NBN Committee Inquiry: I’ve seen nothing persuasive yet

Does it make sense to spend some $50 billion on the National Broadband Network?  The Rudd-Gillard government has not made any systematic attempt to find out.

But they have commissioned an inquiry by the House of Representatives Committee on Infrastructure and Communications – a committee that I sit on.  Essentially it is an exercise in trawling for anecdotes about all of the good things that an NBN could do. We are charged with examining the capacity of the NBN to ‘contribute to’ a whole range of areas including education, health and economic growth.  It is fundamentally a political exercise designed to gather up supportive statements from various people who support the NBN. 

An indicator of its political motivations is that, remarkably, the terms of reference fail to make any reference to cost.  (The furthest nod in this direction is that the Committee is asked to investigate which technology is most suitable to deliver all of these benefits.)  Now there is never any shortage of things which governments are urged to spend money on – but with finite funds available, the only sensible approach is to rank all of the proposed projects based on which delivers the most benefit for the costs expended.

Since the NBN was announced the Coalition has consistently called for a full, formal cost benefit study to be conducted – both because it is good practice before any such major commitment of public money, and also because we believe that the Rudd-Gillard government should live up to its stated commitments on infrastructure.  Unfortunately, the Rudd-Gillard government has consistently refused to conduct such an exercise. 

This is particularly disappointing given their supposed commitment to just such an approach.  After coming to power in 2007, they established Infrastructure Australia – the body which supposedly oversees all proposed major infrastructure projects in Australia and carries out a structured assessment of whether such projects should be funded.  One of its core operating principles: there should be a cost-benefit study done before any significant project is approved. 

At an early meeting of the House of Representatives Committee, I proposed that we engage the Productivity Commission to conduct a cost benefit study to inform the Committee in its work. With Coalition members being in a minority on the Committee, my suggestion was rejected on party lines.  Instead, it seems that our approach will be to conduct a trawling expedition, trying to find anyone who has anything at all to say in support of Labor’s national broadband network. 

So far we have had two public hearings, one in Canberra last week and one in Launceston today.  They have been instructive – but not persuasive. Last week, in Canberra, we heard from several government officials.  They did a very poor job of making a case for this immensely expensive project.

For example, when officials from the Department of Health and Ageing appeared, I was expecting that they would provide substantive back up for the claims constantly made by Gillard government Ministers about the marvellous health and telemedicine applications coming our way thanks to the NBN.

To that end, I asked what advice the Department had provided to the Rudd Government prior to its April 2009 announcement that it was abandoning its previous $4.7 billion plan for a national 12 Mbps fibre to the node network, and replacing it with a 100 Mbps fibre to the home network. 

Perhaps naively, I assumed that I would be told that the Rudd government had taken comprehensive advice from key departments on the benefits – and costs – of a 100 Mbps network versus a 12 Mbps network.

To my surprise they were unable to answer the question – the best they could do was take the question on notice.

To my even greater surprise, when I asked what speed the Department of Health considered was necessary for health and telemedicine applications, they could not answer.  “’High speed” was the best they could offer – before rather limply suggesting that this depended on what ‘clinicians’ (a bureaucratic word meaning ‘doctors’) thought was necessary.

Interestingly, earlier in the day the committee heard from doctors, first representing the National Rural Health Alliance and secondly the Australian Medical Association.  Both expressed support for improving Australia’s broadband infrastructure and the benefits that would offer the health sector, and instanced for example video applications – but specifically declined to specify speeds or technologies, saying (quite understandably) that this was outside their competence.

When the Gillard government is committing up to $50 billion of taxpayers’ money on the NBN, it is troubling that the federal Department responsible for health policy is unable to provide even the most basic evidence and data in support of the benefits of providing a ubiquitous 100 Mbps network.

An equally unpersuasive case was made later in the day by officials from the Department of Industry.  In an insouciant opening submission remarkable for its tone of lofty generality, an official advised the Committee that the benefits of the NBN included benefits to small business, to Questacon (the Canberra-based science education facility) the Square Kilometre Array (a planned new telescope in the north of Western Australia) and the Australian Research Education Network.  They offered no quantitative evidence - and like their colleagues from the Department of Health, they could not say what advice the Department had given prior to the April 2009 Fibre to the Home announcement, again saying they would have to take the question on notice.

As I write, we have just finished a day of hearings in Launceston.  Tasmania is a significant location for the National Broadband Network because it is the state where the first three network rollout sites are located.  This in turn reflects the advocacy of the Tasmanian State government, which has long been enthusiastic about securing federal government funding for improved broadband network infrastructure in Tasmania.

Our day began in Scottsdale, a small town an hour’s drive from Launceston which is one of the three initial NBN sites in Tasmania.   We were shown the overhead cables connecting a number of homes to the network; the street cabinet which is designed to serve around 280 premises; the “pit” in the street where the underground fibre is accessible; and the “fibre  access node” from which the network fans out to the homes across the town.   Lots of shiny new equipment – and we were proudly told that the owners of some seventy per cent of premises had agreed to them being connected to the network.

The NBN staff, and local council staff, we met were commendably enthusiastic and knowledgeable.  But as a Commonwealth Parliamentarian investigating this early outpost of such a massive new publicly funded project, I couldn’t help wondering about a few things.  First, is it particularly surprising that 70 per cent of homes had agreed to be connected to the network – when it is free to do so? Secondly, isn’t the more relevant statistic the number of homes which are currently taking a commercial service over the network?  This number is much lower: only fifteen per cent of people in Scottsdale have seen it as worthwhile to take a service.  Thirdly, when we got the chance to speak to people who are using the network, we found that an important factor in their decision was the fact that the current retail price of broadband services over the NBN is cheaper than obtaining an ADSL service from Telstra: one lady told us that she pays $39.95 a month to Telstra for ADSL but only $29.95 a month to the retail service provider from whom she is taking a service over the NBN.

Now there is one very important detail to be aware of in considering whether these low retail prices are going to persist, and drive take up on the NBN. Scottsdale is a trial, with four retail service providers participating, along with NBN Co.   NBN Co is providing the service to retail service providers for free.  So the prices which are currently being charged are no indication of what consumers will ultimately pay once NBN Co is up and running.   In fact, we know from NBN Co’s Corporate Plan – publicly released in December 2010 – that its entry level wholesale price will be $24 per customer per month, plus a separate charge for aggregation which will probably add an additional $1-2 per month per customer.  Once retailers are paying a wholesale price of $26 or so, it seems a virtual certainty that a $29.95 retail offering is not going to last for long.

After visiting Scottsdale, we assembled in Launceston to hold a formal hearing, with witnesses including representatives of the local council and the local chamber of commerce; lobby group Digital Tasmania; Tasmanian Farmers; and Regional Development Australia.
Unsurprisingly, we learned that Scottsdale’s civic leaders are pretty keen on the NBN.  They spoke warmly of the amount of money pumped into the town during the construction phase, running from late 2009 through to December 2010.  But when I asked about specific – and ongoing - economic benefits which they could demonstrate from having the national broadband network in their town, not much was forthcoming. 

We learned that the town’s new high speed connections had attracted a couple of owners of IT businesses (and their families) to move to Scottsdale from other parts of Australia. (While that is certainly a benefit to the local community, it offers no justification for building such a network nationally.) But there was nothing new happening in telemedicine or distance education they could point to.  Nor it seems is the new broadband infrastructure leading to a revolution in the way people are doing business in Scottsdale.  When I asked representatives of the Chamber of Commerce whether they could identify ways in which they had changed their businesses to take advantage of the new high speed internet connections on offer, they could not offer any examples. 

As for the Tasmanian branch of Regional Development Australia, while they were generally in favour of an NBN, they could not specify any particular business they had spoken to in recent months with plans to change its way of operating to take advantage of the NBN.  They did report surveying a 1500 strong list of companies and other stakeholders regarding the NBN.  But their survey received a grand total of 2 responses: not exactly compelling evidence of burning business enthusiasm to adopt new methods based on improved broadband infrastructure. With RDA’s funding comes from the federal government, it is no great surprise that they expressed views supporting a federal government policy.

After today’s hearing, I felt I had met some genuine people who care passionately about their local community.  I certainly do not for a second criticise the people of Scottsdale for welcoming a new piece of infrastructure in their town.  On the contrary, I very much admire those who appeared before the inquiry yesterday, from the Scottsdale community and other Tasmanian groups, for their commitment to their stakeholders. 

But the question for this committee is a different one.  Does the evidence before us offer a persuasive case that spending some $50 billion on a wholly government owned company to build a brand new broadband network is a good idea?  Nobody doubts that competition in fixed line telecommunications needs to be improved; nobody doubts that Australia’s broadband infrastructure needs to be upgraded.   The issue is whether Labor’s particular plan to do it is a good one.  On the evidence we have seen so far presented to this inquiry, I for one am wholly unpersuaded.