takes, on a national monopoly fibre-to-the-premises network – a massive long-term bet on a particular technology that also displaces sunk investments in still perfectly-usable technologies and infrastructure.

That case, which should have been made before the commitment to the spending, hasn’t been made. Hopefully Turnbull fulfils the mandate given him by Tony Abbott – and our particular parliamentary system – and forces the government to justify so much spending of taxpayer funds on a single project on the basis of so little analysis.

This article first appeared on Business Spectator.