The economics of the NBN

The economics of the NBN

Summary: In this edition of Twisted Wire, Senator Nick Minchin, Maha Krishnapillai and Ian Birks discuss with Phil Dobbie the economic viability of the new National Broadband Network.


In this edition of Twisted Wire, Senator Nick Minchin, Maha Krishnapillai and Ian Birks discuss with Phil Dobbie the economic viability of the new National Broadband Network.

The government has earmarked $43 billion to build a fibre-to-the-premises (FTTP) network to reach 90 per cent of all Australians. The intention is to attract investors from the onset and to ultimately sell the whole entity to the private sector. That raises two big questions — will we see a realistic return on investment for this massive sum and will it be attractive to investors?

Today's Twisted Wire discussion highlights two further questions. Most people agree on the spin-off benefits to the Aussie gross domestic product. Wouldn't the government have been wiser to argue the benefits to the economy rather than arguing full payback on the investment?

The other question is, can it proceed at all without use of existing Telstra infrastructure? Once again, the industry waits for Telstra's next move.

Senator Nick Minchin is the shadow minister for Broadband, Communications and the Digital Economy; Maha Krishnapillai is the director of Government and Corporate Affairs for Optus, and Ian Birks is the CEO of the Australian Information Industry Association

Add your comments in the Talkback section at the end of this post.

Topics: NBN, Broadband, Telcos, Optus, Tech Industry


Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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  • When will the pretence stop

    What rubbish from optus. The objective is destroy a competitor pure and simple.

    As for the talking up, actually speculating on the benefits of the NBN without concentrating on the costs is absolutely wrong.

    While people liken the case of the NBN to rollout of the Electricity grid. How does anyone know that its not more like the predictions of a helicopter in every driveway when that bit of progress became well established.

    This is not about applications or universal access to broadband it is and always was a pretence to destroy Telstra.
  • Dont cry for me Australia

    Here's a thought for Maha and Optus who is only motivated for the good of the consumer.

    What if we retracted the carrier license for Optus and other Telco's in return for Telstra's commitment to drop prices by say 30%!

    Telstra could have 100% of the market so it could recoup lost profits from the increase in market share. We could still have the ACCC oversee this happens and the "consumer is the winner".

    Go on Optus, your so benevolent I think you will volunteer to this commercial suicide for the greater good of the country and its poor helpless broadband consumer's.
  • huh

    that's possibly even more absurd than all of sydney's stupid comments combined and you actually submitted it?
  • @when will the pretence

    boo hoo. you fanbois are so fos, really.

    grow up.
  • Maha the Liar !

    Maha says NBN 2.0 will cost no more than
    $33 B.

    Yet its well established NBN 1.0 FIBRE TO THE NODE is a fraction of the cost in capital construction to Fttp.

    So if NBN 1.0 to 80% of the pop. was going to cost $10 B. plus Telstra network purchase of $20 B. MINIMUM (as per conroy quote), how is it possible NBN 2.0 FTTP for 90% is not less than $60 Billion?

    Ans. OPTUS knows its well in excess of $50 B.
    But will happily attempt to guide the country into massive debt and failure for its own gain, ITS OWN GAIN. ironically using consumer benefit as its pretence.
  • they learnt from the best

    optus are ready to take over from telstra then, as they have learnt all their dirty tricks
  • One super Aussie company.

    Every other business in Australia would dearly love to have a plan (shockingly devious) to destroy their opposition as is cunningly employed by Telstra opponents at the moment.

    This lunacy will stop as more and more Australians wake up to it. I agree, get rid of the parasites, make Telstra a monopoly with 100% of the market with pricing strictly monitored by Government.
  • Dear oh dear

    Dear me Sydney, you put your foot in it this time!
  • Freedom of speech, Simon.

    Perhaps Simon, but don't forget there has only been one perfect Person on this Earth so far, and they crucified Him.
  • it was for the taking, but for sol!

    sydney, that's exactly what telstra proposed in 2005. a fttn network which was primarily an add on to the network they already had. but it would have bypassed everyone elses dslams, making it a telstra monopoly, with 100% market share, just as you wish.

    but telstra's management not only wanted 100% market share, they also wanted maximum return, then some, and *refused the government monitoring you suggest, via the accc*.

    all they had to do was accept the monitoring, which would have meant a reduced but still very lucrative return and they would now have exactly what you ask for. ***king dopey, greedy idiots

    but you keep believing sol was a smart operator, for rejecting the monopoly you want and could have had, and for now thrusting your beloved telstra into the unknown.
  • Better times ahead. We hope.

    Anonymous, you speak with great wisdom although, some of your suggestions are unknown at this time (at least to the general public).

    At the time of the Telstra RFP rejection I did request a response from Telstra (via NWAT) as to how a company with Telstra's vast legal resources could so seriously foul up.

    The episode which has played out over the last five years at Telstra is certainly intriguing and will make interesting reading in the forthcoming book " What's up down under" authored by Phil Burgess.

    The whole theory that consumers will gain if the ACCC wrecks Telstra is a fabrication. As with all competition the end result is the business that excells in presentation to customers will assume dominance. As with Telstra.

    If every time a company which gains dominance is weakened by the ACCC to help struggling opponents the end result will be a weaker and more expensive product for the Australian consumer.

    Finally, how can the ACCC champion, and in fact demand competition, and then call for the creation of a monopoly that can only exist if all competitors are crushed?

    While I do not have a "mother drunk or sober" attitude to Telstra, and agree that something was amiss with the NBN application, I believe that Australia's Telstra is getting a "bum wrap" from disingenuous opponents who see opportunity in their attacks.
  • thank you

    thank you sydney.

    in amongst all the typical sydney speak of disingenious opponents and the rest of the warped rhetoric, for once and at last...

    *you sydney lawrence has actually admitted that telstra seriously fouled up*. because of this *serious foul up*, they have brought this all on themself.

    but i never thought i'd see the day 19th June 2009 - *telstra seriously fouled up, by sydney lawrence*.
  • Competition DOES bring benefits

    David Porter, the Harvard Business School Professor credited with proposing the modern theory of international competitiveness (relative advantage) first noted that Italian shoes were globally competitive not because Italy's craftsmen were cheaper or inherently smarter than other countries' craftsmen, but because a discerning domestic shoe market (which was also very competitive) drove producers to both innovate and delivery quality... which is what set-up Italy to be very competitive on the world market as international trade became more liberated from tariffs.

    Generally competition does drive innovation. Sydney's comment "If every time a company which gains dominance is weakened by the ACCC to help struggling opponents, the end result will be a weaker and more expensive product for the Australian consumer." is indeed a fallacy. Most studies of international competitiveness note that dominant/monopoly telcos deliver a lesser service at a higher price, compared to countries which have an 'open' market for telco services. It is only natural for a monopoly to extract a 'monopoly rent' if not regulated. That was the logic that drove our national competition policy, introducing competition at the retail end of telco services. Telstra did not rush to introduce innovative services prior to competition. Arguably, Telstra still drags its feet in many areas of innovation. Telstra withdrew its 0500 user-in-control redirection service. Telstra is still trying to pretend that VOIP does not exist, in that most innovative services eat into the 'cash cow' of STD/IDD income of traditional telcos. Iinet (ie NOT Telstra) has led the charge with naked DSL. Compare the no-data-bundling with Telstra's iPhone plans compared to its pro-data-bundling competitors to see that data access via mobile phone is being pioneered by others (ie NOT Telstra). Most near-monopolies (including Telstra) just seek to continue milking the existing cash cows for as long as they can, leaving all innovation to others who seek to steal away just the most cost-conscious customers.

    In short, poster-Sydney's proposed panacea of leaving all telecoms in the safe hands of Telstra would be like returning to the 1950s.

    However, having made the above points, we only need real competition at the 'offering end' ('packaging' and retail), not the 'asset end'. The fibres and switches could be commonly-owned in a separate entity. In physical analogy, the government should supervise whatever tolling is applied on the Hume Highway, but allow all manner of freight companies to use it with all types of end-user offerings available to consumers in a competitive marketplace.
  • Competition DOES bring benefits

    I still have a problem with the fallacy that we only need competition at the retail end and that the monopoly backend provider will somehow take care of itself and will have all our best interests at heart. Look at (state) government controlled entities in NSW and the need to continually raise prices to give the illusion of growth in a mature market.

    An NBN with controlled/low pricing will destroy innovation in the access network. An NBN with market pricing and a legislated monopoly will destroy innovation in the access network. A (in 5 years) privatised NBN monopoly with legislative relief, in order to secure a good sale price, will destroy innovation in the access network.

    There are few winners in an NBN. Certainly not the consumers. Broadband networks should be localised and be subject to competition laws like everything else. Allow a new light weight light touch carrier licence class for local access providers and open the thing up to competition. The debates about the NBN at present look a lot like the debates about taxi deregulation in NSW or the fouth national tv channel. How to protect the existing players while giving the illusion of progress.
  • Trick is to limit monopoly to MINIMUM elements

    Bruce has expressed concerns that allowing a monopoly on even backbone of network may lead to a lack of innovation, citing various hopeless public monopolies administered by the NSW government.

    Nothing I could say would defend the way the NSW government administers its monopolies. But perhaps the better model is the combined Federal/State monopoly of Australian Rail Track Corporation. This monopoly makes a lot of sense, owning all the freight track between Brisbane and Perth (via Sydney, Melb, Adelaide). It is NOT under the control of any particular government, but has a truly independent board.. which cannot be said of ANY of the NSW monopolies, which are tightly controlled by NSW Labor politicians (directly or by appointing their mates).

    The issue is that there IS a natural monopoly in backbone long-haul packet transfer, and the benefits outweigh any potential risk of the technology becoming stale. The trick is to have JUST THE MINIMUM elements of any NBN in the monopoly. ALL packaging (govt, business and consumer) ought be done by others. It needs to be only doing wholesale. Then if some other company wanted to offer a combined satellite plus broadbank offering, shifting such packets as it wanted via satellite and such as it wanted via NBNco, that should be allowed. That way, there is no real limitation on innovation. In other words, an NBNco should be barred from enforcing any 'exclusive dealing' arrangements, of the type allowed for Microsoft (special deals requiring no bundling of other competitive operating systems) or Telstra (mobile phone dealers signed on exclusive dealing arrangements). These mis-uses of market power are actually illegal in Australia, but are not enforced by our competition watch-puppy. In short NBNco should be SUBJECT TO the Trade Practices Act (ie no exemption).