Paul's Blog: Two approaches to Broadband

If you want to understand the different philosophies of the Labor and the Liberal Parties, the two parties’ broadband polices in the 2010 election are a good place to look.

Labor plans to splash around $43 billion of taxpayers’ money – which supposedly will connect over ten million premises to a high speed fibre optic network, rocket us to world leadership, and deliver all manner of dazzling benefits besides.

But anyone who remembers Labor’s failed promises from the 2007 election would ask a few questions before taking this new policy at face value.

What precisely are the benefits that taxpayers will get for their $43 billion?

Broadband Minister Conroy has consistently refused to conduct a cost-benefit study - so there is no evidence that the benefits justify the costs.

Can we trust a Labor government to deliver this hugely complex project - which requires laying over 250,000 kilometres of fibre all across Australia – when they could not even give away free pink batts without making a huge mess of it?

What about the finances of this network, which Labor claims will generate a positive financial return, thus allowing them to treat it as an off-budget ‘investment’ and not on-budget expenditure?

Labor paid consultants McKinsey and KPMG $25 million to reach the conclusion of a positive financial return.  The best the consultants could do was project a return of 6-8%.

The private sector would typically require 20% for a project this risky.

But even the measly 6-8% requires an assumption that 70-90% of all households would pay for high speed broadband services over the NBN.  How realistic is this assumption?

What about the ownership of Labor’s NBN?  Kevin Rudd and Stephen Conroy said it would be a joint private-public venture.  So why do the consultants now say it will have to be entirely government owned – and taxpayer funded – until the network is fully built?

With Labor creating a new government owned monopoly telephone company, what will that do to competition in telecommunications?  After all, we’ve spent the last twenty years opening up the sector to competition and withdrawing from direct government ownership.

Why will the taxpayer-funded NBN overbuild the hybrid-fibre coax (HFC) networks of Telstra and Optus?

Telstra’s HFC network already delivers up to 100 Mbps in Melbourne and Optus has just upgraded its HFC to 70 Mbps  – and these two networks between them can already serve well over a quarter of Australian households.     

Most importantly, what will the high speeds on the NBN actually be used for? 

In countries like the US and Germany, when carriers like AT&T, Verizon and Deutsche Telekom have upgraded their existing telephone networks (using private money, not government money) to fibre to the node or fibre to the home, delivering speeds of between 50 and 100 Mbps, the main reason has been to deliver video and especially pay television.

But surely Labor wouldn’t be proposing a $43 billion public investment just so we could all watch reruns of I Love Lucy over our broadband network?

Do they have a detailed and specific list of publicly beneficial applications which need 100 Mbps delivered to every home, applications for which today’s broadband speeds of 10-20 Mbps are just not good enough? 

Or was Labor’s fibre to the premises network announced in April 2009 for purely political reasons? 

Was it done to distract attention from the dismal failure of the broadband plan they took to the 2007 election – a plan for a fibre to the node network?

Labor has given no satisfactory answers to any of these questions.

Fortunately, there is a much better approach on offer.

Last week the Coalition’s Broadband Spokesman Tony Smith announced a carefully designed broadband policy, committing some $6.3 billion of public money for improved services.

Our policy emphasises government’s role in getting reasonable services, quickly, to those who are underserved today. 

For example, over one million households today cannot get DSL (the most common broadband technology) because of DSL blockers such as ‘pair gain systems’.

So we have committed $750 million for removing DSL blockers, and for other quick wins in the fixed broadband network.

We’ve allocated one billion dollars for wireless networks offering 12 Mbps peak speed broadband in rural and remote Australia. Labor’s plan uses exactly the same technology, with the same speed and requiring the same spectrum, in rural and remote areas.

We will provide another one billion dollars for metropolitan wireless networks.

Our approach is cost-effective - and a prudent use of taxpayer’s money.

At the same time, we will drive further penetration of optical fibre in the network. 

We will spend $2.75 billion, and leverage a further $750 million of private sector funding, for a national competitive fibre optic backbone of 60-70,000 kilometres, designed to ‘break the broadband bottleneck.’

The Coalition believes there are limits on what government – as opposed to the private sector – should fund.

Building a fibre optic connection to around 10 million premises nationally is a hugely expensive exercise.  The great bulk of the cost is in the ‘last mile’ – the installation to each individual home.

Rather than relying on government mandate, our policy will unleash competitive forces from new wireless networks.

Telstra will have a strong incentive to respond by rolling out more fibre - so it can differentiate by offering higher bandwidth services.

At this election, the broadband policies of the two parties offer a very clear choice.

One is a grandiose plan, driven by a political imperative rather than by any rigorous social or economic justification of why it is needed, with a much expanded role for government and a breathtaking bill for taxpayers.

The other is a carefully designed plan which spends much less money; which rapidly delivers service to those who are underserved today; and which delivers structural reform to increase competition in broadband and telecommunications.

It’s a very clear choice.