Lack of Policy Won’t Stop NBN

19 November 2010

The Australian

Katie Lahey
Chief Executive, Business Council of Australia

Our parliamentarians and public servants should be given the information to ensure the National Broadband Network model, a government-owned monopoly wholesale fibre access network, is in the national interest.

The NBN was touted as Australia’s largest infrastructure investment, which would reshape the telecommunications market.

Eighteen months after the government announced its radical, $43 billion proposal to establish a new business to roll out the network, many of the details are still being worked through.

Parliamentarians are being asked to pass laws that pave the way for the NBN at the expense of longstanding competition laws. Public servants are still grappling with implementing a project serving multiple, often conflicting, policy objectives.

The numerous policy objectives include: supporting productivity; supporting retail market competition; commercial viability of NBN Co; competitive neutrality (that is, in effect supporting wholesale market competition); a single national wholesale price; an optical fibre access network; growing wireless networks through new spectrum allocations; the restructure of an existing privately owned business and preparing NBN Co for eventual private sale.

It is perhaps not surprising given the ambitious and highly interventionist nature of the policy that the implementation of the NBN is running into conflict with long-established policies to promote competitive and efficient markets and to achieve value for taxpayers’ money.

The Organisation for Economic Co-operation and Development neatly exposed the policy predicaments that have arisen by saying government intervention “should not trigger a weakening of competition in wholesale broadband services to protect the viability of the government project”. Some recent examples bear out this concern.

Legislation was passed in the lower house this week that provides significant exemptions for the NBN from the Competition and Consumer Act. These exemptions shore up the viability of the NBN and are claimed to be “in the national interest”.

Yet the claim has not been backed by an assessment of the trade-off between NBN viability and lessening of competition. Australia’s competition laws were themselves designed to serve the national interest and exemptions should not be granted lightly.

Another example is in NBN Co’s proposal before the Australian Competition and Consumer Commission to effectively give NBN Co a dominant position in regional networks and leave competitors’ assets stranded, again in the interest of NBN viability.

Yet NBN Co’s joint shareholder, the Communications Minister, has said “the lack of competitive backbone infrastructure is one of the biggest obstacles for fast, affordable broadband in regional areas”.

The policy uncertainty is creating regulatory risk for industry.

Treasury’s incoming government advice picks up on these concerns and advises cabinet to assess the NBN policy carefully for its effects on efficiency and competition in telecommunications and related markets. These warnings are echoed by the OECD. Treasury is also concerned about taxpayers eventually bearing the costs of this project.

One of the ways to protect against a weakening of wholesale competition is to ensure the full application of competitive neutrality obligations to the new government business, NBN Co, so it does not receive a competitive advantage because of its public ownership. Yet the government’s competitive neutrality reporting has thus far excluded an assessment of the NBN Co business.

To be frank, the lack of policy rigour by the government is contributing to the widespread unease with the costs and risks of the government’s model.

The government has refused a cost–benefit analysis as a waste of money and time.

It is time for a rethink.

Fast, reliable and affordable broadband is important for productivity and for delivering the online health and education services of the future. But we need to get the industry model right to provide consumers in Australia’s cities, towns and regions with the broadband services and speeds they demand at the lowest cost.

The Business Council of Australia has consistently argued for a cost–benefit analysis of the NBN to demonstrate it is in the national interest. We support proposals that the Productivity Commission undertake this analysis as quickly as possible.

Cost–benefit analysis takes into account the widest set of economic and social benefits and costs of the government’s NBN policy.

It includes techniques for adequately dealing with uncertainties around future benefits. It can compare the government’s model to other approaches for cost-effective provision of broadband to our cities and regions.

Further, it allows for a comparison of the benefits of investing $43bn in fibre networks against other potential uses for that money, be that to build schools, hospitals, transport infrastructure or any other pressing need.

While we support calls for greater transparency around the NBN Co business plan, it will not do the job of a robust cost–benefit analysis. NBN Co’s business plan, when released, can be expected to provide important information on costs and prices and the expected financial returns.

A business plan, however, does not tell us if there is a better way to develop broadband markets and whether the $43bn investment and changes to competition policy will deliver the best outcomes for consumers and are in the national interest.

A cost–benefit analysis commissioned now could be completed without delaying the NBN rollout and would give all of us confidence that we are heading down the right path.

If it identifies a better way forward then the government should be prepared to change its policy.

Getting Australia’s broadband model right is so important for our long-term interest that cost–benefit analysis is essential and in everyone’s interests.



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