OECD somewhat critical of NBN approach


The global Organisation for Economic Cooperation and Development has handed the Federal Government’s flagship National Broadband Network project a mixed report card in its latest detailed examination of Australia’s economic health.

Late last week the group — the peak international body for promoting sustainable economic growth and maintaining financial stability — released its Economic Survey of Australia (2010) report, which presents its latest insights into the nation from an economic perspective. The full report is not available online without cost, but a summary document is.

In the summary (PDF), the OECD noted that the NBN project held the promise of delivering “potentially large benefits”, including improving internet services for the entire population and promoting fairer competition between telcos with respect to retail telecommunications services. However, the OECD stated the project also entailed “substantial financial uncertainties”, as the cost of building the NBN woujld amount to 3.25 percent of Australia’s gross domestic product.

“Part of the plan is to shut down the existing copper network and the country’s main cable network,” the report states. “While establishing a monopoly in this way would protect the viability of the Government’s investment project, it may not be optimal for cost efficiency and innovation.”

“Empirical studies have stressed the value of competition between technological platforms for the dissemination of broadband services. It would therefore be preferable to maintain competition between technologies in the broadband sector, and within each technology, between internet service providers.”

The office of Communications Minister Stephen Conroy has not yet responded to an emailed request for comment on the OECD’s comments, but Shadow Communications Minister Malcolm Turnbull immediately seized on the report’s findings, describing them as “unusually harsh criticism” of the Government’s lack of a cost/benefit analysis for the NBN project. Turnbull — who has seen the full OECD report — yesterday claimed in a statement that it “pointedly observes that no cost/benefit analysis was undertaken for the NBN”.

“It recognises an implementation study was conducted but calls for additional analysis for major infrastructure projects in which task the Productivity Commission would be of assistance – precisely as proposed by the Opposition in the Private Members Bill to be voted on this week,” said Turnbull, referring to the legislation he is putting forward in the area.

Turnbull also claimed the OECD report supported the Coalition’s proposed amendments to the Government’s telecommunications industry restructuring legislation currently before Parliament.

“Facilities-based competition is of great value, the OECD says, and again this reflects the Opposition’s approach to the legislation before the House this week where we are seeking to amend the Bill so as to ensure the arrangements between the NBN and Telstra are subject to the provisions of the Consumer and Competition Act (formerly known as the Trade Practices Act),” said Turnbull.

“The Government wants to keep the Telstra/NBN deal away from the scrutiny of the anti-monopoly provisions of the Act because, as the OECD observes, the deal with Telstra to prevent it using the HFC network to compete with the NBN is clearly anti-competitive and can only be justified as a means of enhancing the financial viability of the NBN.”

Image credit: Ilker, royalty free


  1. I haven’t read the OECD report yet — that’s further down today’s agenda — but surely this quote is misleading?

    …the cost of building the NBN would amount to 3.25 percent of Australia’s gross domestic product.

    Australia’s GDP is USD 1 trillion per year. The NBN’s total build cost was originally estimated at AUD 45 billion, but is now being put at something like AUD 32 billion, give or take a billion. Which is around 3 percent. But… The NBN’s cost is spread over eight years or so, so we’re talking more like 0.4 percent of GDP per year.

    Note to the hard-of-thinking: This is not a comment either way about the NBN as a project, just a query about whether we’re comparing apples with apples.

    • It depends how you define it. I wouldn’t say, in this case, that it’s misleading — if you say something is X percent of GDP, you are commonly referring to one year’s worth of GDP.

    • Agreed…

      …even a cursory examination of potential revenues of the NBN are in the magnitude of upwards of $2b per year…

      OECD is correct to say there are potential pitfalls, but to call it 3.25% is bupkus…how they get that number, as you point out, is beyond me…

  2. For many years people in the Telco Industry have called for free and open competition. We now see the promotion of a Government monopoly which uses blackmail and domination to remove all competitors to this proposed Government monopoly.

    How can the ACCC, the champion of competition, condone this monstrous monopoly. I believe that if the NBN monopoly is created it will not be long before the Government moves to take total control (Wholesale and Retail) of the Industry.

    Who would have thought that when Telstra was sold to the Australian people as a vertical integrated company Australians would see their invest wrecked by a Government who had plans to destroy Telstra and by deceit and subterfuge and create this public funded monopoly.

  3. It’s interesting to see any number of short-term metrics being applied to a long-term project.

    By interesting, I mean you can effectively generate any numbers you like, either supporting the NBN’s fiscal use, or that it’s abusing it, simply by changing the length of the period it’s calculated against.

    So if you think it’s a poor investment, you must use (very) short term periods to provide supporting data.

    The report also reads as though there would be virtually no competition against the NBN from existing networks; which is odd because the HFC networks run by Telstra and Optus are still being invested in, and I wasn’t aware Telstra actually planned to decommision the CAN faster than the NBN was built.

    Because if the CAN remains (in part) throughout the NBN build, which is slated for several years, then there is several years left of multiple competitive forces, is there not?

    By which time NBN pricing will have gone through any number of revisions. Which also illustrates that (very) short-term periods applied against a long-term investment don’t actually describe the entire outcome.

    Sydney, given the ACCC also allows the ‘monstrous monopoly’ that is Telstra (whom engage in the same sorts of practices you list, ironically enough) to continue operating, why would it have an issue with an alternate operator?

    Telstra stands to pocket a considerable amount of funds from the deal struck to sell off (rapidly ageing, poorly supported) infrastructure and access. It’s hardly walking away empty handed.

  4. When will Conroy release the fully transparent $43bn+ NBN business case? What is Labor hiding?

  5. The questionable use of the GDP value vs a long term project aside, this is yet another occasion that the OECD has been critical of the lack of transparency and cost justification of the NBN…

    Seriously, whether you’re pro or con on it, it’s hard to ignore an organisation like the OECD saying “Erm, you might want to do the sums first folks” multiple times. Conroy’s complete refusal to be transparent and justify his pet project have gone on for far too long. It was suspicious a year ago, now it’s just plain obvious that there is something he doesn’t want everyone to know, and it’s got nothing to do with CIC…

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