Carbon Pollution Reduction Scheme: dead. Resources Super Profits Tax: dead. Home insulation scheme: dead. Rudd bank: Dead. Internet filter: dying. With virtually every one of the major policy initiatives of Kevin Rudd very publicly abandoned, there is one almighty policy that is not only surviving, but thriving. The $43 billion National Broadband Network — a testament to big government and small accountability.
It appears to have been forgotten that the NBN was not a policy spurred by any great technological need, but rather, it was a very political beast, announced in April 2009 at the height of the global financial crisis. For the federal government, the primary goals of the project were to sideline a recalcitrant Telstra and to enhance its economic credentials. Australia would spend its way out of recession — not only that, but we would get a shiny new broadband network. The fiber-to-the-premises network was of a far greater scope than any of the previous models being considered — more than 15 times quicker than the previous Telstra proposal.
This much was confirmed in its announcement launching the NBN where the Prime Minister stated:
This is a major nation-building project that will support 25,000 jobs every year, on average, over the life of the project. At its peak, it will support 37,000 jobs. Given the productivity gains associated with this investment, the full benefits will continue to flow for decades beyond the completion of the project.
The government has never undertaken a cost-benefits calculation on the broadband network — Australia’s most costly infrastructure project ever. McKinsey, who were paid $25 million by the government to prepare an “implementation study” expressly noted that “the purpose of [its] study is to advise the government on how best to implement its stated policy objectives, not to evaluate those objectives, given that the policies have already been agreed by the government”. The study explicitly did not “undertake a cost-benefit analysis of the macroeconomic and social benefits that would result from the implementation of a super-fast broadband network.”
While McKinsey found that the project can be implemented with the $43 billion estimate (that was before the government was able to reach agreement with Telstra), it didn’t proffer an opinion on whether the $43 billion is money well spent.
Aside from the jobs aspect, another key selling point used by the federal government was along the lines of — “there may not be many uses for high speed broadband now, but like electricity or the phone, we need to build the infrastructure first.” The problem with that principle is that the internet is very different to, say, electricity. This is primarily because many Australian homes and businesses already have broadband internet connected. Australia’s ADSL2+ services that (while far from world leading) are able to provide a satisfactory speed for most uses. By contrast, you either have electricity or you don’t, so the benefits of being connected to a power grid, even if unknown, had substantially more scope than the benefits of a faster internet service.
As for some of the mooted advantages of a 100 Mps service — including business benefiting from video conferencing or eHealth, that ignores a couple of pertinent points. First, most businesses (operating in CBD areas) already have very high-speed broadband connections. Second, it is arguable that in many instances, meetings generate minimal economic benefits anyway, so spending billions to encourage them isn’t the makings of sound policy.
One of the other key benefits that Rudd (before his sacking) referred to was the nascent area of eHealth — that is, the ability for doctors to diagnose and treat patients remotely using video connections. While such a function has some use, instead of spending billions of dollars of taxpayer funds on a project rejected by the private sector, perhaps Rudd would have been better off hiring a some more rural doctors — you could probably get a few for $43 billion. There is also the fact that the main users of eHealth will be in rural areas, and those users will be covered by the NBNs wireless service, rather than its FTTP network.
The NBN plan is substantially different to what the private sector had earlier proposed. Unlike the government, private businesses concern themselves with pesky things such as “return on investment” and “cost versus benefit”. Telstra has initially proposed a 6 Mps scheme, which would have required an outlay of $6 billion, this was then replaced by a suggested 12 Mps scheme that would have required only $4 billion (about 10% of the cost of the NBN).
Former Optus executive and Liberal MP Paul Fletcher, who (despite his conflicts) is well versed to comment on the NBN, stated in the Financial Review that:
In two fundamental ways, Labor is merrily taking on risks that Telstra, with its vastly greater experience of telecommunications — has chosen to steer clear of. First, there is the physical executive risk of building such a network. It is a huge and complex text. But the second risk is even bigger: that labour will squander many billions of taxpayers’ money …
The network uses a hugely expensive technology that drives the massive capital cost. No cost benefit study was done to justify this technology choice rather than cheaper options.
In total, each Australian taxpayer is spending almost $4000 on the NBN (assuming the project costs $43 billion). This money will be spent on “creating jobs” for engineers’ consultants and public servants. In return, Australians will then need to spend upwards of $100 a month on a high-speed internet service that most don’t really want (for that price) and almost all don’t really need.
To achieve 100Mps the cost is expected to at least $120 per month — more than double what most (non-Telstra) ADSL2+ users currently pay. Further, “next generation” 4G wireless services (which will form part of the NBN anyway) would most likely be able service the needs of many broadband users (with speeds of up to 12 Mps, far greater than current DSL speeds). There is no reasonable basis for a costly and complicated nationwide network connecting 93% of premises. The government most likely knows this, which is why it instructed McKinsey not to conduct a cost-benefit study of the $43 billion project.
Julia Gillard has wiped clean the horrific remnants of the Rudd era — only one poll-driven economic disaster remains.