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NBN Service Management by Taxation


#1

It appears the pollies have their eyes on the ball to do whatever they can to thwart competition to their baby. There are a few words of honesty interspersed in this article.


The Case for the NEG - Flawed?
#2

What it does show is the NBN is uneconomic and won’t every be privatised (as no business with a cent of common sense will buy into/purchase a business which is unprofitable.

Politicking aside, this is what possibly results when neither the ALP or LNP carry out due diligence on behalf of the taxpayer and prepare a detailed business plan on the economic viability of a piece of infrastructure. It looks more and more that our children and grandchildren will be responsible for paying for the largeous decisions over the past 10+ years.


#3

Possibly. Then again, maybe that’s the wrong perspective.

Telecommunications infrastructure is a public good. It might not be profitable, but its value far exceeds its costs. Roads are a good example of pubic goods. They aren’t profitable in and of themselves, but society (and economy) would be much poorer without them.

I contemplated the NBN a while back:

I’ve been assuming that our telecommunications infrastructure must pay for itself directly. That may well be the only politically-viable model, but is it the way to optimise the value of our investment? Would we net more value if the cost was paid indirectly; if access & usage were effectively free to the user?

In an interview broadcast on ABC radio Brisbane in February 2017, entrepreneur Steve Baxter compared monopoly telecommunications infrastructure to the road network, describing it as a public good. He went on to point out that the cost to operate the network at 100% of its capacity is no greater than operating at 1%. If nobody uses the network, he said, it will cost the same as if everyone uses it to capacity.

Imagine if every household in Australia could connect to every other household &/or business in Australia at maximum speed with no incremental cost. As Steve Baxter said: “People will find a use for that and it won’t be only downloading 4k Netflix. It will be for things that you and I can’t fathom.” “People would find uses for that bandwidth”. I think the term he was looking for is “innovation”.

Baxter asks: “What’s the least possible cost we can charge the end user?” At the nbn™ half-yearly results announcement earlier that month, chief executive Bill Morrow reportedly raised the prospect of providing wholesale services “for free”. That strikes me as a very clever suggestion.

As I’ve pointed out before, the cost of implementing optical fibre to every premises would be trivial. We could easily afford to write it off entirely over the network’s service life. Of course, we’d still have to pay for the network, but the financial load would be insignificant.

What of operating costs? Whatever the network costs to run, the source of funding will be the same: the people of Australia. Either as customers or as taxpayers, we will pay for it. It’s in our interests, therefore, to minimise the cost of running the network and optimise its value.

In a user-pays system, much of the cost lies in administration; measuring what each user uses, accounting for it, billing each user and managing payments from each user. If the user doesn’t pay directly, then those costs are eliminated. Baxter said that Australia has the most expensive Internet access charges in the world. I don’t know how true that is, but can we try for the least expensive? All we need to do is think like a nation.

If the network earns enough to pay for itself, then it doesn’t show up in the budget, so our politicians like to pretend. A well-built and well-run telecommunications network could easily pay for itself. Sadly, neither is true of the NBN in its current mutilated form, nor of the tragically-neglected legacy network. Parts of the latter are quite lucrative; Telstra has left the rest to decay. According to Baxter, the NBN as currently envisioned is not commercially viable in the long term. One way or another, we’re going to pay. Privatising the NBN might allow the politicians to keep pretending, but it won’t reduce the costs to the users (quite the opposite, in fact). As Baxter commented, it would take courage to relegate the expense to the budget bottom line (retain the infrastructure in public ownership, which is likely to reduce net costs, but those costs would show up as government expenditure). Is there an Australian politician with the cojones?

Providing the infrastructure at no cost to the user would be a trivial expense. Providing free access & usage would be more costly, but the payers are the same whichever way the cost is paid: we, the people.


#4

I don’t disagree, but the taxpayer/wider community has a right to know what it is getting in for. One has the right through elections to factor a business case into ones voting pattern.

Not knowing is giving the parliament a endless unknown bucket of money at the taxpayer’s expense. This is not good management of the countries finances and I am unaware of any business which would not do such before launching into a large investment like this.

The days of a politician saying trust us on what we say have gone (possibly never existed anyway).


#5

If given a business case, what do we know? For mine, “business case” is right up there with “cost/benefit analysis”. That is, nowhere. Both begin with assumptions. Get the assumptions right and the outcome can be whatever is desired.

The NBN is little more than a project to repair some of the harm done by privatisation. John Howard privatised the infrastructure, despite repeated warnings. Telstra, being a private entity, maximised short-term profits by neglecting that infrastructure. How did he manage to convince the electorate that such obvious idiocy was a good idea? Business case, perhaps?


#6

Yes to both.

I have asked this before but perhaps a new reader can answer. In the days of the first spread of physical networks (such as roads, telegraph and railways) which in this country were nearly all done by government, was any cost/benefit analysis done or did they decide that it just had to be done and it was the role of governments to do it if they could possibly find the money?

A speculation: if those networks had not been built because there was inadequate monetary return forecast where would we be now?


#7

If the government is going to impose a tax to help cover additional NBN costs then it should apply to all customers of the NBN equally. NBN customers in Melb and Syd all benefit from being able to contact and do business with rural customers on Not-fixed FW or ‘Donkey/SkyMuster’? It’s a two way street.

If the NBN is sold as one only asset all the bits in between are equally shared and owned. No discrimination please.

Agree, and note that many decisions are still made by government without a business case or cost benefit analysis. Sometimes it’s just nation building, others it’s to genenerate more power from coal, or even help struggling not for profit organisations save the GBR

It seems that a business case is used universally to justify unpopular decisions:

  • to firstly not spend money,
  • or secondly to spend money on an unpopular or wrong headed solution.

More generally and a little disturbingly:
Once the NBN is privatised as an essential service, there remain more opportunities for government to privatise the ownership of other essential services like the national highway network to a Toll Operator. Perhaps the analogy of the national highways as an example of government investment in public good was not so wise, as the proponents of the argument may alert the government to this opportunity?

As consumers we are fast running out of options to invest the ever increasing super pot locally. Opening up more of what we already own to be sold back to us can only be good for our self funded retirement? Maybe if you have lots more super than an equal share anyway?

The public hospital system is still in state hands, although the current government has applied substantial pressure to the states to sell off assets, any asset, or miss out on Capital funding. No business case required for the sales, but there is for the funding of new projects?


#8

Having worked in local government and for a State GOC, most infraatructure decisions are based on demand. For example, when the capacity of a road meets its carrying capacity, alternative solutions are sought. In evaluating the solutions, there is a cost benefit type assessment undertaken. This assessment usually includes a do nothing along with a range of alternative solutions. The solution which often ‘wins’ is that with the lowest net present value…or that which has the highest payback for the dollars spent. A criticism however is that only often the next solution is considered and not a long term staged development type process. This does often result in a cheaper solution being adopted with potentially longer term costs. An example would be building an bridge overpass over a 2 lane road…the bridge designed to span two roads but the crossed road is likely at some time in the future 15 years, 30 years…+++) become a 4 lane road, meaning the bridge requires replacement.

There is an argument that building a bridge to cross 4 lanes up front ties up monies which could be spent elsewhere and also discounts the long term benefit of the bridge as there is a redundancy built in until 4 lane crossing is required.

The assessments are used by the decision makers to prioritise projects snd make submissions for funding/approval.


#9

Do you have a view, better some data, on whether this approach would have been used in the green fields development of the 19th and early 20th century?


#10

I don’t know if they were, but suggest more recently (30+ years), it is a standard practice for such. Most greenfield sites are also now subject to EIAs which also covers economic impacts and costs.

The only exceptions are those projects dreamt up by politicians during election campaigns where there is an expectation they get implementation post election. Even more recently these have be subject to high level costings and analysis by an external government agency before the punters vote.


#11

As far as telecommunications infrastructure is concerned, I see no mention of business cases or cost/benefit analyses in the 19th century. Maybe the value was just bleeding obvious. :wink:


Interestingly, although the Australian bits were apparently all government projects, the international links seem to be private enterprises.

From personal experience, in the period immediately following World War II, the PMG ran cable as far from the exchange as funds allowed. From there, rural residents connected to homesteads any way they could. To this day, there’s still the occasional insulator nailed to a tree, where a fencing-wire 'phone line once ran. All of that early infrastructure was above-ground (in the regions, at least). By the end of the 1960’s most, if not all, had been replaced with underground cable.

I guess the proliferation of rural users trying to do it themselves is a sign of how well the government’s mutilated mess is viewed. Of course, Australia’s government isn’t alone in failing.


#12

The overhead party line with multiple stations on one line back to the exchange, morse station identifiers (# of rings) and the magneto telephones were still in ‘official’ use well into the 80’s in some places …


#13

You say that like it’s a bad thing. :laughing:

Researching that betrayal, I came upon:

Liberal government selling off a vital asset. Something ALL liberal governments are good at. The mighty dollar being more important than our human capital!

What a joke the coalition are!
Free enterprise has a place BUT NOT WITH CRITICAL INFRASTRUCTURE.
https://hotcopper.com.au/threads/who-sold-telstra-john-howard-why.3090119/
which links to:
http://www.marketeconomics.com.au/2095-more-facts-behind-the-howard-governments-debt-elimination
Everything’s connected. :expressionless:


#14

Not in the sense of the way they do it now, with money gained (taxes, fines, registrations etc) as the end justification for a go ahead and if the increase to GDP isn’t enough the plan is folded. Back then the analysis was more of “if we connect them it will be easier to travel, we will be able to communicate better, we can provide better health care” and so on. While it was a different outlook the end result was, even if viewed over a much longer period, that it provided more income thus a growing GDP.

Then some may point of out that defence spends a lot of money eg the new submarines & aircraft with very little return to GDP. However Australia is now trying to become a World supplier of weaponry and the dollars spent in developing our military will be returned (and more) in arms sales.

The NBN if it had been implemented as first envisioned would have been a boon to all Australians but the cost the LNP pounced on to great effect was the setup cost not the long term benefits. Imagine if we didn’t have one but we now had to string a telephone system all over Australia. We on the basis of what happened with the NBN would quickly destroy any hope of one being properly implemented as a lot of people are feeling hip pocket strain and would cut any cost that helps ease that pressure regardless of the possible long term good it can bring.

Fibre to the premises for everyone should be our mantra, the cable itself lasts decades without any real deterioration, it is speed upgradeable without having to lay new lines or install much new infrastructure, it resists fires, floods and storm/wind damage better than anything we have to date, it has low maintenance costs due to all that resilience. Yet the current Govt delivers a sub optimal (very sub many IT people would say) outcome even within cities of quite large populations and density let alone the abysmal service it supplies to many less urban and remote centres and premises. Fairness if it had even truly been a consideration would have demanded a far better outcome than the MTM NBN. The MTM NBN was never about providing a service fit to take Australia anywhere near the future, it was simply a means to get a party elected so they could rule as they wished. Enough people were convinced to allow this to happen but now many of those same people are outraged at the very service they voted for.


#15

The business case for the NBN could have put a cost on doing nothing.
How much would the cost have been over the subsequent say 25 years of lost opportunity and keeping outdated practices?
How much the prospective cost of having to replace large portions of the copper network and exchange infrastructure due to aging, and disruption?

There was a large number that was going to be spent just to stand still. The total cost of the NBN irrespective of design choices could be considered with a discount based on that do nothing base case.

Should a discounted estimate be considered a truer estimate? To be used when assessing future benefits from the NBN, quantifiable in value or facilitating value from other endeavours?


#16

Meanwhile:


#17

No surprises there.

I’ve recently observed numerous small sections of our nearby rural owners who were ear marked for fixed wireless and outside of the FTTN are now getting FTTC. Wow! Another nearby low density area is in the Fixed Line service area despite being remote from the exchange. This is harder to judge as there are no publicly available network plans to consult or review?

This may be another demonstration that the NBN Co has realised it has more and bigger issues with what it can deliver over the FW solution than it would like to admit.


#18

Now I’m getting confused. Are they making it up as they go?


#19

Geez, they really are making it up as they go!


#20

After the flip, the flop:

… the company is proposing to create a new product offering called ‘Fixed Wireless MAX’.

… MAX would be a best-effort service offered to all users.

… expected to support wholesale downlink speeds of up to 75Mbps.

However, this will come at the expense of the uplink, which will shrink to a maximum of up to 10Mbps.

NBN Co outlined to industry that the 50/20 plan would stop being supported and that the company ultimately hoped to withdraw it.

“Best effort” is another way of saying “up to”. :roll_eyes: