This article by Shadow Communications Minister Malcolm Turnbull first appeared on his site and is re-published here with the permission of his office.
opinion The Sydney Morning Herald today published an oped of mine about the need for greater transparency on the economics of the NBN and also an editorial in which it broadly supported the need for full disclosure of the financial analysis, business plan which (hopefully) underpins the investment.
However the Herald went on to take issue with my businessman-like desire for financial clarity and made this point: “Turnbull also argues that government should not invest in projects which the private sector deems uncommercial. But that is precisely the role of government – to provide the public services and infrastructure that no one company has the incentive to build, but from which all citizens benefit.”
The editorial goes on to compare the NBN with schools and hospitals: “But perhaps his experience as a businessman blinds him to the realities of government. It leads him to apply the sort of investment analysis a private company might do in deciding whether to set up a new business. Were the government to take a similar attitude to spending money, arguably nothing would get built. Who knows how long it takes before a school or hospital starts to earn a commercial rate of return?”
The Herald should not let the Government off the hook here so lightly. The NBN is not a public good, like a school or hospital, provided (essentially) free of charge to the public. It is a commercial business which will charge for its services. The Government has held it out as being so commercial that the private sector will want to invest in it and in due course buy it from the Government at a price that will recoup the Government’s investment.
In short, this is not a case of my characterising a non-commercial government project as a commercial one, rather it is the Government that has claimed it to be a thoroughly commercial project. It is important to bear in mind here that almost invariably telecommunications networks (including optical fibre to the home networks) are built by the private sector as commercial projects.
In other words the financial benchmarks that are applied to projects of this kind are well understood in Australia and around the world. The technology may be approaching rocket science, but the financial analysis is not.
It is worth recalling Treasury Secretary Dr Ken Henry’s remarks in 2009 about the importance of rigorous cost-benefit analysis:
“To start with, like all government spending, there is a need to ensure that any activity is cost effective. Government spending that does not pass an appropriately defined cost-benefit test necessarily detracts from Australia’s wellbeing. That is, when taxpayer funds are not put to their best use, Australia’s wellbeing is not as high as it otherwise could be. It is important, therefore, that policy-advisers are able to access quality evidence and use robust frameworks to assist governments to judge the relative merits of alternative policies.”
In fact, contrary to the thrust of the Herald editorial, the need for rigorous cost-benefit analysis of Government projects is even greater than it is for private sector projects. I don’t want to labour the politics of this, but we are dealing with a Government that has already wasted billions of dollars incompetently and dangerously installing pink batts in roofs not to speak of massively overpaying for fairly basic school hall buildings.
This is not to say that public sector cost-benefit analysis is always easy or straightforward. Especially when government services are provided free of charge to the user the usual price signals of the market are not present to let you know whether you are doing well (you are making a buck) or badly (you are going broke). But this is not the the case with the NBN.
It is not a case of the Government doing something the private sector would not do (provide free school education) but rather it is doing something which is almost invariably done by the private sector in developed economies.
The NBN is a case of the Government going into business. So we first need to see the full financial model for the NBN, we need to be able to debate and test the assumptions on which it is based and in particular the assumptions relating to market penetration and the average revenue per user expected.
If, as is very likely, the conclusion is that the NBN once completed will have a value much less than its cost we need to have a debate about whether that subsidy is justified by some other intangible benefits. We also need to debate whether those benefits could be obtained by a different, less expensive approach. But above all we must not fall for the proposition that Governments should be subject to less rigorous financial scrutiny or accountability than business.
Dealing as they are with other people’s money, trustees as they are for the financial security of generations to come, Governments must be rigorously transparent and accountable in their investment decisions.
Image credit: Office of Malcolm Turnbull
“Turnbull also argues that government should not invest in projects which the private sector deems uncommercial”
That’s quite a stunning argument from a politician. That’s the sort of thing that looses elections.
He has lost touch. I think SMH hit the nail on the head, and SMH hit a nerve with Turnbull.
If the government never invested in where the private sector didn’t – we would be living in one shit country.
Agreed…and it even ‘loses’ them too!
No worries Malcolm.
The Liberals should now also declare that roads, hospitals, public transport, police and fire services, education, and indeed welfare payments are no longer government responsibilities.
Since none of the above would ever be viable for a private company to deliver upon, on his logic that “government should not invest in projects which the private sector deems uncommercial”, the government should not be involved with them.
Sorry Malcolm – this argument just doesn’t wash.
Australia Post is a commercial business too, surely “charging for service” is not the only indicator as to whether or not an entity should be privately operated?
Read the article Michael…. “It is not a case of the Government doing something the private sector would not do (provide free school education) but rather it is doing something which is almost invariably done by the private sector in developed economies.”
He believes that the private sector will step in, in this situation, and hence the government does not need to spend their money on it. Unfortunately I think he is wrong on this, if Australia is to get fibre, the government needs to step in, hopefully the coalition will not be so disruptive as to block legislation till June.
The private sector will never install FTTH! The only company that can do this is Telstra, but why would they want to? They already control all the infrastructure, why invest in something when they don’t need to? They are already receiving billions based on previous public funding.
Exactly…
Liberals totally lost it. Negative attitude towards NBN has just cost them a tight election capaign and now they are going to do more of the same? Well, good luck, boys. NBN will be your tombstobe, Liberal party.
Nick, in those countries where private sector was willing to step in and build FTTH it was already done many years ago( Korea, Japan). Australian telcos dont want to do that. And you know why? Easy! They want to flog the wireless rubbish which is 30 times more expensive than any cable broadband and simplt does not work in peak hours. The superprofit from wireless made them blind and dumb and totally paralysed.
“It is important to bear in mind here that almost invariably telecommunications networks (including optical fibre to the home networks) are built by the private sector as commercial projects.”
Was the original copper network built by the private sector?
The fact is no commercial operator could ever build the NBN, it requires a level of regulatory guarantee that simply hasn’t existed in this country. Optus experienced this first-hand with it’s HFC network, the incumbent simply followed them down every street duplicating their cable. So now we have two unfinished national HFC networks that pretty much overlay each other and reduce the profitability of both.
It is totally appropriate that a publicly owned and operated entity manages what, for reasons of efficiency, must be a monopoly infrastructure.
Malcolm acknowledges the benefits a nation-wide wholesaling fibre network can bring. He has to attack it because it’s his party’s policy to attack everything. Attacking it on the ground of commercial ‘viability’ is the wrong argument, and it’s totally invalid.
Just jump over to the ALP already Malcolm, they’re actually much more aligned with your progressive ideology. I don’t know what you see in the Liberal Party.
Its not a negative attitute towards the NBN – what he is saying is that it should be planned and costed properly – remember this plan was just made on the back of an envelope in 2 days after Labor’s last plan collapsed.
Why NOT take a close look at it – its going to cost (US) a heap of money. Could we save $10 billion by making it FTTH for only 90% rather than 93%? Would that $10 billion be better spent on roads or hospitals?
Do YOU want to be in that 3% they cut?
And just tell me how an economic cost/benefit analysis is going to work on a NATION building project? You can’t measure the success of the NBN in the narrow terms involved in a cost/benefit. There is just no way of predicting how successful the NBN is going to be but it should detract us from actually building it. It really is something that everyone should know is going to be beneficial. Just like major roads, rail, electricity, the telephone and other grand infrastructure projects, the benefits take years to show and are not shown in a clear $ sign. We need to realise that a project like this is going to change how we work, play, and interact and a simple cost/benefit fiscal look at things is useless in my opinion.
Look at the picture…. going via the coalitions plan…. if wireless is so much better then wired, why is there a blue network cable in his laptop?
Good point. Once again, fear and doom from the party which doesn’t build schools, roads or ports. Same guys who blame the mother for the turds in the baby’s bathwater. Oh, and wasn’t he the former leader of a party who demoted him?
Someone should remind Turnbull that public schools are not free.
Nor are public universities.
Nor is the public health system entirely free.
Nor public transport.
Someone should point out that 43bn for the whole nation is less than NSW has budgeted for its roads over the next 10 years.
It’s ok for the nation to throw 150+bn on roads in 10 years without a CBA, but not a one off 43bn on a different type of national network?
Tell me, what is the average lifespan of a highway, and what revenue does it DIRECTLY produce?
Registration? Licensing? Speeding fines?
Hah!
Someone should also remind him of how it looks for him to have 100mbit to his $15m house, while saying that the rest of us are not entitled to the same opportunity unless some business eventually decides that maybe, just maybe, they’ll make some cash back from us.
Screw that. This is getting close to a class system.
If you are rich, you may communicate as the rich do.
If you are poor, or in a poor area, you may communicate with the scraps we throw down to you.
You are clearly wrong, Mr Turnbull. Telecommunications infrastructure should be treated as a public good because it is undesirable to have a private monopoly over fixed line infrastructure and there is no point in having multiple companies roll out duplicate networks over the country.
Can’t you just for once pull your head in Mr Turnbull and take a close look at what happened with the Optus and Tesltra HFC networks?!
As someone who has been and still is heavily involved in regiional / rural telecommunications i too find it very confusing to understand the need to throw $43b (or whatever the floating number is today) at something that may well indeed be obsolete by the time it is completed. We need to learn from experiences by much larger economies than ours as to the correct way of improving our telco infrastructure in outside of metropolitan areas.
One such way to establish (without any doubt) is the extent of the Telstra existing infrastructure in many areas that seem to be ‘unable to obtain fair and equitable access’ to modern services which most of our population take for granted.
By example i would like to point out a fact that not many out there would be aware of but the remote township of Coober Pedy (some 900ks from anywhere) had DSL enabled in 2004 and i believe now has DSL2 as an option. If this can be done is such a place then where else can access be ‘turned on’ when Telstra are under threat from a competitor. It has to stop and make people think about the need to replicate existing infrastructure which is quite suitable to deliver fair and equitable access today? Could these massive numbers be better spent elsewhere? I think what should be done first (and i know that other claims will be made like national security etc) is to factually determine the exact existing infrastructures and indeed their capabilities, once done there can be a process commenced relating to
creating equitable access for all carriers for break in points to this network. Yes folks we are victims of monopolistic landcapes when it comes to telecommunications:))
Robert:
Fibre optic cables are not going to become ‘obsolete’ any time soon. Conversely, putting any kind of public funding into a further build-out of ADSL2/2+ networks IS investing in an obsolete technology.
One thing people are missing here is the asymmetric nature of existing ADSL. I’ve got 20mbps downstream ADSL at home and it’s great, but I’m limited to 1mbps upstream and it sucks. I’d be far happier with 10mbps / 10mbps – but 100mbps / 100mbps would be divine.
The future economy is going to be built around information technology. We NEED fully symmetric high-speed digital pipes to and from our homes, businesses and public facilities.
Windsor’s quote is spot on. You do it once, you do it right, you do it with fibre.
In 50 years time, that fibre will still be there, probably pushed up to 1000 Gbps by then, and every aspect of our lives (and more importantly our children’s) will rely on it. Just as we all rely on the voice network now.
There will be a place for wireless (especially mobile wireless), but laying down a future-proof backbone that wholesales to any commercial entity with some kind of digital service to sell is the best way to keep our economy productive, and at the fore-front of what may come in the decades ahead.
I wish our political leaders (on both sides) would stand up and present some kind of vision to the electorate.
We need leaders, not businessmen.
How can you work in telecommunications and think that fibre will be obsolete?
Come on people, stop telling porkie pies – no more lying.
Exactly what the above said. Fiber IS the future. Staying on copper and trying to upgrade ADSL2 is wasting money on obsolete technology.
I don’t understand why people think the NBN is duplicating existing infastructure.
Pretty much everything is re-used under NBN, suchas;
– Fiber to all the ADSL enabled exchanges will be kept.
– Data pits to every house in Australia.
– Physical exchanges.
– RIM’s that have Fiber optic cable can be re-used as Fiber is already built a decent way into suburbia.
All we are really losing is the copper, and that’s the part we don’t want.
Robert Seymour
Fair enough, but one simple fact remains: Our copper is failing.
There are around a million faults a year logged on only ten million lines.
Who is going to replace the copper if the NBN doesn’t?
Since you work in the industry, you should know all about the agonisingly impossible CNI process.
You should know that a lot of existing fixed phone and internet customers cannot get a reliable working service for either. I’ve had to personally tell customers that they could not get a phone line where they were because there was no copper to service it!
Unbelievable.
I lose my phone line and hence internet every time the rain gets anything above steady, because Telstra have no plans to fix their rotting infrastructure.
There is no incentive for them to fix it, because for the vast majority of Australian premises, Telstra is the ONLY option for the “last mile”…
Telecommunications has been “deregulated” in this country for 15 years, and there has been no particular improvement in the infrastructure for all of that time.
The market has failed. So why does Turnbull think that continuing to leave it to the market is the answer?
Therein lies the folly of the Coalition understanding of what is required for Australia to remain competitive. Our loss of standing in the international marketplace from not doing this over the next 30 years could be $43b in itself!
Perhaps Mr Turnbull’s time would be better spent re-working and releasing DETAILS of a feasible and practical alternative to provide the much needed reform of the telco sector and remedy the current failings in the infrastructure. One which provides equitable access by private enterprise and consumers alike and at a reasonable cost.
In other words something more than the ‘policy’ released by the Liberal Party just 11 days prior to the election which contained misleading claims and obfuscation such as ‘peak minimum speeds’, and $billions in funding to unspecified projects, etc)
Until there is an alternative, then rhetoric such as ‘reckless’ and expressions of intent to ‘destroy’ the NBN will be met with the cynicism and dismissal they deserve.
Robert, Throwing $43 billion is not wasteful, considering telecommunications hasn’t recieved a boost at all in rural/regional it was about time someone did, consideriding that sale of Telstra stopped the government investing into Infrastructure.
The 10 years under Coalition/Liberal or who the hell they are now did not concerntrate any funds at all, and don’t give me the rubbish about OPEL, it was a stunt.
Most of rural will be either sat or Wireless, which will be upgradable to 4G (Wireless part).
Fibre is Fibre.
Supposed people that understand technology seem not not understand at all.
Once you put someething in, why bother upgrading it again immediently if there is something new.
Fibre has been around for a while, it’s used for backhaul local and international.
And regards to this article, the NBN is a government business, not a commercial business, with commercial returns.
Great coimments, should have been more specific in stating that we should first and foremost establish where the existing fibre is-and then ensure that we do complete installations which fill in the gaps. ANd to clarify, i do not believe that fibre is a bad thing i just believe that we should be in receipt of factual information and no more BS-please as this is far too important for rural/regional communities.
Robert, who’s spreading the BS around, it’s certinatly not those who think the NBN is a good idea.
The government and NBNCo will know where the existing Fibre is, and part of that deal with Telstra includes possibly exstending the use of those Fibre assists and pay Telstra in return, no doubt they will be sharing information including any and all assists owned by Telstra, because they would have to if they want to migrate all of the copper to fibre. and Telstra would also want a smooth transition to the NBN to minimize the costs on their end.
The whole media reporting on the NBN is complete rubbish and bias, the NBN solves alot of issues including neutralizing a company that was owned previously by the Government (which should of stayed with the government). This is a 100% rollout, this isn’t some cheap rubbish fix “fill in the gaps”.
Selling off Telstra was not a bad idea…the RETAIL arm should have been sold off, and it was…the WHOLESALE/NETWORK arm should never have been let go, because that’s exactly was has happened.
It has been let go…
Turnball seems to be forgetting it is the tax payers that are funding the nbn. It should be for the good of the public and should be treated as a utility same as phone/ roads/public transport and electricity. I also beleieve the infastructure should remain the property of the government and not sold to private enterprise,doing so will only create another monopoly provider like telstra.It to all the people saying we should use wireless instead of fibre,ditch your adsl/cable connection for 6 months and use wireless only ,then see what your opion is. In my opinion wireless is and will always be a stop gap solution.cheers
Turnbull is mistaken to exclusively use the term “private sector” in relation to Australia’s telecommunications market and the NBN. Just because Australia Post is operated as a private company does not mean that governments aren’t involved in investing in the roads and bridges that allow the Australian Post vans to drive around and deliver the mail.
The Australian Government laid the copper originally and, under the brand of Telecom / Telstra, turned it into a private company. Without strong enough competition, the company dragged its feet on almost every major technological development in the sector. They were not the first company to offer ADSL2 (or ADSL2+). They were not the first company to offer 3G mobile phone services. They were not the first company to offer IPTV. They are still unwilling to offer ‘naked’ DSL services. To dictate the retail products, while at the same time using the lack of retail demand as an excuse to limit the investment in new technology, is an abuse of power.
And for the Opposition to claim that wireless is the answer (forgetting the minor detail that the bandwidth to offer such services will not become available until AFTER the analogue TV signal is turned off) is ignoring the problems relating to wireless communication. If there are already quality problems with something as simple as making a phone call, why would you trust the network to support more traffic at higher speeds?
I think you are all missing the point. The point hon Mal is trying to make here is NO ONE knows wheather this NBN is going to be a complete waste of $ or a not because they havent bothered to check… and they should.
What? “They” haven’t bothered to check, according to whom?
Why would hon Mal insist on checking some figures anyway, he and his (sorry, he’s not the leader anymore is he?) party colleagues didn’t really declare much information regarding the numbers of boat people compared to the number of visa overstays or 457 invitations.
Back to the topic though, projects of this magnitude need to be undertaken by Australia. There is great risk, but the potential rewards are an order of magnitude better than doing nothing. I for one agree with creating infrastructure, it’s something we haven’t seen much of during the Howard stewardship.
Oh yeah, of course the private sector is gonna roll out fibre. Just look at the millions of kilometers that Telstra put down in the last few years, you can hardly move for tripping over it. Too bad some of us still live in the real world, where a private monopoly owns all of the fixed infrastructure in the country, including the land beneath our feet where it resides, and they aren’t gonna lift a finger to improve their service as long as their entire customer base has no choice but to keep handing them giant bags of money for essential services.
Maybe we just need to hang out a little longer, with any luck our great great great grandchildren will one day have a communications network that would seem modern today, and all without spending any of that precious government money which would otherwise go to valuable causes like purchasing political advertising, or funding committees to investigate establishing other committees.
Turnbull is correct. If the govt is selling us the story that the NBN will be profitable & will encourage private investors, then Labor needs to open the books & show us the fully transparent costings & business plan.
Failing that, it needs to come clean & tell the taxpaying citizens that there will be no return on their $43bn investment. I say $43bn because to this date there are no investors that want to put their own cash into the NBN.
In case you haven’t noticed, public infrastructure spending is about spending money that may not get a direct financial return.
When was the last time you saw the “profit” figures for a national highway?
And while we are on the topic of financial return, can you name a company of this size that started as a government-funded entity and didn’t make a profit for the government when it came time to sell it off?
As for the $43 billion figure, that was estimated on the basis that they overbuilt the network with no input from Telstra. This has changed since Telstra and the NBN have agreed on a buyout of Telstra’s existing network assets.
You cannot complain about the lack of detail when the only details you base your argument on are out of date. If you are going to do that, then you risk being compared to the Coalition and the 10bn hole in their budget estimates.
If you want to be taken seriously, then you need to remove the political bias and discuss actual details.
Firstly it’s 26 billion or less (i have heard as low as 10 billion with telstra involved).
Fiber is the best technology (for the next decade or 2 at least) and can do up to 70 tbps (wireless can only do 100 mbps (and they have said it realistically only does 5-10).
While wireless is good, it’s not a replacment for fixed services and never will be.
We give more in negative gearing (9 billion a year) than this will cost, where is the business case for this?
Why are we suprised at Turnbull’s comments? The Libs still suffer from the short sightedness left behind from the Howard era. Australia was once, thethird highest internet uptake country in the world. Then we had Altston as minister for communication (thanks to Howard); now we are 30th in the world ranking (pretty much amongst third-world status).
The Libs has alswys placed proftability in front of everything; I won’t be suprise at all if the Libs will suggest to privatise Police, ADF and CSRIO when they are in power (God forbid !)
Remember it is the government that have said this is a COMERCIAL BUSINESS and therefore does not have to be included in the budget.
If it is a COMERCIAL project then it has to openly costed for the taxpayer to see they are going to get a real return.
If it is an INFRASTRUCTURE project for the good of the Australian population then it has to be included in the budget and show how it will be paid for.
Conroy should make it very clear what sort of a project this is. This will be fair to the for/against NBN taxpayers
Careful with Turnbull’s statements, he is there to ruin Abbotts reputation.
He woyld fit far better with Labor party
Clearly the government should not be funding the ABC or universities which cannot self fund themselves? Malcolm, discuss?
NBN: Turnbull is a business, not a public good.
Turnball criticises the government over the insulation scheme whilst saying the private sector should building and running the NBN. Well, Mr Turnball, wasn’t it the private sector that installed those dodgy pink batts? I don’t remember Peter Garrett going from house to house installing them.
In any case, I can’t wait fro the NBN to hit my town.
plettz, you hit the nail on the pink batts. There were safety regulations. It’s the companies responsibility to ensure work safety, not the government. When their employees get killed who’s fault is it? Definitely NOT the government. So blaming Peter Garrett for that specific incident shouldn’t have happened.
Same goes for health. If someone in a hospital dies due to a doctor malpractice do we make a media political outroar and blame the health minister? (Not to mention Tony Abbott was once a health minister himself.)
@ Jason, And it is up to state governments to enforce workplace safety laws. If Liberal state governments had been in power, we might have had better guidance on who was really at fault. If you borrow money from a bank to build a house and the builder is shonky, is it the bank’s fault?
Federal Labor seems loath to make these points or the media to publish them.
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