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Libs hazy on NBN Co commercial mandate

The debate over whether the National Broadband Network (NBN) should be run as a government body or a commercial enterprise that has had its share of acrimony. Yet with the Libs' latest shot across Labor's bow, Malcolm Turnbull has exposed a curious double-standard.

The debate over whether the National Broadband Network (NBN) should be run as a government body or a commercial enterprise that has had its share of acrimony. Yet with the Liberals' latest shot across Labor's bow, Malcolm Turnbull has exposed a curious double-standard.

Consider Turnbull's position on the upcoming 3G spectrum auction renewals, where he warns that the government is "working hard to screw the very last cent out of the wireless carriers" for their licence renewals both so it can raise more money for the NBN, and so the price of supposedly competing 3G wireless broadband will be increased.

Turnbull is supported by none other than Australian Mobile Telecommunications Association (AMTA), which cites a report by a "leading UK economic regulatory and competition policy expert" that warns of the need for "a conservative approach" to spectrum pricing. But, of course, AMTA would say that: as the mobile industry's peak body, it's hardly going to support heavy imposts on its members; that would be as likely as tobacco giants supporting government-mandated reductions in cigarettes' nicotine content.


(Credit: David Braue/ZDNet Australia)

"Be gentle", Turnbull is saying. Claiming that Labor wants to charge an unreasonable premium to hobble the 3G industry and give preferential treatment to NBN Co, he is arguing that the government should give preferential treatment to mobile carriers by charging lower-than-market prices for spectrum, providing a government subsidy for the industry whose continued growth and success are critical to his specious claims that 3G is a viable fixed-line alternative to the NBN.

Turnbull's push for government support is at odds with his own long-stated policy that NBN Co should operate with the same profit-focused bloody-mindedness as a private company (and, in so doing, seek to maximise returns at every juncture). This philosophy lies at the heart of Turnbull's long-running demand for a cost-benefit analysis; it underscored his continued argument that the NBN would never deliver adequate net present value to justify its construction; and it fuelled his complaints that the NBN Co business plan extract provided precious little financial detail. It even underscored Turnbull's wishful thinking this week that even if its business plan works, NBN Co may still be doomed to failure.

The wheedle and the damage done

Yet consider for a moment: if a private company owned the rights to Australia's spectrum and was in a position of licensing it to mobile companies, it would be expected to license them for as high a price as possible to maximise the value of its assets. If directors were found to have undervalued assets during a sale simply to be nice to their clients, I suspect those directors would have a whole of 'splaining to do as they were frogmarched out the door.

Claiming that Labor wants to charge an unreasonable premium to hobble the 3G industry and give preferential treatment to NBN Co, Turnbull is arguing that the government should give preferential treatment to mobile carriers by charging lower-than-market prices for spectrum.

Why, then, should the government not maximise the revenues it gets from its spectrum assets? 3G wireless spectrum was originally sold at auction to the highest bidder and has produced a market that is healthy and continues to grow; it also, collectively, enjoys a monopoly on our mobile communications. Costs are high, services often patchy or, as Vodafone and Optus both learned the hard way this past weekend, susceptible to collapse; the only thing the mobile industry is struggling with is how to keep up with growing demand.

Yet carriers should, and do, factor all this into their network expansion plans. It's a dog-eat-dog world, after all, and there's no logical reason the government should be favouring already-successful players by giving them favourable market access. It is astounding that Turnbull, an avowed free-market capitalist and big-business supporter in true Liberal vein, would now be calling for government moderation to lessen the potential returns in realising the value of critical assets, arguing that high re-licensing costs will boost consumer prices and stifle innovation.

Does the government pressure Westfield to moderate rent increases on shopping-centre bank branches so the big banks won't impose fees to recover their increased costs?

Does the government invest in new power generation facilities so energy retailers won't charge customers more to recover their costs?

Does it step in to limit the rent increases that landlords can impose on their tenants?

And did Howard's Liberal government exercise similar restraint during the float of Telstra by pricing its shares at a lower, more realistic price rather than compromising its legislative structure and long-term objectives in the name of short-term returns?

No, no, no and in the case of shareholders, definitely no. When faced with privatising one of the government's most valuable assets, the Liberals, if I may borrow Turnbull's words, worked hard to screw the very last cent out of Telstra shareholders. Indeed, as has been pointed out many times before, their failure to implement appropriate controls over that whole process is the reason Labor is considering building the NBN at all.

In telecoms as in other markets, fundamental rules of supply and demand drive pricing. In the long term, even if they pay a bit more for their piece of the growing 3G market, I'd bet mobile carriers will find a way to keep service costs low so they don't have to pass on the extra costs to their customers. This is a fundamental tenet of competitive markets, and it's exactly why Turnbull's call for moderation is simply unnecessary.

More importantly: if Turnbull expects the government to act in a non-commercial way with regards to the commercial spectrum, how can he then turn around and demand that the NBN be built and funded in a commercial way? The government must either operate using one commercial philosophy, or another, but Turnbull seems to be happy to play both sides as it suits his own rhetoric. This logical inconsistency threatens the philosophical basis for the Opposition's financially-rooted arguments against the NBN; the party needs to decide just which rules it wants to use when fighting the NBN, and stick to them.

Has Turnbull rolled himself with his CBA double-talking? Or is it fair to expect the government to provide commercial returns from NBN Co and less-than-commercial returns for anything that favours Turnbull's NBN vision?