Principal Turnbull: Teaching Conroy “Economics 101”


Shadow Communications Minister Malcolm Turnbull has used the release of new broadband statistics to argue that the real inequity in Australia’s broadband market is the fact that lower income households cannot afford currently broadband prices, claiming that his rival Communications Minister Stephen Conroy needed to learn “Economics 101”.

Last week Conroy hailed the release of new statistics by the Organisation for Economic Cooperation and Development (OECD) as justifying Labor’s multi-billion dollar National Broadband Network project.

The report showed that Australia’s average broadband prices were expensive for low-speed connections compared to the rest of the world, and moderately expensive for higher speeds. “These OECD statistics are further evidence that Australia cannot afford to stand idly by with our ageing copper network and sub-standard broadband services,” Conroy said.

However, Turnbull wasted no time firing back — agreeing that Australia’s broadband performance was not good compared with other countries, but arguing the real issue was actually with respect to low income households.

“As the NBN Co Corporate plan shows, more than 70 percent of users will opt for speeds of less than 25mbps (p.129) with only a small movement up the speed chain by 2020,” Turnbull said in a statement. “For people purchasing lower speeds, prices are forecast to stay steady in nominal dollars (see p.101 and graph below) while people willing to pay higher prices will see their costs come down over time.”

The issue was important, Turnbull said, because “the biggest barrier to Australians taking up broadband is its cost”.

“ABS figures show that there is a disparity in access to broadband between households in major cities and households in remote areas — 75 percent compared to 62 percent (the national average is 72 percent),” said Turnbull. “But the disparity is much greater when household income is taken into account: 94 percent of households earning more than $120,000 a year have access to the internet at home compared to only 43 percent of households earning less than $40,000 have access to the internet.”

Turnbull argued lower income households were thus ‘subsidising’ higher income households under the NBN — who, he said, would likely be utilising their bandwidth to service their smartphones, casual gaming, video calling, online storage and IPTV activities, “presumably all at once to chew up that bandwidth”.

“Economics 101 tells us that state-owned monopolies are not the most efficient models to “drive competitive prices” as Senator Conroy assumes,” he said.

Image credit: Office of Malcolm Turnbull


  1. So to summarise Malcolms arguments:

    – The current free market approach to telecoms isn’t supporting those on working poor incomes ($40,000 per household, assuming 2 or more people is buckleys).
    – The State Based NBN, being not a free market system will obviously fail at addressing the issue of working poor access to the internet. Instead it will “subsidise” the rich by overcharging the poor.
    – Thus we need a free market solution to fix the problem as presented by the current free market system.

    Would that be right?

  2. So Turnbull, how do you plan to address this issue?

    It’s great that you are showing us how Conroy is doing it wrong, but once again, how would you address this? What modifications would you make to the NBN? If the NBN can’t be modified to account for this (as you will likely try to assert regardless), what alternative addresses this issue?

    • I think we know what he would say. “Private private private”. Throw govt money to fund other peoples network upgrades that they will not do…..ever.

      The problem with Turnbulls approach of ‘Let the market decide’ is that the market then holds the consumer to ransom, as has been seen with Telstra for many a year. You can regulate till your eyes bleed, but in the end it makes no real difference. The ‘market’ wants double digit ROI far too often.

      So, Turnbull, all in all can be put to the side. Whilst obviously intelligent, he just lacks foresight and common sense.

      • *The ‘market’ wants double digit ROI far too often.*

        i agree. the gubmint should outlaw “double-digit ROI”. in fact, i reckon you should set an example and lead the way… ring up your superfund.. tell them you’re happy with single-digit ROI… and request that they remit any surplus ROI on your personal super to your nominated charity… because “double-digit ROI” is just too greedy & unreasonable.

  3. By the time the NBN gets here low income families wont be able to afford electricity let alone the internet. This of course wont matter, due to distortions in our capital and asset markets they wont be able to afford housing so it may be an OTU on the side of a shopping trolley. There is a growing possibility that with contamination from the Gulf oil spill and Japans little nuclear nightmare, global shortages of good clean food may mean that low income families might not be able to eat – which I guess solves the problem of low income families for a while.

    • @ Bruce,

      I agree, unfortunately, the scenario your describing or one there about’s has a distinct possibility of becoming a reality

    • Last time I was in the Sydney CBD at night I saw plenty of rats running around the parks, so there is no excuse for anyone living the area not to get fresh meat.

      Of course if you want to live somewhere where you don’t have to catch and eat rats, people could always move further out to where the more affordable houses are. There are plenty out there, it’s just a lot of people aren’t willing to take an hour or so to get to work.

  4. I think Mr Turnbull will find that if governments did something about the obscenely high rental rates for property, all of a sudden low income earners might be able to afford broadband.

    • Ah, but here’s the stupid thing.
      Malcolm did nothing to argue against HIS government’s intervention in the housing market.
      He did not squeak a word about negative gearing.
      He did not mutter about the first home owners grant.
      He has not even sided with the Liberal who talked about taxing trust structures recently.
      Now, in isolation these may have done nothing. But in combination? They’re a very, very powerful force that drove house prices to their current all time records.

      Malcolm is a free market man when it suits him.
      Fortunately, now that one of these has been curtailed, the free market is about to solve the problem.
      Hang tight Matthew. What we need the government to do now is to IGNORE the housing market for a while. Ideally, they’ll kill NG too.

      Personally, I like the free market too, but I recognise that networks of all types (road, rail, power etc) are naturally suited to being an infrastructure monopoly. If they’re not, we run the risk of situations like Japan where half the nation’s power is 60hz and the other 50hz. This is said to be one of the contributing factors in the Fukishima disaster. They couldn’t get the RIGHT generators there in time.

      So, in the context of networks, like the NBN, I believe a regulated monopoly is the better option. Especially when you consider the lack of free market progress over the last decade.

      • lol… another long, political spiel about “housing”, “property speculation”, etc with fanciful diversion into Fukushima nuclear disaster…. somehow relevant to NBN… clutching at straws…


        (i) Telstra is a “regulated monopoly”.

        (ii) there’s never been a “free market” in telecommunications.

        years ago, Telstra signalled to the Government & ACCC many times that they were ready to roll-out FTTN within weeks if they had the necessary regulatory certainty. instead, the politicans/bureaucrats/technocrats refused to play ball, so we end up where we’re now, when we could’ve had 50mbps by now. that’s not a FREE MARKET.

        • Incorrect ToshP300…

          1. Telstra (stupidly) withdrew from negotiations at the 11th hour with the ACCC…

          The Amigos wanted both a new FTTN monopoly and maximum ROI.They weren’t happy with a large, fair ROI, so again “Telstra withdrew…”!

          2. Telstra were given another opportunity via the RFP, but submitted a non-compliant bid…FFS!

          Had a visionless Telstra management not been so egotistical, we probably would now have FTTN (remembering FTTN was urban only – yes Telstra wanted the cream exclusively) and OPEL in the bush (remembering too, who fought tooth and nail to stop OPEL – hint begins with T and ends with elstra).

          And if we did now have FTTN, what’s the bet tiger, you and I would probably be here agreeing that the Telstra FTTN monopoly must end and just how great FTTP would be…sigh!

          • uh, the original point under contention was whether we had a free market in telecoms – which WE DON’T.

            the fact is, pricing issues* aside, w/o regulatory interference, we’d have 50mbps by now (66% [of exchanges] FTTN build by year 3). the argument that private companies won’t invest in the fixed network is absolute rubbish.

            and a quick final point:

            given the past history of the ACCC in depressing returns on the copper network [to a point that it’s now valued at a measly A$7.5bln by the ACCC themselves!], who in their right mind would invest in FTTN unless they had iron-clad guarantees the ACCC won’t change their minds overnight AFTER it’s built, adjust network pricing downwards, and, in doing so, obliterate investment returns? Telstra management would be mad not to consider this risk!

            [of course, i most disrespectfully disagree with the rest of your post.]

            *and on pricing – what’s so great about NBN pricing? are you salivating over $20/Mbps CVC? NBN Co. & the industry have already signalled we’ll be back to the dark old days of limited quotas, etc. what’s the point of 100mbps if you’re only downloading 30GB/mth?

          • @toshP300… The original point you say… ! Well why did YOU go off on a silly (and incorrect) tangent then?.. Curious!

            And you disrespectfully disagree with the rest of my post…

            That’s ok, in fact it’s my preference, because I see you disrespect/ignore the facts regularly, what’s new…! If you disagree, it simply shows your counterpart must be factual…!

            Obviously that’s just an embarrassing admission on your part, that you are (and you are) WRONG about Telstra/FTTN… But you hang in there tiger, you’ll get one right yet (maybe…?)!

          • @ tosh P300… Keep trying, not crying tiger.

            I see you are up to your old evade the facts tricks again… when totally out-debated and when your BS is inevitable disproved (so as usual) you try in vain to use your equally infantile detective skills, to avoid further scrutiny of your incorrect/nonsensical comments…LOL!

            Some people eh?

          • Just can’t let it go can you… Mark (I may as well jump on the name bandwagon)…?

            Really have no answers do you?

            Tell us again how Telstra were gonna do this and gonna do that and how those big nasty “politicians/bureaucrats/technocrats refused to play ball”…

            That’s gold… Mark/toshP300 – Delimiters most noxious troll (bandwagon again)…!


  5. bb starts at $30/month for a good basic service, thats 2 packs of smokes a month, or 1 carton of xxxx gold, its not unobtainable, hell, ive had optus cable since 1999, paying an average of $70/month, and i was on the dole, so its doable, i used it to find work, entertainment, communication.
    there is an easy way to do this. mandate nbn for everyone, and have every line active for 256k straight out, no frills internet with access to govt sites and job search. plug in, turn on. from there the customer can choose what services they require from a menu (landing page) stay with basic, or upg to premium services. its all possible.

    Malcolm, SHUT UP, your not helping.

    • “bb starts at $30/month for a good basic service,” (compared to a $70 RRP for a service on cable today)

      Not right.

      The NBNCo corporate business plan (page 111) shows the expected average charge to a service provider for the tail circuit will be $33+GST per month by 2013.

      Thats just one cost input to your entire broadband service. And its for data at 12 megabits down (likely much slower than your cable service today), and it includes a mandatory bundle with a phone service, which you’ll also be asked to pay for.

      Most likely the 12/1 service will come out similar to the price you pay for a faster cable service today, based on that source cost.

      The reality is that nobody can predict retail price on the NBN as yet because NBNCo still haven’t released enough of the key data needed to figure out the real end to end service cost over the coming ten year period.

  6. Compared with, say, the UK for example, the average Australian wage is higher, yet we pay more than them for broadband. What does that say Malcolm? That Australian ISPs are ripping us off and getting away with it. Why don’t you learn Economics 102 that goes beyond the basic demand and supply diagram Turnbull and shows that private companies are profit driven and will do anything to protect that, including not giving their customers the lowest price possible?

  7. “shows that private companies are profit driven and will do anything to protect that, including not giving their customers the lowest price possible?”

    Keeping in mind that the NBN will be sold by private companies I assume you mean nothing will change.

    • But the wholesaler wont be competing with those private companies…So it will be slightly different.

      • The wholesaler whose owner the Australian Government will buy the Telstra and Optus customer bases and pay out billions for them to close their HFC and copper networks just so that the FTTH rollout has a chance of surviving, no fixed line infrastructure competition thanks.

        Yes they are different, not even Telstra could accomplish that sort of monopoly and get away with it, but it’s Government owned so it’s all ok, just like Telstra once was.

  8. Why is someone earning $120k paying 40k a year in tax is getting subsidised by a family earning $40k paying 6k in tax?

    Would it not be more accurate to say that those paying more for their internet connection will be subsidising those who get a basic plan? After all, It costs the same $ to run the fiber to a rich persons house as it does to a poor one.

    • Your example clearly fails to imply that poor people are paying for “Those rich people’s” internet.

      Please learn to spin it more.

    • *Would it not be more accurate to say that those paying more for their internet connection will be subsidising those who get a basic plan? After all, It costs the same $ to run the fiber to a rich persons house as it does to a poor one.*

      using the technical definition, you’re 100% correct – subscribers who pay more /mth are subsidising those on cheap connections. this has to do with the positive gradient of the AVC curve – higher AVC charges for faster connections.

      what Turnbull means is that not everybody needs, wants or can afford fibre. however, under Labor’s harebrained scheme, they’re getting it anyway (and because low income earners will most likely subscribe to cheaper connections, they’re being subsidised by subscribers on faster, more expensive connections).

      HOWEVER, to the extent that the low end of the AVC curve is more expensive than copper ULL/LSS, etc, reflecting the massive cost of building the NBN, low income earners will get shafted post-NBN.

      this is what Malcolm means by “poor people subsidising rich” – he’s refering to the overall position of the AVC curve (relative to ULL), as opposed to the slope of the AVC curve itself. low income people will pay more for doing pretty much the same thing, while the rich will pay even more but do heaps more (VOD, IPTV, etc).

      the fact is, it’s meaningless to have 100mbps or 250mbp connections if they’re not provisioned with adequate aggregation capacity (CVC). if you factor in certain fixed (satisfactory) contention ratios for higher speed connections and calculated a “CVC-adjusted AVC curve”, you’ll end up with a very steep AVC curve. this “CVC-adjusted AVC curve” would be more representative of the real costs of accessing fibre under NBN’s proposed scope and reach.

  9. Spending billions of dollars on a brand new network, and trashing the existing networks, is not exactly likely to lower the end cost to consumers. It is clearly going to end up costing a whole lot more, and will push Australia further down in the ranks of affordable internet.

    There is no such thing as a free lunch.

    • As opposed to say, spending billions of dollars repairing a copper network, and getting nothing better to show for it?
      Not to mention you top it off with a market controlled by a private monopoly?

      What you said about free lunches? Applies both ways.

    • *It is clearly going to end up costing a whole lot more, and will push Australia further down in the ranks of affordable internet.*

      exactly. NBN = building a network nobody can afford to use. but, hey – if it secures you the votes of the Independents :)

  10. Vital national infrastructure does not belong in private hands. The privatizing of Telstra was the biggest mistake ever made by an Australian government. Malcolm Turnbull is a fool if he thinks that private business has Australians best interest at heart. We should learn from the Telstra mistake.

    • Actually privitizing Telstra wasn’t the mistake, not structurally seperating Telstra was the mistake. Having telecommunications in the hands of the private industry is basically a commonality in the world, even the country with the worlds best internet (NTT) was a government owned government monopoly that was sold to the private industry (Japan is a massively capitalist country).

      The difference was that NTT was split, Telstra was not.

      • @deteego

        “Actually privitizing Telstra wasn’t the mistake, not structurally seperating Telstra was the mistake.”

        Although no one has adequately explained what would be different in 2011 if Telstra has been structurally separated 5 years or more ago and why.

  11. There are three options available for any market: public monopoly, private monopoly/oligopoly or true open access free market.

    Unless householders are willing to have multiple cables coming into their houses, the fixed-line broadband infrastructure will always be a monopoly. Besides, even if that obstacle is overcame, Australia’s population and population density is not sufficient to support multiple fixed-line broadband infrastructure to more than its CBD areas. So this removes the third option from our choice.

    Now it is only a matter of whether a public or private monopoly would be the more efficient model for the country as a whole. One has the reputation of following rules to the letter, and the other has the reputation of holding back maintenance and squeezing their customer for every cent they can get.. Which one do you think would serve low income families better?

  12. Turnbull does not have a clue as to how to fix the NBN, so long as he himself remains fixated on wireless. Turnbull could do with some serious I.T. 101 time as he and Abbott do not have a clue about technology. It is extremely hard to have confidence in someone trying to put forward ideas when it is clear they do not know what they are talking about.
    So Turnbull take a leaf out of Conroy’s book and go and learn something about I.T., then people may sit down and listen.
    On the issue of NBN costs I would rather pay a little more for the use of an NBN I know is going to work rather than pay less for wireless which mostly won’t work.

    • You do realise Conroy is pushing for an unworkable internet filter right?

      Just want to get that clarified before what we all go take that IT course Conroy was studying.

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