Some advice to Malcolm Turnbull

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Malcolm Turnbull has returned to the Coalition front bench as the Shadow Minister for Knocking Stephen Conroy Broadband. He is a great choice for this. He is one of the few politicians who actually makes use of the Internet, with an active Twitter following, an iPad and even an iPhone app. He has also been consistent in challenging the Government on the NBN without making completely ridiculous statements in the process.

Anyhow, here is some friendly advice to him in that role.

  1. Cost-Benefit Analysis: the problem with assessing the costs and benefits of the NBN is that it is too difficult to pin stuff down. It is a ‘he said, she said’ game. The bigger issue is the process which did not include that as part of the NBN commitment. Sadly, however, that is a past issue.
  2. Implementation: the weak point for the Government is the NBN’s implementation. The goal of the NBN — fast broadband and telecommunications across the country — is very different from how you achieve that. The Government does not seem to be doing that in way that is at all economical and also in a way that is technologically flexible. It is also doing things in its relationship with Telstra that are worrying if we want our NBN to be ‘monopoly proof.’ So take them to task on implementation. Maybe you could suggest something more market-based.
  3. Public good: hold the Government to task on the principle that government money should be spent on public and not private goods. At the moment, they get a free run there as people want subsidised video downloads. But what about education, health and reform of government services. That is something worth spending public money on. The line should be not that the NBN is too expensive but that money is being spent on private consumption rather than public services — even considering broadband in isolation. That will help no-one; especially regional Australia.
  4. Telstra: for goodness sake, don’t make the alternative to the Government’s NBN be a promotion of old policies that say we should just leave it all up to Telstra. That isn’t a solution. That is non-action and not having a broadband policy. If you want to call something a policy in this area, it has to deal with Telstra and the fact that regulation has not worked to spur diverse investment in this space. That has left Australian consumers paying too much for too little.

The Government is vulnerable on broadband. Yes, it has done better than any other policy — including its own FTTN one — in what it is doing now. But it is far from perfect. What we need is an opposition that holds it to account in a sophisticated way rather than just saying “no.”

[Update: Malcolm Turnbull starts his critique. I’ll give him more time to get out of election mode.]

14 Responses to "Some advice to Malcolm Turnbull"
  1. It seems that one argument Malcolm is using is the per capita cost of the NBN (IIRC $5000 a head). Shouldn’t this be an easy argument to rebut for the Govt as the value of the NBN will also extend to future generations (i.e. those who aren’t around to pay for it today)?

  2. Alan, why would that argument be valid? If people do not use the system and if the technology moves on from fibre optic connections then how can you extend the benefits out to perpetuity?

  3. The argument about “if the technology moves on from fibre optic connections” is misguided.  Exactly the same thing could have been said about copper wires when the initial telecommunications network was being built – and it would have been dead wrong, since we’re now using essentially the same wires a century later to deliver ADSL2+.
    Getting the fibre optic in the ground as a high bandwidth conduit is the important thing.  The precise technology attached to either end of the fibre can be progressively upgraded later.

  4. CBA is not a ‘past issue’ or ‘he said she said’.  Test in your mind the counterfactual ofFTTN. Estiamted costs $43bn and (being generous) $15bn with much lower variance in forecasts on the later.  What would you have to believe in terms of productivity, spillovers to believe it is worth the cost difference?  This is still a worthy excercise.

    Typical criticism to the above will be: i) 50mbps on FTTN is too slow, luddite; ii) FTTN wasteful if we are eventually going to FTTH; iii) won’t solve strucutral problems in the industry.  My responses: i) name me any service you can imagine where 50Mbps is not sufficeint for mass market use, and if you can what is the public good in its being mandated for everyone; ii) 5/10 years of $30bn in my pocket is quite a saving even if I ‘waste’ $5bn; iii) Telstra has proven that with a big enough cheque book you can have the copper, put that in NBN Co.

  5. kme, The next big shift in corporate telecommunications use is cloud computing and wireless, mobile devices that allow people to connect anywhere anytime.

    The NBN is being sold as “the” technological innovation that Australia needs. That is about 10-15 years out of date. The next point is that it will lead to a massive improvement in productivity etc, yet there is no study to suggest that the takeup and useage of fibre optics will be in any way economically viable.

    If you are to spend $43bn, what is the most efficient and effective way to do it? You are looking at one technology and that is doomed to fail.

  6. kme, I just reread your post and saw the copper wire commentary.

    The lifespan of an physical asset (and it is not yet known if this is an asset because it needs to be adding value) can be long enough to increase the potential to be used but we are spending $43bn and it is best to place it in areas to be the most effective fitting with the needs of businesses and individuals.

  7. The arguments above are indeed the entire reason for CBA. First, because you discount future cash flows, you don’t really have to worry about benefits in perpetuity. Discounting reduces the present value of cashflows out much past 20 years or so very low. Second, if you are worried about technological risk, you can add a risk loading to the initial discount factor. And I don’t for a minute buy this line that NBN is too difficult to apply CBA to. Almost all CBA exercises require quantification of things that are difficult to pin down. CBA at least forces you to think about what matters when identifying benefits, how they might be quantified, and gives you a tool to look at the senstivity of the CBA results to different assumptions. I’m always wary when someone runs the line that CBA isn’t necessary. It usually means they have decided they want something to go ahead but don’t want their assumptions tested.

  8. “Cloud computing” is independent of the underlying transmission medium, as long as it’s fast and low-latency enough.
    Wireless has its applications, but its not the panacea that many seem to believe.  There are real physical limitations on the bandwidth available to wireless communications, and we’re coming up against them.  The useable bandwidth available in fibre optic networks is orders of magnitude higher.

  9. This article misses the key point.  Labor is still claiming that the NBN at a cost of $43 Billion will be commercially viable.
    Labor has put the cost, the debt, the borrowings along with the project itself into a private company.  This way labor has excluded the NBN costs from the budgets bottom line.
    Labor has produced nothing to support its claim that the NBN will be commercially viable.
    My concern is that based on overseas experience the take up rate will be too low at around 30% and Labor will then class the NBN as a public utility and every household, every premises that is serviced by the NBN will be charged a ‘service fee’ even if it is not used.
    Barry Lowe

  10. Its true that cloud computing and wireless are the next things in society’s technological roadmap, but these two actually benefit from fibre being laid. There is no way you can unleash the full potential of cloud computing without the latency and upload speeds currently available only with FTTP. LTE and WiMax still won’t solve the latency problem.
    Speaking of wireless, how exactly do people think they connect to the internet? Its not as if the wireless towers are also wirelessly connected to the internet.
    What happened to the so-called Hamilton solution? That is, government builds FTTP for the rural and regional areas, similar to the current NBN, but leave the metropolitan areas to have FTTP built by private market forces. Best of both worlds in my opinion…

  11. Regarding cloud computing: it is an example of a shift in corporate behaviour towards mobility. It does not mean that fixed line broadband access does not play a role – it does – but what it symbolises (along with improved tablet and wireless access) is companies placing a premium on flexibility and mobility. That demand shift is happening while the government is focused on spending everyones money on a fixed line network.

    The philosophical issue is whether broadband is a public good or a private good. Internet connectivity should be designed for the users needs and should not have a “one size fits all” approach that a public-good argument tends to suggest. I will put it in a different way. Those who suggest that this is a public good must also then accept that it should be regulated with an internet filter and other restrictions. The reason is that as a public good that is paid into by everyone and enjoyed by everyone, provided by the State, then common standards of behaviour are expected and enforced. If it is a private good, the individual regulates themselves within the national law, if it is a public good then the individual is subject to the common good which an internet filter will be categorised under.

  12. FTTN is the most sensible “phase 1” for the NBN.
    Do it right, do it now, do it with fiber to the node and reuse the existing copper over the last km.
    Current FTTN technology gets 50Mbps, new Alcatel-Lucent technology gives 100Mbps next year over 1000m.
    Anyone who talks about fiber to the home being a ‘do it once’ strategy and giving 1GBps is clearly misinformed. Undoubtedly they would be using passive nodes (GPON) which use a Time Sharing method for sending data back to the exchange. One fiber from the node back to the exchange is shared by many homes. Can’t all have 1GBbps under this system – the nodes would need to be upgraded when that happens. So the FTTH mantra of “do it once” is a bit of a lie.

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