Graeme Philipson
October 31, 2016

Cheeriness on NBN is premature

Infrastructure

Cheeriness on NBN is premature

Anthony Albanese: 

Everybody – at least nearly everybody – loves infrastructure. We love trains and bridges and tunnels and stuff. And politicians love infrastructure more than anybody. They love announcing big projects and visiting them in fluoro vests while they are being built and cutting the ribbon at the end.

But lot can go wrong, and infrastructure projects can become political footballs. Because the projects are usually big, they can also beget big problems.

We need look no further than Australia’s largest infrastructure project, the National Broadband Network. The NBN caused problems for Labor, who conceived it, and it has caused problems for the Coalition, who inherited it.

The interminable to-and-fro and blame shifting over the NBN is something of a national embarrassment, even as Australia’s standing in the international league tables of broadband connectivity continues to plummet.

To listen to Labor, they had it all planned, and after a few teething problems we were on track to a wonderful fibre future. To listen to the Coalition, Labor’s plan was way off track and the only way we will ever get any sort of network is because of the clever cost cutting enabled by the wondrous multi-technology mix.

As InnovationAus.com pointed out recently, the level of debate over the NBN has descended into farce and name-calling. I followed all this pretty closely when I was editor of CommsWire, a daily communications newsletter, for a couple of years. I was not a pretty sight.

I was reminded of the debate when I saw two speeches, both delivered just last week, one from Communications Minister Mitch Fifield and one from Anthony ‘Albo’ Albanese, ALP infrastructure spokesman and former Deputy Prime Minister and Minister for Communications (during Kevin Rudd’s brief second coming).

Albo was speaking at the Queensland Business Infrastructure Forum on the Gold Coast last Friday. After his obligatory swipes at the Coalition’s lack of infrastructure investment, at both the state and federal levels – and pointing out in passing that it was Labor that established Infrastructure Australian in 2008 - he made the traditional defence of the original all-fibre NBN.

“It is beyond me how a Federal Government that runs on a mantra of jobs and growth could be so blind to the importance of communication in driving jobs and growth,” Mr Albanese said.

“In the 21st century, Australia won’t be able to capitalise on our innovation unless we have world-class broadband. In the 21st century, world-class broadband is as important to the success of a business as roads.”

“Indeed, fibre to the home and business ought to be considered a basic utility, like water, electricity or sewerage. It saddens me to watch the current Government delivering 19th century copper-based technology that, within a very short time, will have to be torn out and brought up to date to keep our nation internationally competitive.

"Based on the feedback I get as I travel the country, Australians are saddened too.”

We needn’t go over all the arguments pro and con fibre. It’s been done to death. Communications Minister Mitch Fifield, in a talk last week to Gerard Henderson’s right-wing think tank the Sydney Institute, talked of Labor’s ‘failed project’, citing the fact that only 51,000 customers had been connected after four years.

This is a common line of argument from critics of Labor’s NBN, but it intellectually dishonest because it ignores the fact that a massive amount of infrastructure needed to be built before s single customer could be connected.

“Labor had taken a theological approach to the NBN,” said Mr Fifield. “Fibre everywhere. Regardless of the cost. Regardless of the time.

“Former Senator Conroy was the high priest. He had his own theology and a small but devout group of followers. Anyone who questioned this approach was a heretic. A fibre denier.”

Well, there is little doubt the whole thing has become religious, and as impervious to reason as that field of human activity. The Coalition has now been in charge of the NBN for as long as was Labor, and its execution has been dogged by delays and cost overruns, with its own level of orthodoxy and perceived heresy at least equalling Labor’s.

To listen to Mitch Fifield all is wonderful, and if there are any problems they are all Labor’s fault. The NBN is on budget and on target, he said, which sounds fine, except the goal posts have been moved a couple of times.

He also boasted about how the NBN would be using existing pay TV cabling, but it’s probably best that we don’t go there now that the Optus network had been found to be unusable.

The most interesting thing about Mr Fifield’s predictable piece of self-congratulation, in the company of friends, was the comments he made about NBN’s wholesale pricing.

“NBN’s pricing model was developed to foster broadband take-up and give retail phone and internet providers flexibility to differentiate their products and cater to various market segments,” Senator Fifield said.

“The pricing and access arrangements of the old networks are not easily comparable with the new NBN model. When looking for benchmarks, Telstra’s unitised wholesale prices are probably the best guide.

“A measure of the costs to retailers accessing Telstra’s ADSL and phone network is the ‘total bundle of fixed wholesale services’. The average across this range of services is around $33 per month.

“In comparison, the average revenue per user on the NBN is currently $43 per month and take-up has continued strongly across all technologies.”

Well, ‘strong’ is a relative term. Many have commented on the slow takeup of NBN in areas where it is available.

He did not go into greater detail, but his comments seem to indicate that he is taking notice of the increasing criticism of the existing NBN wholesale pricing model, which is based on a combination of the AVC (Access Virtual Circuit), which is a flat fee for connectivity, and CVC (Connectivity Virtual Circuit) which varies according to usage.

Many are concerned that this formula means NBN prices will be too high. Most broadband resellers like to charge a fixed price, but that is not possible with the NBN’s current wholesale pricing model.

With the massive growth in high bandwidth applications like video on demand it is likely that NBN usage will become prohibitively expensive for end users who use high amounts of data – which is an increasing proportion of them.

The current wholesale price for an AVC is $38, but with the CVC component based on usage, it is likely that the average overall cost per month will be much more than many user will be prepared to pay.

The NBN has not addressed these issues, other than to say that the CVC will be progressively reduced as overall usage of the NBN increases. But by how much?

There is no indication that any reduction will be sufficient to make pricing attractive for the majority of users, who will have to watch their digital consumption closely.

Critics say that any usage based fee, rather than the flat rate connection fee charged in countries such as Singapore and New Zealand, will condemn Australia to high costs and low usage.

Do his comments means that perhaps Mitch Fifield is coming around to this view? Or is he congratulating himself a little prematurely?

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