Where the NBN went wrong

Dr Justin Pyvis Dr Justin's picture

The NBN, or National Broadband Network, is perhaps the biggest white elephant in modern-day Australia.

"The total cost of the National Broadband Network will now be $51 billion, including a $1 billion contingency, and its internal rate of return forecast has been lowered from a range of 3.2 per cent to 3.7 per cent, down to 3.2 per cent."

But the problem isn't just the accounting cost. While it's a huge number, the real devil is in the detail. Much like South Australia's submarine endeavour, the $51 billion may have cost Australians less if it was simply tossed into the ocean.

For the NBN to exist, the government had to create a regulatory apparatus to rival that of the much-maligned former government monopoly Telecom (now called Telstra). Cross-subsidies were the name of the game -- for example, subsidising rural users at the expense of city dwellers -- and those costs do not show up on the federal balance sheet.

Nor do the costs of a loss of dynamism show up on the federal balance sheet. Given its mandatory cross-subsidisation, the NBN will not be able to survive on its own eight legs so it will need to be wrapped in cotton wool, sheltered from the brutality of market forces. If competitors were able to enter and offer competing services, its entire business case would unravel.

Unfortunately for consumers, as a regulated monopoly that also means the NBN will have a low incentive to innovate or reduce costs, eventually resulting in less progress, higher prices and a poorer outcome than if it had never come into existence in the first place.

The NBN was never a good idea; it solved a problem that never existed. Even when it was announced, consumers were already beginning to switch to wireless. More than half of NBN users still select the 25Mbps option, which is about the same speed as ADSL2+ and slower than Telstra and Optus cable connections, all of which existed prior to the NBN.

But fear not, for there is one saving grace. The Australian Competition and Consumer Commission (ACCC) opted not to forbid competition from fixed-wireless, satellite, or mobile broadband services. Thus, barring some government action down the road, all of its monopoly protection measures are exclusively restricted to fixed-line broadband connections. That means competition will come in wireless technology, which anyone with their finger on the pulse back in 2009 should have realised.

Already the major Australian telcos are rolling out their respective 5G wireless networks, with Telstra and Optus looking to launch in 2019, and Vodafone in 2020. Telstra has reported trial speeds of 3,000Mbps, or 30 times as a fast as the maximum speed of an NBN 100 connection. With competition banned on fixed-line services, there's a huge incentive for innovation and efficiency dividends in the wireless market.

So perhaps, provided the government keeps its fist away from wireless networks, the eventual losses to Australians won't be as severe as they were in the old days of Telecom. Except for the $51 billion already spent of course. That's long gone.