Who’s Afraid Of The NBN?
By Sarah-Jane CollinsMarch 13, 2012
The National Broadband Network is on its way, but is it value for money?
There’s many a laugh to be had watching British television drama Downton Abbey, set in country England before World War One. It is a time of significant technological change, and throughout, the aristocratic family adjusts to luxuries such as electric lights and telephones.
The fantastic, perpetually frowning dowager countess — played to perfection by Maggie Smith — handles change worst, regularly expressing her dislike of the new technology. “Electricity in the kitchen? Whatever for?” she says at one point.
A modern life without electricity is unimaginable, just as many of the innovations made possible by its invention also once would have seemed implausible.
The history of Australia’s electricity infrastructure is a hodge-podge of public and private investment and enterprise, with no overarching strategy or single body of investment. Yet this vital infrastructure has been crucial to the nation’s expansion and development. It has made possible the impossible, dragging society forward time and again. And it has done so largely unanticipated — because that’s how innovation works. In the beginning, while it seems ludicrous that you might end up relying on something then viewed as a luxury, it is hard to see where things might lead.
Electricity and its patchwork past are worth remembering when considering the federal government’s National Broadband Network and the debate that swirls around it.
The NBN is expensive. Let’s not pretend it’s anything else. It will cost an estimated AUD35.9 billion. And it won’t be fully operational for years. It has been attacked as one of the “great all-time white elephants” by Opposition leader Tony Abbott, and Coalition communications spokesman Malcolm Turnbull says the government should be looking for cheaper solutions to our internet challenges. Perhaps that’s not surprising coming from an Opposition that infrastructure minister Anthony Albanese has dubbed the “Noalition”.
Still, it can be difficult to know whether this investment is a good one or not, and the federal government cannot be accused of selling its big plans well. The polling shows the majority of Australians are in favour of the NBN, but it is not clear that people know exactly what it is and what it will do.
How many megabits per second does a country really need? And how do we know that won’t change in the future? In the end, that’s what this argument boils down to, and neither side knows who will be right. What is certain is that for now, the NBN looks to be the future-proofing option. The one that can cater for our strongest demands and our highest expectations, and it is already being rolled out. The alternative, while significantly cheaper, can only cater for what we know we will need, not what we have not yet anticipated — potentially like having electricity in the kitchen.
The federal government is aiming for download speeds that begin at the “basic” level of 12 megabits per second (12 million bits) and rise as high as 1,000 megabits per second. Presently most Australians with broadband are on plans with advertised speeds of between 1.5Mbps and 24Mbps. But advertised speeds are not indicative of the speeds you are actually getting, so it is hard to know if we really are accessing services in the low-range of what would be offered once the NBN is complete in 2021.
Website NetIndex charts the real speed of broadband services around the globe. It regularly tests the download and upload speeds of internet connections and creates rankings based on up-to-date information about how fast our services really are working. In Australia, measured over the period between February 6 and March 6, 2012, our average download speed was 10.63Mbps. On average download speed, Australia comes in 40th in the world.
The top 10 countries, according to NetIndex, are mostly in Europe, with South Korea (30.35Mbps) and Singapore (23.47Mbps) also on the list. Number one is Lithuania, a former Soviet republic, with average speeds of 31.69Mbps. That’s an average of almost 8Mbps more than the highest theoretical speed offered on the majority of Australian plans.
So we are not yet seeing widespread high-speed broadband comparable to other countries, and it is difficult then to know just what broadband at that speed would be like. Turnbull argues that while our infrastructure does need an upgrade, the NBN will be prohibitively expensive, both at the initial investment level, and also, once built, for the consumer.
There is some preliminary evidence that on the second count at least that he may well be wrong. The wholesale prices for NBN plans released by the NBN Co in December 2010 start at AUD24 for 12Mbps, $34 for 50Mbps, $70 for 250Mbps, through to $150 for 1,000Mbps. Retailers offering NBN plans in the first areas to have the network rolled out — which include parts of Tasmania, Armidale in northern New South Wales and Brunswick in Melbourne’s inner-north — have priced services comparable to current plans for the existing network.
Internode, one of the first providers to offer NBN plans, has an entry-level plan that costs $49.95 a month for 30 gigabytes at 12Mbps. There are no line rental charges, and if you exceed your downloads, speeds drop but you are not charged any more. A basic “easy naked ADSL2+” plan available now — with no additional line rental and the same 30GB cap — costs $59.95, with $10 in VoIP (Voice over Internet Protocol) phone credit.
ADSL2+ has estimated speeds of between 10 and 24Mbps, so it is the most directly comparable to the low-end NBN plans. And the costs are pretty similar.
Pricing outlines from other providers are comparable, so where you are getting ‘like for like’, the costs are very similar. The more speed you want, the more expensive it becomes, but as in every market, people will choose the plan that best suits their needs and budget, and even the low-end plans far exceed the speeds offered now on many “cheap” services.
To roll out the NBN, the government established the NBN Co in April 2009. It oversees the construction of the network, and is in charge of the wholesale side of the enterprise. Essentially, the public will own the network, and private companies will then buy access to the infrastructure and deliver it to consumers. This, the government says, will alleviate such problems as cropped up when Telstra was sold and the market opened up to competitors. In that case the playing field was never leveled; Telstra had access to an extensive network that other companies had to pay to access or build around. The NBN Co is designed to avoid that particular problem.
As part of the NBN deal, the government has split Telstra’s retail and wholesale businesses, negotiating with the company to shut the copper network down over the rollout period for the NBN, and giving the NBN Co access to Telstra infrastructure that will make the rollout smoother. Approval for the deal was granted by the Australian Competition and Consumer Commission in February 2012.
The question of whether Australia is getting value for money out of its investment is a more complicated one. The government is fronting a significant amount of cash to make the NBN work, and the back-and-forth over the price tag looks set to continue.
According to the company’s corporate plan, the government investment in the NBN (running at some 27.5 billion) would be repaid after the network was completed. The NBN Co will raise the rest of the funds.
The broad strokes of the argument, on the government’s side, are that this kind of network will never be built by private enterprise, because to do so would be prohibitively expensive. To build fibre-to-the-home broadband to 93 per cent of Australia, and cover the rest with wireless and satellite, is too big a job for any one company to undertake.
But why do we need that kind of network? In short, the one we have isn’t up to scratch and needs to be updated —both sides agree on that. For the kinds of technological innovation anticipated in the 21st century — innovations that will change how we work, are educated, where we live, and how we receive vital health care services — the government has decided that fibre-to-the-home broadband is best placed to deliver a modern framework upon which to build. The NBN is not so much about making it faster for you to download the latest episode of Game of Thrones, it’s more about linking city and country, providing health care to remote locations, allowing people to work remotely, and — lest we forget — any number of things not yet anticipated. The capacity in the network is not for today, it is for tomorrow.
In a report commissioned by the federal Department of Broadband, Communications and the Digital Economy, the Allen Consulting Group says: “In the coming decade, the internet will become increasingly important, with broadband access as fundamental a requirement for social and economic participation as the telephone and electricity.” The report, published in November 2010, looks at the economic benefits of fast broadband available to all.
It does not take into account the cost involved of building a fast broadband network, nor does it factor the NBN into the analysis. But it provides some interesting food for thought. For starters, it highlights the divide between the sort of internet connections people in metropolitan areas have, as opposed to those in regional or remote areas.
“Although dial-up connections are phasing out of the market, regional households are still nearly 70 per cent more likely to connect to the internet through a dial-up connection,” the report says.
The service divide between the country and the city is one of the key reasons why the government is building an entirely new network — to alleviate the discrepancies. Signing up to support the Gillard minority government in 2010, the independent member for New England in northern NSW, Tony Windsor, nominated the NBN as the most important reason for his decision.
In February 2012, Windsor welcomed the government’s announcement of a contract to build the satellites that will help supplement fibre-to-the-home in remote areas saying, “high-speed broadband is the solution to the tyranny of distance in the bush”.
And it’s not just the lack of broadband in the bush. The report cites a 2008 study that found indigenous Australians are 69 per cent less likely to have any internet connection at all; just 42 per cent of people in very-remote areas have a connection, a clear inequality that the government cites as yet another justification for such a big spending program. Again, the argument goes, a market-driven private system won’t build super-fast broadband in small towns and regional backstops, because there aren’t enough customers to recoup the money spent.
But why go all out and build fibre-to-the-home, the oppositions says, if you could spend significantly less running the fibre-optic cables to exchanges and then let the existing copper wires carry the internet into our homes? It’s cheaper, quicker to build, and adequate for what we need the internet to do.
That model, put forward by Malcolm Turnbull and the Coalition, rests on some key arguments. First, that in the future we won’t need speeds significantly greater than we already need. Second, that other technologies such as wireless will become better at delivering more, faster. And third, that by as early as its completion in 2021 the NBN will be outdated, and will have proved itself to be an expensive waste of money that isn’t even the latest technology.
It is true that the NBN plan relies on assumptions. Namely that fibre will continue to be the best way to deliver super-fast internet and that our capacity to find uses for all that wonderful speed will continue to grow, and not stagnate.
Turnbull had this to say at the Young Liberal convention in January 2012:
“Let me concisely summarize our main objections for you. The NBN is expensive — far more expensive than it needs to be. Completing the network and migrating customers onto it will cost $50 billion and very likely more.
“More capital employed in the network inevitably means higher prices for consumers and businesses. It is plain that a more rational approach involving running fibre closer to end users but not all the way to every house or business in Australia could achieve largely similar performance for almost all users at perhaps a third of the cost.”
He went on to argue that the plan was a thumb to the nose of current economic wisdom about the role government should play in markets, and the way it engages with private enterprise.
“The NBN is profoundly anti-competitive and hugely restricts economic freedom. As it is rolled out, three existing networks — Telstra’s copper, the Optus HFC cable network, and Telstra’s HFC network — will no longer be permitted to carry voice or broadband, and the first two will be decommissioned. This is economically wasteful and detrimental to competition. But it no doubt will prove helpful to an over-capitalized government monopoly keen to recover its costs,” he told the young party faithful.
“And the NBN puts the Government back in a conflicted position as the owner of a large player (that at some stage will likely be privatised) in a market it regulates. It goes directly against the economic liberalism, the successful policy lessons, of the economic reform era [of the 1980s and 90s].”
Government monopoly versus free-market competition. Though Malcolm Turnbull points out that many of the principles espoused in his speech have in recent decades been firmly embraced by the modern ALP, what is obvious is that the NBN debate is right down in the trenches of political economic warfare.
The Government, in response to accusations this is a throwback to mid-20th century big government, argues the NBN is a traditional Labor reform, designed to secure a future digital economy far greater than what we have today.
In a speech to the National Press Club in December 2011, the communications minister, Senator Stephen Conroy, said the evidence that usage would continue to grow is there in the history of how we have adapted to the internet over time.
“There continues to be dramatic growth in the volume of data moving around the internet, and in demand for broadband speeds… evolving technology has increased download speeds exponentially since 1985. Download speed requirements have increased at 25 to 35 per cent per year for more than two decades,” he said.
“The trend of exponential growth in download speeds has been consistent.
“Just as dial-up rapidly became insufficient for our needs, so too will copper-based technologies become insufficient very soon.” Conroy should have added, we just don’t know when.
And his rebuttal of the fibre-to-the-node, copper-to-the-home plan put forward by the Coalition?
“To achieve the speeds Mr Turnbull speaks of over FTTN (Fibre-To-The-Node) requires bonded copper pairs – which means using at least two copper lines per connection. Australia's network has not been designed or built with two copper lines available to every premise. We simply do not have the copper availability and quality to deliver the speeds and performance Mr Turnbull describes,” Conroy argues.
He went on to cite the example being set by our eastern neighbour, New Zealand, where a FTTN network has been abandoned part-way through to make way for fibre to the home.
“Unlike our Opposition, New Zealand's Conservative government understands the importance of super-fast broadband infrastructure,” the minister told the press club.
The one certainty in this debate is that the test for the NBN can’t come now because we simply don’t know where we will be technologically in 10, 20 or 30 years.
That’s making all sides a little bit tense, especially with $38 billion on the table.