The NBN needs emergency triage

Now that the election is done and sorted and there isn’t a hung parliament, it is time for Australia to get on to the job of urgent policy-making. There are lots of areas in need of help but I am going to focus here on one close to my heart: broadband.

By any measure, broadband policy in Australia has been an abject failure. Despite brief moments of hope, we moved from a regulatory morass dominated by a private monopoly to a set of deals and politics dominated by a government monopoly. No one advocated for this but in the reality of political mess that is what happened. As a result, broadband has not improved in almost a decade. Indeed, much of regular internet use by ordinary Australians has moved to wireless.

I know the Prime Minister agrees with me about this because he and I had a public conversation on it in 2011 before the Coalition was in government. You can read the transcript here. But I suspect that political truths have prevented progress. Thus, the first course of action is to cut out those political truths.

The first one is that one size cannot fit all in broadband. There is variation in demand. There is variation in the costs of supply. That means setting equal terms in urban and rural areas won’t cut it. It is far better to explicitly subsidise than cross-subsidise. Full stop. But because it takes time, a period of unequal pricing and quality is necessary. Any solution that tries to do otherwise will only continue the morass.

The second one is that the NBN’s active role needs to be diminished. It needs to retreat to the backbone. I am not sure what architectural requirements would be needed but taking any customer facing role of the NBN (they may not be any but it is hard to tell from the media reporting) and divesting it — and yes privatising it — is probably the right way to go. If you don’t want privatisation, then split it up into local areas and hand it over to local government. Broadband is not a national public good it is a local one. It shares more in common with garbage collection than defense. Treat it that way.

The third is that it then needs a clear open access regime. We need to encourage retail competition at the local level. Full stop.

The fourth thing is that we need to diminish any sort of exclusivity the NBN has. Any sort. Mobile should be able to compete with it fully. Other wired providers should be able to build over the top of it.

The fifth thing is that a temporary sacrifice in local environmental regulations on wires not in the ground needs to be nationally suspended. The idea is to allow these unsightly things for 5 years on the condition that they be then grounded. Sorry. That is what the rest of the world has done. If local governments want to pay to speed up grounding them then fine. It should not slow down any rollouts.

The final thing is a big one. After all these years we have learned that the biggest broadband use is video consumption mostly for private purposes. The wholesale pricing model and also retail ones will need to switch to something that ensures that those consumers using the most video have to pay more. That means no ‘under the count’ options. You will find them willing. The only thing is that means broadband caps as a default. That sucks — I know — I pay to have mine removed but the economics require it.

If it is wanted to make this more politically compatible then the basic free account is something that can be offered. That will open up the notion of broadband as a citizen right.

[Updated to reflect user comments and clarifications]

3 thoughts on “The NBN needs emergency triage”

  1. “It shares more in common with garbage collection than defense. Treat it that way” It shares more in common with roads and sewerage than either of those things.

    “The fourth thing is that we need to diminish any sort of exclusivity the NBN has. Any sort. Mobile should be able to compete with it fully. Other wired providers should be able to build over the top of it.”

    Mobile/wireless will never really be able to compete. One of the core mathematical/physical laws of communications engineering is Shannon’s law. It lays out the fundamental relationship between noise and bandwidth, it’s been an active topic of research for fifty years, but the fundamentals have remained constant. It will still be going strong long after every economic ‘law’ is dead and buried.

    There’s a kind of rule of thumb that people use that governments can’t choose technology well – that markets have to find the right technology, especially for high technology, and ninety nine percent of the time that’s right. But they forget that it’s just a rule of thumb, and occasionally elevate it to dogma.

    Transmission of data isn’t like other technologies – it has no real moving parts. We can mathematically create ‘ideal’ data transmission, and can measure our real technologies against that ideal, and fibre optics stacks up really well, because it has no noise. (twisted copper pair stacks up badly because magnetic fields cause noise and they create magnetic fields themselves, creating ‘crosstalk’. Ditto wireless/mobile) It’s one of those rare cases where we can point to it and say ‘this is the technology of the future’.

    It’s not there already because it’s a natural monopoly. It costs a lot to install, and whoever owns the copper can sit and take rent, which is what Telstra did for years.

    That’s why the MTM is ideological folly. The ultimate end game is fibre to the premesis. The only question is how long it will take to get there and how much it will cost while we go through all of the bad solutions first for political expediency.


  2. Joshua, your article demonstrates a clear lack of knowledge of telecommunications, broadband and the digital economy. Dismissing all three, as elegantly as your article does, would be a national disaster. Before one is able to comment on the economics of the Australian telecommunication market, it is vital to understand and focus on the legislative and regulatory environment,and it is here that the real problem lies, not cables in trees and poles rather than underground.

    And of course, the wireless gem continues to have legs giving technical experts an opportunity to have a chuckle.

    An esoteric approach to the issues facing Australians is rather cute, but for an economist possibly the answer lies in providing an example of a market that is working well, there are about 180 that you could choose from and analyse. Possibly, you could look close by and point at what is happening in New Zealand.

    The key to what you’ve written is that FTTP is the only way forward, and for this you should be applauded.


  3. Mark, if you write that someone shows “a clear lack of knowledge” and don’t back that statement up with evidence, you tend to make yourself ignorable by all those who have engaged with Joshua over the years and found his understanding to be pretty good. Can I suggest you think a little more about whether this is a great way to engage?


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