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News, Telecommunications - Written by Renai LeMay on Thursday, May 3, 2012 10:29 - 119 Comments
“Cooked books”: Abbott misleads on NBN
news Opposition Leader Tony Abbott appears to have made a number of mistakes or factual inaccuracies in a wide-ranging speech criticising Labor’s National Broadband Network project, alleging, for example, that the project’s funding was based on “cooked books” and that retail prices would be three times higher than on current broadband networks.
The comments were contained in a speech Abbott gave this week to the Infrastructure Partnerships Australia conference, a forum which sees public and private sector executives debate public policy in the context of Australia’s infrastructure industry. Abbott’s speech was entitled The Coalition’s Plan for the Infrastructure of the Future. Not all of the speech is based on misleading information; some of it is factually accurate.
In the speech, Abbott strongly attacked the NBN, which is one of the key infrastructure projects being pursued by the current Labor Federal Government. However, in the speech, Abbott appeared to make a number of statements which falsely characterised the NBN project. Firstly, Abbott attacked the retail prices which service providers would charge end user customers using the network, and its construction cost. “The Rudd-Gillard government’s most notable contributions to infrastructure have been roof insulation that’s caused house fires, school halls built at double the normal cost and a National Broadband Network that’s digging up streets so that families can pay three times the current price for broadband speeds they don’t necessarily want or need and that could be delivered sooner at vastly lower cost,” said Abbott.
It is true that some retail services have expressed concern that the wholesale pricing scheme utilised by the National Broadband Network Company could eventually lead to higher consumer prices under the project. However, there is no evidence as yet that retail prices under the NBN will in practice be higher than those available through the current copper or HFC broadband networks.
The NBN prices released by companies such as Optus, iiNet, Telstra, Internode, Exetel and others so far have been directly comparable to current prices, and some companies — Optus, for example — appear to have directly ported their current plans across to the NBN.
Secondly, Abbott’s statement that consumers don’t necessarily want or need higher broadband speeds is also incorrect. The Coalition’s own Shadow Communications Minister, Malcolm Turnbull, has acknowledged the need for higher speed broadband in Australia, and the Coalition’s telecommunications policy currently features a similar underlying policy goal as Labor’s NBN project — to boost basic broadband speeds and coverage across Australia. In addition, polling has consistently shown that most Australians support the NBN, even amongst Coalition voters, with a new survey taken in April showing that more Coalition voters support the NBN than oppose it. The numbers of Australians who support the NBN are much higher amongst Labor and Greens voters.
Abbott also attacked the accounting mechanism through which Labor is funding the NBN, which does not see the project listed as an expense in the Government’s annual budget, because it is an investment expected to make a return.
“If the Treasurer predicts a surplus in next week’s budget, Australians can be confident that it will be based on cooked books, like the pretence that the NBN is not really government spending,” he told the conference. “If the $4.4 billion that the NBN is due to spend in the coming financial year were on budget, the government would be unable to predict a surplus. But to move the NBN off-budget, the government has had to assume unrealistically high take up rates to generate a commercial rate of return.”
However, according to a research note recently published by the Parliamentary Library of Australia, Labor is technically correct on this matter, and the Coalition is wrong. “Australia has adopted internationally accepted accounting standards, and these are applied in the budget treatment of the NBN,” the library’s Brian Dalzell, who works in its economics division, wrote in the report (available online here in PDF format). “While the applied accounting treatment depends on the specific transaction conducted between the Government and NBN Co, this treatment is governed by accepted accounting standards and is applied equally to all government business entities (GBEs). This treatment is not determined by the return generated by NBN Co (or any other GBE).”
Dalzell goes on to provide a great amount of detail around how the Federal Budget treats the NBN, breaking up the Government’s investment in the area into a number of different sections and looking at the differences between cash flow, equity, debt and so on. But all of it only serves to reinforce the impression that the Coalition is improperly defining the NBN initiative as an expense. In fact, the economist addresses this misconception directly.
“Can the NBN be accounted for as an expense item in the budget operating statement?” he asks. “In the budget statement, the NBN is accounted for as a financial asset (equity investment) under the ‘investments in other public sector entities’ line item of the balance sheet. The NBN is not accounted for on the operating statement as an expense item, because it cannot be defined as such under accepted accounting standards.”
Abbott also attacks the NBN on other grounds.
“Not only has the government failed to deliver on due process. It’s also failed to deliver on its commitments to get things built,” he said. “Its biggest single project by far, the NBN, is over-budget and way behind schedule. The latest figures show that it’s only passed 18,000 houses and that only 12 per cent of these are actually using fibre. To meet the target of 760,000 houses passed by the end of the year, it will have to pass over 3100 houses a day – or 100 times its performance up till now.”
At this stage, it is unclear to what extent the NBN is currently under- or over-budget, as NBN Co has provided a range of projections for how much its fibre, wireless and satellite infrastructure will cost to build.
Abbott’s statement that the NBN has only passed 18,000 houses and that only 12 percent of those were actually using fibre is based on figures released by NBN Co earlier this year (PDF). Although NBN Co has not released new figures since March, it is believed that more than 12 percent of customers who can connect to the NBN would have now done so, as customers have been steadily signing up to the network as it’s rolled out, driving connection rates of up to 30 percent in some areas.
Abbott is correct that NBN Co is aiming to have passed around three quarters of a million premises by the end of 2012. After an extended planning and negotiation phases, the company is now entering a full-throttle rollout phase, where it plans to reach millions of Australian premises over the next three years, under a plan released last month.
The Opposition Leader also criticised NBN Co over the salaries of its staff, compared with its ability to deliver. “NBN Co currently has 1300 staff earning on average $148,000 a year, the highest pay of any business in the country. That’s one staff member for every five customers. As Churchill might have said: never has so little been delivered to so few by so many at such expense.” Abbott is correct in that NBN Co’s average salaries are higher than many other Australian organisations. Although the company’s top executives on average receive less pay than the top executives of other major telcos such as Telstra, Optus and others, many of the other workers employed by the company were employed at a high rate, as NBN Co has attempted to attract much of Australia’s top telecommunications engineering talent to its ranks over the past several years, head-hunting executives from existing major companies like Telstra and Optus.
Lastly, Abbott made several other criticisms of the Federal Government on the NBN, who he referred to as “born-again socialists”.
“Yes, Australia does need faster broadband so that tele-commuting is an alternative to commuting,” he said. “As Telstra has just confirmed, this doesn’t require fibre to the home and is more likely to be provided by a competitive market than a government infrastructure monopoly. The Coalition’s broadband will be national, not nationalised. It will be available sooner and at much less expense to taxpayers.”
Abbott is correct that faster broadband can be achieved via other means than the Government’s fibre to the home-based NBN rollout, with the Coalition’s own proposal currently calling for the existing HFC cable networks operated by Telstra and Optus to be upgraded and continued to be used for high-speed broadband, and the potential implementation of so-called fibre to the node technology in Telstra’s copper network, which would see fibre extended from telephone exchanges out to neighbourhood cabinets instead of all the way to houses and offices.
However, his statement that faster broadband is more likely to be provided by a competitive market than a government infrastructure monopoly is incorrect. In Australia, major companies such as Telstra, Optus and others have not rolled out new broadband networks over the past decade since the HFC cable networks were built. Many in the industry have cited the idea that telcos are unwilling to invest in such fixed-line broadband infrastructure because of the negligible returns involved, the fact that it would likely be heavily regulated by the Government, and the threat of other telcos duplicating the infrastructure and reducing the potential return, as Telstra did when Optus rolled out its HFC cable.
Internationally, it has often been governments who have rolled out fibre broadband infrastructure. In countries where corporations have done so, they have often done so where there is a much higher population density than Australia features; such as in Japan or other Asian countries.
In addition, it is unclear whether the Coalition’s rival broadband policy will be “available sooner and at much less expense to taxpayers”.
The NBN is expected to make a modest return on the Government’s investment, according to its business case available online here. According to NBN Co’s business case, the NBN will cost between $36.5 billion and $44.6 billion to build over the next ten years. However, it is slated to make an internal return on that investment of between 5.3 percent and 8.8 percent on that investment — from $1.93 billion in the worst case to $3.92 billion in the best case. This return will be facilitated by the fact that rival infrastructure is being discontinued, to incentivise Australians to shift onto the NBN. Both Telstra and Optus have plans to migrate their customers onto the NBN en-masse.
In addition, the Coalition has not yet disclosed the cost of its own policy. However, a recent analysis by Citigroup found that the Coalition’s policy would itself cost $16.7 billion. The Citigroup report didn’t mention what financial return, if any, the Coalition’s proposal was slated to bring in on its own investment.
On the issue of timing, Shadow Communications Minister Malcolm Turnbull has repeatedly stated that a Coalition Government would immediately halt construction on the NBN while it instructed the Productivity Commission to carry out a cost/benefit analysis into how fast broadband could be best provided to Australians. This process is expected to take up to a year, potentially significantly delaying the rollout of the NBN in some areas.
Many of the misleading statements which Abbott made this week are similar to statements he has consistently been making about the NBN over the past year. I am surprised, in many cases, that he continues to make them. Certainly Malcolm Turnbull has gradually changed the way he speaks about the NBN over the past several years, indicating that his thinking has progressed on the issue. He no longer criticised the NBN on some of the areas which Abbott mentioned this week.
What this indicates is that Abbott does not hold a very nuanced view of the NBN and does not have a solid understanding of the facts underpinning the current telecommunications policies of each side of politics. This is disappointing; I would have expected the Opposition Leader to consult more with his Shadow Communications Minister on this critical national issue. It is, after all, one of the issues on which the Coalition lost critical electorates during the last Federal Election. Of course, Turnbull hasn’t exactly been the bastion of truth when it comes to the NBN either. Neither has finance spokesperson Andrew Robb. Or Liberal MP and former Optus executive Paul Fletcher. Detecting a trend here?
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Enterprise IT, News - May 20, 2013 14:16 - 0 Comments
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Blog, Telecommunications - May 20, 2013 13:08 - 1 Comment
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