Public-private partnerships

As promised, I am now going to turn my attention to the issue how the financial arrangements in Labor’s broadband plan. From what I can gather, the nationwide broadband infrastructure will be a public-private partnership — effectively a joint venture with (I think) the Federal government holding a 50 percent stake in the venture. It will also be subject to a regulatory regime.

Such partnerships have the benefit of not requiring the government to put up all of the capital for infrastructure. They also may have the benefit of injecting more commercial concerns into the mix. But the talk today is that this is some form of departure from Labor’s current Telstra policy. That Labor will use (and I presume divest) the government’s remaining 17 percent stake in Telstra to fund their part of the deal. 

I should say, first, that this divesture is a welcome one. The stake in Telstra — being so large — leaves the government conflicted in imposing competitive regulations in the telecommunications industry. Getting rid of it should free it up.

Alas, the public-private partnership might present similar conflicts. For one, the government will now have a vested interest in broadband communications. This may well mean that it will regulate to promote broadband profits (as opposed to social value) which could involve protecting it from competition (rather than opening it up to competition) and also favouring it over other forms of telecommunications. (At the surface, given the bias towards broadcast media this might be a good thing, but there is a twist that I get to below). So the conflict remains.

One seemingly positive aspect is that this would allow a competitive tender for being the private partner. All going well, that would mean a cost effective outcome for broadband (a good thing). But it will also mean tight regulation to see those outcomes translate into social value. Absent this, providers will release that winning the tender will come with monopoly rents later down the track. That will make bidding more aggressive but will effectively mean that the government is saving dollars of financing for its own stake in that monopoly.

But will we even get that? Will there be enough competition to ensure that the value flows to the government?

Senator Conroy said the proposal would not lock out smaller players or ruin existing network investments.

“Everyone can buy into this proposal, they just have to sit and talk to each other. The more interest, the better from our perspective. We want the competitive tension to be created,” he said. [From]

This statement looks naive. There are not many players who can provide the network. Also, anyone other than Telstra doing it will have to deal with Telstra; that will mean that Telstra will get a slice of the action regardless of the outcome (again crimping the competitive tender process). No wonder industry players are thrilled with the possibilities here. For example:

Telstra also welcomed the proposal. “Senator Conroy made clear the ALP is prepared to do what is necessary to ensure Australia has a globally-competitive broadband infrastructure, including removing the regulatory roadblocks to investment in a national FTTN network,” Telstra group managing director, public policy and communications Phil Burgess said.

This suggests to me that Telstra does not see years of tough regulation ahead. Indeed, it expects the ACCC to be bypassed in this process; so much for an independent regulator.

And what of the other beneficiaries? Peter Martin has it right on this one. The main current benefit of higher speed broadband is internet television and downloads of media content. It is true that this will really speed that up. But who will get the benefits? I doubt that iTunes will be opening up its US TV content to Australia precisely because those providers earn too much from traditional broadcast media through exclusive relationships.

And in terms of other services, it is unlikely that e-Education and e-Health services will be available in regional areas any time soon. Those are still density related and rely on local practitioners adopting services. In this respect, wiring the outback could be a very expensive undertaking. The money would be better spent on making the services available rather than just putting the wires in the ground and hoping people will drink.

The one thing Labor have got going for it is that they have announced a policy in relation to high speed broadband. This is something the government is yet to do. I am pretty sure they will and the gap that Labor has left them by proposing second rather than first best speeds will likely be filled. However, this may well be even more expensive, more likely to benefit existing players and lower in marginal value than the Labor one. Rest assured this is not the last we are going to hear on this.

Update: I did a couple of interviews today on the radio about this stuff. One on Radio National and one on ABC Canberra under my new pseudonym, Professor Paul Gans.

One thought on “Public-private partnerships”

  1. I really don’t see the point in chosing a technology ie. FTTN like this policy seems to be doing.

    The HFC (cable tv) networks laid down by Telstra and Optus already do 10Mb/s or greater, they could do 30Mb/s with little investment (Neighbourhood Cable does 30Mb/s today). With analogue pay tv being shutdown there will be spectrum avaliable for DOCSIS 3.0 which gives 160Mb/s. The existing HFC networks pass what? 2.5-3 million homes?

    ADSL 2+ offers speeds close enough or greater (depending on distance to the exchange) to those proposed. I don’t have any numbers regarding the coverage of ADSL 2+ but the roll out seems to be serving metropolitan australia well so far.

    This leaves us people in non-metropolitan Australia. The WiMax wireless protocol which in the real world will reliably give 2-10Mb/s (greater than 20Mb/s in some circumstances) appears to be a logical solution for regional Australia (Unwired and Austar seem to be pursuing this avenue).

    If the government could get it’s act together and shut down analogue free to air TV there would be massive ammounts of bandwidth for broadband applications.

    I could go on, the point is that there is a myriad of ways to deliver broadband, that’s the whole point of how the internet was designed.

    So, with the the above technologies (and maybe FTTN in some areas if there is a vialbe business case) the vast bulk of the population already has or will have access to “true” broadband without the massive government expenditure.

    The best thing to do right now would be to decide apon a regulatory regime get out of the way and have a bit of patience.


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