I guess that fiscal conservative Tony Windsor felt that $43 billion – that is $43,000 million, a point that these country twinks may not quite realise – was just too good to pass up. Well you might, when it’s other people’s money (Milton Friedman would no doubt be having a bit of chuckle).
And now it emerges that when all this fibre is up and running, city internet users will cross-subsidise country users. That’s only fair, would be Tone’s retort.
So here is my guess of what will happen:
- The capital will need to written off in total, in the same way as in the Ord River Scheme
- User charges will struggle to cover variable costs, again in the same way as in the Ord River Scheme
- Judging by the low take-up of Telstra’s current offer of 100 mps using its HFC, struggle in the point above should probably be in capitals. On-going taxpayer subsidies will be required.
In addition:
- New technologies will emerge, partcularly in the wi-fi space, that will render most of NBN redundant
- In the meantime, the cost of the monopoly arrangements, including those being ‘sorted’ out with Telstra, will be large, insidious and hidden.
There is a serious competition issue surrounding the deal with Telstra: it is really the equivalent of Myer paying David Jones to shut down all its shops. Would anyone think that this is a good idea? Apart from the loss of competition, junking what is perfectly servicable capital is clearly wasteful and inefficient.
Indeed, there is a serious technical question surrounding whether the NBN-Telstra deal is allowable under the Trade Practices Act – almost certainly not (thanks Mike Porter for this point) – and will need to be addressed by separate legislation. The independents would be crazy to go along with such legislation.
But just think of all those productivity gains from people more easily being able to dowload movies and access porn sites?
If there are real gains to be made in the education and health space, let us see the numbers – they would have to be HUGE to justify this sort of expenditure. And of course they are not and in any case, many businesses, educational institutions and hospitals/clinics have already equipped themselves to take advantage of the broadband. So these gains will have to ADDITIONAL and dependent on the NBN.
I agree it is likely to be a white elephant. But I think the political problem was that Abbott couldn’t be honest about the massive scale of the implied cross subsidies through fear of losing the Nationals and the country vote.
In the current environment its impossible to point out that massive cross subsidies are inevitable and a massive waste of money.
Its a core problem of Labor – the inability to appreciate that $43b has a huge opportunity cost. They can’t modify the scheme either in a sensible way without losing government.
hc
8 Sep 10 at 5:24 pm
Bit unfair. The Ord River Scheme may pay off one day.
Infidel Tiger
8 Sep 10 at 5:26 pm
As I said before – the $43b is basically for a wireless access point in every home/office. Total waste of money!
I also find it rather outrageous for Conroy to suggest (and some true believers to parrot) that it’s just too good an investment to pass up, so we don’t need cost-benefit analysis. This is insulting to our intelligence – we don’t even make that absurd claim with regard to public health (though they even try to invoke health as one of the areas of improvement)
Fleeced
8 Sep 10 at 5:29 pm
Harry… what happened? Did you slap the right side of you head and nerve centers started firing up again (for a short while at least) as you make a little sense.
Hey great job in touting the Gangrenes. Do you love the alliance they’re struck up with you nemesis? Good work, Harold. Another fine mess you’ve got yourself into.
JC
8 Sep 10 at 5:32 pm
Its a core problem of Labor – the inability to appreciate that $43b has a huge opportunity cost.
While on the subject of opportunity cost Hare. Can I ask you… Did you apply the same discount rate as applied in the Stern report, which was close to zero in calculating the opportunity cost of this lamebrain project or did you apply another more realistic rate that sort of resembled the commercial cost of capital.
Don’t think I’m having a go at you here in any way of course, as you know I’ve always respected your input in a professorial sort of way seeing I’m genuinely interested. Perhaps you think different types of capital may not be fungible as the color of the money could be different (I’m just speculating here Hare).
JC
8 Sep 10 at 5:39 pm
My understanding is that the Ord River Scheme is now functioning well… is this right? There’s limited information about it on wikipedia or anywhere else online. Like, how much it cost, how big a failure was it initially, to what extent it is now a success, etc.
daddy dave
8 Sep 10 at 5:56 pm
Dad
I think if you present value the cost, taking into account the real cost of capital, it’s been a terminal dud.
Of course if you treat it as a sunk cost and wrote off the long suffering taxpayer’s investment years ago, it may look good now.
On the whole it’s been a dud.
You really don’t even need the numbers to see that.
The average return on farming since that turkey came on stream has been around 2 or 3% and I’m being generous here.
Average real cost of capital over that same period has probably been 8 to 10% is my guess.
In other words it’s a dude.
JC
8 Sep 10 at 6:09 pm
Yeah but JC- it gives us great melons.
ken n
8 Sep 10 at 6:18 pm
The template for the NBN is the Greek Railways. As a corporation, which happens to be Govt owned its debt does not appear in the National accounts.
Its current interest bill is about three times its gross income. Also as a template for the NBN, when it does get passengers it treats them like dirt.
rodney
8 Sep 10 at 6:23 pm
Why go to Greece for a railway example, Rodney? As if our shitty trains are any better.
Look at the bright side. By the time that albatross is operational and i use the word loosely we’ll all be using much faster wireless, so we can treat that thing as an example of what not to do in the future.
The left is on a nation building shtick at the moment. They all seem to love this nation building swill like a red headed step child. So the best thing is to let them build it. Hang the cost and just write it off to another bad leftwing experience.
So let’s all put on our shorts and go nation building. It builds character. In fact I dug a ditch in the front yard to go nation building this very day.
JC
8 Sep 10 at 6:32 pm
Sigh ( genuine )
Robert Gottliebsen has now claimed credit for a junket to the Whitsundays producing the definitive NBN – No Costs/ all Joy upside.
http://www.businessspectator.com.au/bs.nsf/Article/How-broadband-defeated-Abbott-pd20100908-93TA3?OpenDocument
Ms Sloan and Other Catallaxians – would someone please interpret this – my head is just too beaten in to get the drift of:
a massive stampede of senior public servants flying out to deliver the benefits of The Hayman Island NBN to the ever-attentive Faux-Independents ?
seriously – this is the strategic guru who only just worked out that Arabs are not Iranians and there is a wee tad of tension in the Gulf !
Please – what is Gottliebsen on about ?
Myrddin Seren
8 Sep 10 at 6:34 pm
Please – what is Gottliebsen on about ?
Nation building, Myrddin. It’s called Nation building… do it big do it right and do it with fibre with one Metamucil tub at a time.
JC
8 Sep 10 at 6:37 pm
“Please – what is Gottliebsen on about ?”
Nation building, Myrddin. It’s called Nation building… do it big do it right and do it with fibre with one Metamucil tub at a time.
JC
8 Sep 10 at 6:38 pm
In a polite society Gottliebsen would hang his head in shame. Economists and economic commentators really are the dregs of society.
Infidel Tiger
8 Sep 10 at 6:47 pm
Uh yeah
But Farsi-noob Gottleibsen gets an all-expenses paid trip to Hayman Island to be the face of Australian strategic business thinking to the world, and I am just on the train from Hornsby every day.
And yet, and yet – in a very non-libertarian/envious way, I somehow think that knowing Iranians are not Arabs, and a no-costed, no-business case NBN is kinda like pissing my grandchildren’s future down the drain is just somehow unfair ?
Am I backslidding ?
Myrddin Seren
8 Sep 10 at 6:56 pm
The Gottliebsen proposal looks even worse; it is hardly surprising that the private sector will jump on the bandwagon of a government mandated monopoly and fleece the customers. The deal with Telstra is an outrage and should be stopped by our competition regulators.
Bob should know that all monopolies are bad, particularly ones that are imposed by governments. The costs are huge, hidden and insidious. The Hayman solution is if anything worse and it is very scary to think those ignorant independents would have been swayed by such tosh.
Judith Sloan
8 Sep 10 at 7:28 pm
“This is the Emergency Medical Holographic program. Please state the nature of your economic emergency.”
RoD
8 Sep 10 at 7:30 pm
Yes, Tony Windsor really is a fiscal conservative: someone who steals your money and “conserves” it for you by spending it on useless projects.
Milton Von Smith
8 Sep 10 at 9:04 pm
It is only correct to treat the NBN as a capital item if a fully offsetting asset is created.That is,the asset needs to be valued.Economists call this a CBA.
Tom Valentine
9 Sep 10 at 10:22 am
This really is a sorry scandal. The worst policy decision I can recall in recent years.
pedro
9 Sep 10 at 5:43 pm