Rudd’s tangle over broadband legacy

Today in The Australian

Now that we are almost as abundantly endowed with ex-prime ministers as we are with coal, it is perhaps unsurprising that emissions from the former have grown to rival those from the latter. But even in a crowded field, Kevin Rudd’s claim that “it was never ­envisaged that the NBN generate a commercial rate of return” merits a special place in the greatest moral challenge facing mankind.

About Henry Ergas

Henry Ergas AO is a columnist for The Australian. From 2009 to 2015 he was Senior Economic Adviser to Deloitte Australia and from 2009 to 2017 was Professor of Infrastructure Economics at the University of Wollongong’s SMART Infrastructure Facility. He joined SMART and Deloitte after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, he was an economist at the OECD in Paris from the late 1970s until the early 1990s. At the OECD, he headed the Secretary-General’s Task Force on Structural Adjustment (1984-1987), which concentrated on improving the efficiency of government policies in a wide range of areas, and was subsequently Counsellor for Structural Policy in the Economics Department. He has taught at a range of universities, undertaken a number of government inquiries and served as a Lay Member of the New Zealand High Court. In 2016, he was made an Officer in the Order of Australia.
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44 Responses to Rudd’s tangle over broadband legacy

  1. Colonel Crispin Berka, King's Fusiliers Corps.

    The meaning of NBN is many and varied.

    Imagine hating Rupert Murdoch so much that you’ll spend 60 billion dollars of taxpayer’s money just to sabotage his Foxtel business. The cable pay TV near-monopoly held its position for as long as Internet connections couldn’t perform as well as the cable. So Rudd put a stop to that.
    Nastily Bombing Newscorp?

    The sloth of Australian broadband over ADSL in comparison to other countries was a cause of unending gripes amongst millenials. This was described all over Whirlpool Forums and other Progressive hangouts as being a clear Market Failure. Obviously what was needed was a sort of laser Volkswagen, a network for the people. The NBN had the implicit goal of closing the bandwidth gap between Australia and South Korea, which could never have succeeded on commercial terms because we don’t have ROK’s population density.
    Nouveau Bolshevik’s Network?

    NBN was so expensive you had to be forced off the incumbent network or you might not have bought it. Now about 3 years after the copper-snipping cataclysm kicked off, Optus has launched fixed wireless at 50Mbps with unlimited data using 5G towers for $70/month. That’s the price Telstra used to sell 3Mbps cable.
    Never Been Necessary?

    Of course the extra latency overhead of wireless meant it was never an option for the NBN, because the real target demographic was video game players in surburbia. Rudd bought a whole generation of new voters over to Labor by spending big on fibre-to-the-premises, uh I mean, fibre-to-the-node, uh I mean fibre-to-freakin’-somewhere-just-stop-asking-awkward-questions. None of this was necessary for any productive task that the young Labor voters had, but they were envious of what they saw in other countries and they felt entitled to it.
    Needy Bedwetters Network?

  2. One ScoMo doesn’t make a Spring

    … after writing ‘NBN’ the napkin was too small to write ‘ ROI’

  3. Texas Jack

    Nobody seems to understand that if you build something stupid you build something stupid. Tony Abbott’s second biggest mistake was promising to keep the ABC. His biggest mistake? Thinking for a nanosecond that Malcolm Turnbull could be trusted at all, let alone trusted to join the first Abbott Cabinet as Minister for Communications.

  4. Mater

    “it was never ­envisaged that the NBN generate a commercial rate of return”

    That is far from the only thing about it that was never ‘envisaged’.

  5. Up The Workers!

    Without for a second wishing to indulge in too much “…detailed programmatic specificity…”, ever since the members of the “Labor”(sic) Party first started mis-spelling their own Party name, it has never been envisaged that anything whatsoever done by the comically illiterate members of that collection of dolts would ever: “…generate a commercial rate of return”.

    And in any case, when it comes to the invention of 19th century landline telephony systems, Alexander Graham Bell beat Conjob, the Leftard former Footscray Councillor with the used red jocks on his head, by around about 165 years.

  6. Baldrick

    “it was never ­envisaged that the NBN generate a commercial rate of return”

    Rudd’s $4.7 billion NBN wasn’t expected to make a commercial return?

    Nice revisionism there Kevni.

  7. egg_

    The NBN was just another fork in the road.

  8. Tel

    The official justification was that the NBN would deliver an internal rate of return of 7% per anum, and this was too low for private sector investment (so the government HAD to do it). I think they were wrong on both points, but then again … Conroy, Rudd … nuff said.

    Conroy was using the OECD statistics which are here … http://www.oecd.org/sti/broadband/broadband-statistics/

    For some strange reason the fixed line penetration per 100 people was what he fixated on, and I’ll point out Australia is 18th at the moment (beating the OECD average, but we were much the same under Howard too), so the NBN has done nothing to improve the target statistic. Even when you consider that the Liberal government lowered standards but accelerated the rollout rate … they still couldn’t get traction on MARKET PENETRATION statistics (completely ignoring the speed of the line). The whole thing is a dumb statistic to start with, most families have only one broadband connection to share so it’s going to be dependent on family size. With mobile voice&data per 100 people for example, Australia comes 5th in the OECD and that’s a better indicator of overall individual access to Internet.

    What’s that word Trump uses?

    sad.

  9. Ƶĩppʯ (ȊꞪꞨV)

    We used to pay around $20 for an internet connection, now it’s around $50. See, its now much cheaper just like green electrickery.

  10. Eyrie

    “The NBN was just another fork in the road.”
    And we have been well and truly forked by it.
    BTW can’t some of the former PM’s do the decent thing and get off the public tit. Dying is OK also.

  11. I think it was on Ross Greenwoods show last night that I heard Telco margins on NBN are pretty much zero and they wouid have to increase prices.

    Another point Labor forgot to mention when they came up with NBN was that previous phone and alarm systems wouid not work with NBN. One friend had to pay $2000 for new alarm system and cost to somebody who owned a pharmacy was $10,000. Never mind the fact that NBN has failed to live up to its promises.

  12. RobK

    Thanks Henry and commenters. Good background. It is so easy to forget, the mongrels rely on that.

  13. stackja

    RobK
    #2934412, posted on February 15, 2019 at 8:19 am
    Thanks Henry and commenters. Good background. It is so easy to forget, the mongrels rely on that.

    Voters elected Gough, Keating, RGR, BS? Doing same expecting a different outcome?

  14. John Constantine

    It is never envisaged that alex turnbullites windmills and chicom peoples liberation army slave labour solar panels deliver a commercial rate of return.

    Simply deliver us to the side of history where our Davos Class oligarchs crush the proles into tribute paying, through the paramilitary death squad power of the crony hellhole tyrannical dystopia State.

    Comrades.

  15. Ubique

    Voters elected Gough, Keating, RGR, BS? Doing same expecting a different outcome?

    It’s Australia. The belief in the Magic Pudding never dies.

  16. Leo G

    Now that we are almost as abundantly endowed with ex-prime ministers as we are with coal, …

    I would have said “with ex-prime ministers as we are with wind generators”, but Henry is too pc (poetically correct) for such a tautology.

  17. John Bayley

    In hindsight, Turnbull as a Communications Minister at the time should have just scrapped the whole thing and write off the ~$10B spent up to then. It would have been much cheaper than the final bill is likely to end up being and it would also remove the market distortion the NBN will continue to be due to its ‘protected’ status (where Optus/Telstra are prohibited from offering competing fixed line servies).
    Plus, as Victoria has amply illustrated, politicians flushing money down the toilet by the billion does not bother the voting public. The Andrews government demonstrated just that with their cancellation of the East-West road project just because their CFMEU masters had been excluded from participating by the Liberals. Hundreds of millions down the tube and they got re-elected with an increased majority.
    Now the NBN will forever be hanging around the necks of the Liberals, who will be repeatedly confronted with the claim that ‘…if only it had been built as the Rolls Royce fibre-to-the-home model, it would have been fantastic!’ (Check out the comments on Henry’s article in The Australian for plentiful examples of this.)
    Snowy 2, I tells ya…a nation-building project and all that nonsense.
    To the rational among us, it was always obvious that re-nationalising telecommunications and putting in place a government-run monopoly would produce substandard outcomes at best.
    The good news, for consumers at least, is that you do NOT really need the NBN. Optus already offers high data plans for a reasonable price on their 4G service, and in the area I live in (regional QLD), the speeds are usually twice as fast as the top tier of the NBN.
    For the taxpayers, however, the news is all bad.

  18. The BigBlueCat

    Can we burn ex-PM’s for energy? It might be their only utility value …..

  19. In hindsight, Turnbull as a Communications Minister at the time should have just scrapped the whole thing and write off the ~$10B spent up to then.

    Not just in hindsight John. I’m pretty sure quite a few people were suggesting it at the time.

  20. Terry

    What has been the opportunity cost of lost investment and innovation by the private sector and the Australian economy since Rudd’s ruinous intervention into yet another market?

    No industry is safe from the Union Cartels.

  21. John Bayley

    What has been the opportunity cost of lost investment and innovation by the private sector and the Australian economy since Rudd’s ruinous intervention into yet another market?

    Unfortunately the NBN fiasco pales in comparison with the government intervention in the electricity generation & distribution markets, the electric car market, primary production, mining (just look at the latest obstacle thrown at Adani)… The list goes on.
    The biggest problem is that most of the population believes that the government ‘fixes’ problems, while in reality, it either turns small problems into big ones, or creates brand new ones from scratch so it can then invent ever more expensive ‘solutions’.
    Until that message sinks into the public’s consciousness, the road to Venezuela is the only path open to us.

  22. Rohan

    The BigBlueCat

    Can we burn ex-PM’s for energy? It might be their only utility value …..

    I reckon if you decided to sell the NBN to the highest biding (non-ChiCom owned) telco, Kevin O’Lemon, the Termite and his Tosspot son will be so incandescent, it will solve Australia’s energy problems for the next 50-60 years.

  23. DaveR

    And somebody wondered where Rob Sitch and team at Working Dog got their script ideas from for the Nation Building Authority in Utopia.

  24. Neil

    Rudd’s $4.7 billion NBN wasn’t expected to make a commercial return?

    It should never be forgotten that Labors $4.7B broadband policy before the 2007 election went nowhere. Has to be one of the biggest lies ever told before a election. It helped Labor win the 2007 election because Labors policy looked more sexy than the Coalition proposal.

    After throwing their 2007 policy into the bin the current NBN was decided on a plane flight in 2009 costing who knows wat finished who knows when

  25. JohnA

    Of course. It was always about re-nationalisng the Telstra network and reversing the privatisation policy.

    As some, including moi, said at the time.

  26. Terry

    @ John Bayley
    #2934456, posted on February 15, 2019 at 10:04 am

    Yes. Exactly.

    “creates brand new ones from scratch”

    Glaziers running around with rocks to drum up business.

  27. stackja

    Terry McCrann: Rudd’s fantasy NBN, Turnbull’s NBN reality
    Terry McCrann, Herald Sun
    February 13, 2019 9:00pm
    Subscriber only

    THERE’S a veritable host of exquisite flavours to the way Kevin Rudd is going around trying to claim that his NBN would have been — miles and miles — better than the one we have now almost completely actually got, Malcolm Turnbull’s.

    None is more exquisite than the fact that we only got to get Turnbull’s NBN — indeed in truth, any NBN — because of the man they both despise, Tony Abbott, who saw off both of them and saw off both of them twice.

    If we’d tried to keep building Rudd’s all-fibre (mostly) NBN, we’d be lucky if one in 10 homes were now able to be connected; and the cost would be spiralling right out of control towards $100 billion.

    When he launched it in 2009, he promised it would be finished in eight years. By 2013, after four years under Labor’s management, only a handful of homes were even passed by fibre; an even smaller handful were actually connected to the fibre; and a yet tinier fraction were operating. And billions had been spent.

    The ‘gigabit geeks’ and Rudd can bleat all they like, but it is all round better to have 70 per cent, heading quickly to 100 per cent, of Australians able to get fast broadband — as against, say 10 to 20 per cent able to get unnecessarily faster broadband.

    Further and critically, those ‘lucky’ ones in the Rudd alternative NBN universe would be having to pay much, much more for their broadband because of the much greater sunk cost and the much smaller number of subscribers.

    At its most basic, the only way to have actually got a working NBN, getting it much quicker — and at least half financially responsible and functional — was by using the existing telco infrastructure.
    The only way to get a working NBN ‘quickly’ was by using the existing telco infrastructure.

  28. John A

    Terry McCrann via stackja #2934485, posted on February 15, 2019, at 10:42 am

    The only way to get a working NBN ‘quickly’ was by using the existing telco infrastructure.

    Yes, BUT the ALP’s political ploy was to over-trump the LNP policy of spending about $4Bn to upgrade the backbone.

    If we had stayed with that upgrade, then separated the backbone exchanges from Telstra’s retail business, we could have had a national broadband backbone network in public ownership as a utility and the retailers (Telstra, Optus, Vodaphone and all the other ISPs) could have paid for Gigabits transmitted.

    But as was said earlier that was a solution too simple and logical. Government is not into real solutions, only Sir Humphrey Appleby-esque problem creation and subsequent complicated apparent solutions.

  29. Rohan

    Looked up the financial statements.

    According to the November ’18 financial statement, the net accumulated operating loss is $18.3 billion.

    So of the roughly $55-56 billion of tax payers money spent so far, only $37.7 billion has been in capital expenditure.

    The revenue for 2018 FY was $1.98 billion and operating loss was $4.7 billion.

    I guess KRudd was part right, it would only cost $4.7 billion – a year to keep afloat.

  30. Rohan

    Actually I’ll correct that. Only $29.5 billion has been spent in capital expenditure. So doesn’t that mean tax payers have been slugged $8.2 billion in operating costs?

  31. Neil

    Actually I’ll correct that. Only $29.5 billion has been spent in capital expenditure. So doesn’t that mean tax payers have been slugged $8.2 billion in operating costs

    NBNCo is off-budget so it cannot be funded like other govt programs like health, education. I don’t know where NBNCo gets its money from but like most start up companies I am guessing they borrow money from the banks. Apparently govt does make a taxpayer contribution very now and then. Does anybody know where NBNCo gets its money from?

  32. iamok

    Rudd was correct about no consideration of ROI. That is the same for most government intervention into markets, and all of the Labor/Green idiot schemes. I wonder if it’s possible to do a realistic ROI on the billions pissed away on the Climate Change myth? Would not look great I’d reckon.

  33. Percy Popinjay

    Does anybody know where NBNCo gets its money from?

    Well, duh, the government’s magic money tree, of course. Not to mention all those beloved customers who are totes stoked about having to pay more for an inferior service.

  34. Kneel

    “Now that we are almost as abundantly endowed with ex-prime ministers as we are with coal, it is perhaps …”

    Oh! Pick me! Pick me!

    “… time to burn politicians in power stations”.

    Even the “fossil” ones are completely renewable, we’ll never run out!
    Could even apply for renewable certificates and make money from it!

    I’m off to create a start-up….

  35. One ScoMo doesn’t make a Spring

    Labor and co. Cannot spell ROI

  36. John Bayley

    You just need to look at some of the comments under the Terry McCrann article referenced by stackja above to see that there is no arguing with some of these people.
    “If only we had built the Rolls Royce, there would have been zero maintenance costs, everyone would have cheap, ultra-fast, ‘future-proof’ internet.”
    “It was a nation-building project.”
    There are simply too many morons addicted to free handouts by the great, benevolent government.
    This is why the country is f*cked.

  37. NuThink

    Please stop calling them “ex-prime ministers”.
    The correct term is “miserable ghosts“.

  38. Overburdened

    The NBN has a good chance of being a major initiative that falls over. This doesn’t happen often, with blue sky ideas (all labor ideas such as Medicare, NDIS) needing to be picked up and made to work, if poorly, by the Coalition.
    Rudd, Conroy and their ilk need their arses smeared with honey and being anchored to an ants nest.

  39. Amadeus

    Question Neil asked:
    Does anybody know where NBNCo gets its money from?

    Answer: From the ether, or as yet to be discovered by an RC, “union super funds”. You can bet your house on it that the Turnbull’s aren’t lending, merely having a lend of us as they busily rake in the taxpayer subsidies from the miraculous Green Electrickery….Those trillions in super funds have to be parked somewhere, and who cares if they don’t earn any rate of return since it’s not their money and they’ll be in Monaco or Singapore or Uzbekistan when the shit hits the fan…

  40. Neil

    Well, duh, the government’s magic money tree, of course.

    That cannot be true. Rudd/Conroy put NBNCo off-budget meaning it cannot be funded like govt programs like health education. So where doe NBNCo get the money from to build the NBN? I am guessing like most start up companies they go to the bank and get a loan

  41. TBH

    Fair to say that over the past decade, we have seen two of the biggest glass jaws in the history of Australian politics: Rudd and Turnbull. They are so wounded by criticism they spend an inordinate amount of time correcting what they see as the record, regardless of how wrong they are. Miserable ghosts indeed.

  42. Tel

    NBNCo is off-budget so it cannot be funded like other govt programs like health, education.

    You would think that, but ahhh no. Watch very closely (nothing up my sleeve), I spend one million dollars on the “NBN” … I say the magic word “investment” … and I pencil in one million dollars of asset value on the friendly side of the balance sheet. Here’s the clever bit: I always insist that “nett debt” is the only total I’m willing to discuss; when the other guy says, “gross debt” I flip into brutal repetition mode, “nett debt!”, “nett debt!” blah blah “nett debt!” and active a chorus of drongos to back me up.

    After that’s all quietened down, one million dollars debt less one million dollars asset equals OFF BALANCE SHEET!!! Woot woot wooooooot!

    Does anybody know where NBNCo gets its money from?

    Out of your pocket, same as other government programs. Oh I guess the government is going further into debt so it’s being financed by the normal government bond system, plus somewhat artificially low interest rates and yer typical monetary inflation.

    I am guessing like most start up companies they go to the bank and get a loan

    The banks are dopey … but not that dopey.

    There’s annual reports available online, the NBN is starting to pull in genuine revenue from people who have signed up. I haven’t checked lately doubt they make a profit, but it’s better than it used to be.

  43. Neil

    Out of your pocket, same as other government programs. Oh I guess the government is going further into debt so it’s being financed by the normal government bond system

    But Rudd/Conroy put NBNCo off-budget. So I guess they must get their money from banks who lend them money. I have seen now and then they get some money from the govt. But if NBNCo is off-budget it must mean they get most of their money from non-govt sources otherwise NBNCo would be on-budget and the NBN funded by govt debt. I don’t think NBNCo is funded by govt debt except for the grants they get now and then.

    But I suspect the whole thing will one day be written off and the NBNCo debt added to our govt debt

  44. John Stankevicius

    John Bayly – another cracker of stupidity was Don Dunstan selling all the land back that was bought to build the south rd extension . This road was to connect the new Myponga Dom, Pt Stanvac Oil refinery, Monroe Whitley, Chrysler, Holdens , the new airport, hills industries, etc etc etc. The land was sold and our glorious Festival Thaetre was built. Daniel Andrews must have leaned about this idiocy and applied it himself. This was the beginning of the end of SA. In the 50 yrs before south rd was widened trucks could not drive along south rd . Now we have bridges on top of roads and confusing roads rather than a flat 3 lanes rd each way.

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