Is the NBN a policy conflict?

Joshua Gans and Jerry Hausman's submission (PDF) to the Australian Competition and Consumer Commission (ACCC) on Telstra's separation undertaking is interesting because of its comments about competition, but I found it even more illuminating on the subject of government goals.

Hausman is a US economist, and Gans was a University of Melbourne professor who was a selected participant of Kevin Rudd's 2020 panel.

The submission takes into account two issues: the government's requirement that Telstra move its customers from the hybrid-fibre coaxial (HFC), and the requirement that Telstra not promote its wireless network as an alternative to the National Broadband Network (NBN).

The economists argue that such moves would be "strongly anti-competitive" for various reasons, one being that competition from cable providers had been a driver for broadband investment in other markets, such as the US.

But what they had to say on the topic of regional broadband was what really interested me. They were tackling the argument that competition would only emerge in densely populated areas and so it was necessary for the NBN to take charge of the whole Australian network to enable the entire network to be viable, and for urban areas to subsidise a rural roll-out.

This idea was illogical in the authors' opinions.

You see, the idea of Telstra's separation was to provide an equal standing for the industry, to foster competition.

Competition policy, they said, should not get tangled up in other goals, such as the desire to enable rural broadband.

"It is not the role of competition policy to facilitate cross subsidies. Competition policy should promote competition, and if governments wish to promote another goal (say the economic provision of broadband services in rural areas), they should finance that policy in another and more transparent manner."

If you're thinking about broadband in that way, then the Coalition's policy does make more sense, as it allows competition to act in the areas that it can, and only tackles those areas that are uneconomic.

In Gans and Hausman's opinion, the policy would move Australia back. What do you think? Have we become too entangled in the idea of broadband as an Australian standard; that we're forgetting about competition? Or are these economists full of it?