I have an opinion piece in today’s Age comparing the Coalition plan and the NBN.
The Broadband Premise: Both sides have it wrong
Joshua Gans, The Age, 12th August 2010
THE Coalition’s broadband policy, as is the nature of these things, is short on details and detailed justification. But the basic elements are there.
The Coalition will not build the national broadband network (NBN), leaving it instead to the market. It will give it a kick along by building a duplicate backbone network that is open access. The idea is that it will provide competition at that point, allowing other providers to connect it to consumers. That part will cost $2.75 billion. The Coalition recognises that this will leave gaps so, for those, they intend to throw money at the problem: $3.45 billion in fact.
Before comparing this to the NBN, let’s evaluate the Coalition’s plan according to its own goal: to achieve 12 megabit-per-second speeds at a low cost to the public. First of all, it seems too expensive. Why build another backbone network? If one exists, why not regulate access to it to make it affordable? You could get open access straight away and save $2.75 billion. The alternative is to wait seven years for ”regulation by competition” to kick in.
Second, 12Mbps is, in fact, a minimum maximum. That is, 12Mbps is the maximum download speed that will be available across the country. Of course, a large proportion of Australians already have access to that. But that same proportion also know that it is far from quick. And this may be more to do with what’s going on outside Australia.
I’m sitting here in the US at the moment on a 100Mbps maximum speed . But if I look at a website in Melbourne, my speed drops to 2Mbps. That is pretty much the maximum you will get from Australia to much of the internet, regardless of the theoretical maximum of your provider. This is because a key bottleneck is our submarine fibre link rather than our backbone network, or even the last mile.
This is, of course, an issue for the NBN too but, with all the money sloshing around for that, there will be big pressure to fix the overseas connectivity issues. With the Coalition, there will be no such pressure.
Finally, the Coalition’s plans say nothing about Telstra, which controls the last mile around much of the country. Put simply, providers linking to the new backbone will face costs that put them at a competitive disadvantage to Telstra. The market doesn’t like providing duplication, so the chances of end users noticing a real difference is virtually nil.
All that said, the one thing we can say about the Coalition’s plan is that it gives voters a choice. Voters can say no to broadband; at least paid for by public funds. This is a legitimate option that many people may prefer. Of course, I doubt the Coalition will be selling it as such.
The reason that option may be attractive to many is that the government’s sales job on the NBN has been poor. In 2009, $43 billion did not seem like a lot of public money in the wake of the financial crisis. But it now seems embarrassingly large. The good news is that half-decent management will save a huge amount, but it is hard to shake off a figure.
Second, one of the great benefits of the NBN was being able to cut through a telecommunications morass of regulation and a lack of real competition by giving the government an option of shutting Telstra out of the game. Whether those competitive benefits will be realised is not clear and the current deals with Telstra do not inspire confidence there.
Third, if you look around, wireless access to the internet is everywhere. Even in people’s homes, the last metre is usually wireless. Labor pinning its hopes to a wired solution seems foolish. Some will argue that only wired can deliver the best service. That may be true, but how many would be willing to sacrifice some quality for freedom of movement? Surely, some flexibility is warranted? The Coalition at least offers that.
Finally, the government has sold broadband as a private good. There are many Australians who feel uncomfortable about their private consumption receiving funding from the public purse. But it could be more. An NBN provides the potential to put basic broadband in everyone’s home, at which time it can be used to economise on government services; something that is not possible so long as broadband is not everywhere.
Someone needs to ”let Labor be Labor” on broadband and sell the NBN as a public good and not a private one. Until then, the argument is akin to that for nuclear submarines in Yes Prime Minister: ”Fibre to the Home is the Best and Australia must have the Best.” That rings hollow.
Many will argue that the NBN will be the catalyst that drives demand and new applications and whatever economic consequences flow from it. That may be true, but it also highlights the key difference between the NBN and the Coalition policy.
The idea that if you build it they will come is similar to Say’s Law that ”supply creates its own demand”. This is in contrast to the Coalition’s policy that is premised on the idea that ”demand will create its own supply”. That is: if people want to purchase broadband, the market will provide it.
I think both of these notions are incorrect with respect to broadband but it is interesting to note that they are precisely the opposite of the usual political positions taken with regard to public expenditures to stimulate the economy. The right usually argues that recessions will take care of themselves because demand will come back of its own accord while the left usually considers that inadequate and wants to stimulate demand directly. How we ended up in this strange world on broadband will be puzzling political scientists for years to come.
Joshua Gans is an economics professor at Melbourne Business School and a visiting scholar at Harvard University.