The National Broadband Network has done a nice job of sending everyone into their silos. The economists think it’s a dud idea or insist a cost-benefit analysis is necessary. The telco specialists accuse the economists of lack of vision and failing to understand the basics of telecommunications. And that’s before you get to the partisanship. NBN is Labor and wireless is Liberal. At some point surely someone will claim that a statist party of the left feels the need to guide information through fibre, whereas conservatives are willing to let information flow freely through the air, unrestrained by Big Government.
And as everyone accuses everyone else of “not getting it”, there’s a fair bit of sloppy thinking on both sides.
NBN critics have caught some flak for not making the same demands for a Cost Benefit Analysis for other major government expenditure. And yes, there’s inconsistency there. The habit of demanding CBAs for major infrastructure investment has only emerged since the Rudd government established Infrastructure Australia and a process of subjecting major projects to analysis. It was only at that point that the coalition, which presided over boondoggles such as the Alice Springs-Darwin railway in government, became a born-again advocate of infrastructure CBAs.
And economists appear untroubled by the fact that the great bulk of infrastructure spending, which goes on roads ($4 billion per annum, year in and year out), doesn’t even support user-pays projects. Good luck doing a CBA when motorists get furnished basic infrastructure without road user charges. And the $100 billion or so a year of revenue lost via tax concessions gets virtually no scrutiny, let alone whether the cost to the taxpayer is less than the policy benefits that flow from, frequently contradictory, tax rebates and exemptions.
Nevertheless, just because economists are inconsistent doesn’t automatically invalidate their calls for a CBA. Nor does calling the NBN “nation building”. Calling something “nation-building” doesn’t get you a free pass from having to justify investment. There are always plenty of other “nation-building” projects we could fund.
The problem for economists, though, is that the notion that a full-blown CBA for the NBN would settle anything is fanciful, given everyone had already settled views on the subject (and I should repeat, as I noted yesterday, that I was among the earliest to ask Stephen Conroy why the Government had not prepared a CBA, when the project was first announced). A positive CBA would be rejected as a Labor confection.
That, after all, is what happened to the $25 million McKinsey implementation study for the network. As Alan Kohler has noted, those such as Malcolm Turnbull demanding an NBN CBA seem to have forgotten about the McKinsey document. But the treatment of the report on its release was instructive. The Coalition claimed the study was “crafted” by the Government. The Australian claimed that McKinsey had “got the numbers wrong”.
Perhaps the reaction would have been different if McKinsey hadn’t found that the NBN offered a viable business case even without a deal with Telstra. But given the reception, the idea that the Government should spend another $25 million, or more, on another study beyond the business case demonstrated by McKinsey, on the basis that it will convince NBN critics, is downright eccentric.
Another key point of dispute lies in in the argument of NBN proponents that the full benefits of the network can’t even be estimated because it will enable new types of services that can’t yet be foreseen. This is mocked as “build it and they will come”, as though any suggestion that infrastructure might end up having unforeseen applications is the whimsy of soft-headed futurists. But there’s a problem of inconsistency again.
NBN opponents themselves dabble in the supernatural. Advocates of wireless broadband attribute near-magical properties to the technology, suggesting the laws of physics will yield to the promise that wireless is an adequate substitute for high-speed broadband over large areas. As Stilgherrian has noted, for starters that will need a wireless tower literally on every street corner. It also assumes a large slab of spectrum can be removed from its current use and redeployed for wireless broadband — a problem that (along with everything else) Tony Smith never really explained during the election campaign.
But the attribution of magical properties to rival technologies appears to have now spread to the existing copper network. Peter Martin, for mine one of the best economic journalists in the country, gave a huge serve (well, another one) to NBN advocates on Monday, and said that the copper network “is … doing things it was never designed for, over and over again. It’s an unexpectedly versatile material. It’ll do even faster speeds soon, and it is already laid“.
Martin I think too blithely dismisses the problem of the cost of maintaining the copper network, which is believed to now be well past its intended lifespan. As he notes, we don’t know what the cost of its maintenance is — Telstra keeps the information confidential — but estimates range from $600 million a year to $1 billion a year, and rising. Moreover, it’s Telstra’s copper network, with all the attendant problems of access for competitors.
But it’s the suggestion that the copper network will be capable of meeting the remorseless rise in demand for higher speeds that has the ring of magical incantation about it.
In particular, advocates of copper appear to forget that the “A” in ADSL stands for asymmetric, and that ADSL can only provide very limited upload speeds no matter how fast its download speeds (which, compared to fibre, remain very poor).
This gets us to where, I suspect, the accusation that people “don’t get it” about the NBN is closest to the truth.
Perhaps because most economists’ exposure to the ICT industry is via their own personal internet use, many of them seem locked in the mindset that the NBN will be a $43 billion video download service, and can be analysed from the perspective of whether households are willing to pay hundreds of dollars a month to be able to download last weekend’s episode of Boardwalk Empire in 30 seconds. From that point of view, it’s no wonder they regard ADSL as an adequate technology.
But this ignores that the economic benefits of the NBN aren’t really about residential use, but in providing high-speed network upload and download capacity of the type that is already in high demand from industries that routinely produce huge quantities of data, such as diagnostic imaging firms or audio-visual enterprises, let alone emerging domestic industries such as data storage and cloud computing.
It also ignores that critical government uses of the NBN, in health and education, will similarly depend on high-speed uploading capacity.
On this point, perhaps there would be benefit in a CBA, if it would demonstrate to some critics the demand for high-speed data capacity that already exists and that will only continue to increase at a rapid pace. But that confuses a CBA with the basic point that the Government, along with everything else, has sold the NBN and its economic rationale poorly.
Where I suspect the economists also goes awry is in removing the NBN from its policy context. The NBN is not like the government’s stimulus programs, but a solution to a long-running market failure. That market failure is a direct result of two generations of failure by politicians: by the Hawke government in its union-driven telecommunications reform that strangled telco competition at birth, and by the Howard government in its privatisation of an integrated Telstra.
The price tag — whether it’s $26 billion or $43 billion — is the price we have to pay for correcting those failures. Moreover, the Rudd government tried to use the existing market to fix the problem of poor broadband capacity through its initial NBN tender, and ran into exactly the problems that we all knew were there — lack of competition and the dominance of Telstra.
But you get the impression from some critics that the Government has plucked the NBN out of some bag of socialist, big-government ideology, rather than arrived at via a process of trying and failing with other solutions.
And given that policy context, criticism of the NBN without identifying an alternative solution to the broadband market failure is disingenuous.
Not everyone has retreated into their silos to hurl abuse at their opponents. As Martin notes, Christopher Joye, who’s been a strong critic of the NBN in recent months, has proposed a large-scale trial of the NBN as a means of identifying its benefits over a period of years. My own view is that such a trial would be fine for identifying residential and small business interest in higher download speeds, but fail to provide a proper environment for serious government and industry use of high-speed network capacity. Joye in response suggested a state-wide trial, which I think would go some way toward providing a plausible trial for what applications and services a true high-speed network would “enable”.
At the moment, alas, Joye is one of the few commentators proposing something constructive in an increasingly sterile debate in which a lot of us are simply taking a position and sticking to it come what may.