NBN's Bigger Picture (working draft 2010)

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Introduction +


There was debate in Australia in late 2010 about the federal government's National Broadband Network (NBN) scheme. An indication of the nature of that debate is available in The Top 10 NBN Myths Debunked. The latter identifies both the criticisms that have been levelled at the proposal and the responses to those criticisms by supporters.

However what seemed to be overlooked in this debate was whether the method chosen to implement the presumably-desirable goal of creating such broadband network was sensible.

Was Creating NBN Co Foolish?

Some reasons to suspect that the method the federal government chose to develop a national broadband network (ie via creation of NBN Co) was foolish are presented in the email reproduced below.

NBN' Bigger Picture (email sent 18/10/10)

Mark Day

RE: Let's focus on the NBN's big picture, The Australian, 18/10/10

Your article is presumably correct in arguing the case for general access to super-fast broadband.

However the method chosen to achieve this - a super-expensive 'king hit' involving the establishment of a NBN Co to roll out the network at government expense - appears foolish. Alternative methods are available that could perhaps have been used to stimulate market-driven initiatives to achieve these ends (see Improving Australia's Strategic Position). This involves the use of methods which could be referred to as 'strategic market management' (and involve development of market-oriented indicative plans for taking advantage of opportunities in such a way as to allow networks of those with relevant capabilities to explore their options and perhaps develop independent initiatives). Prior experimentation with such methods show that they potentially allow the discovery of huge unexpected value which might make implausible development options commercially viable.

The establishment of NBN Co implies that fast broadband is a natural monopoly which has to be controlled by government - but the case for this was not made. Moreover a recent proposal for the establishment of a fast broadband network in Brisbane which would be cheaper to deliver than the NBN's option (see Brisbane's NBN will transform people's lives) suggests that this function may not need to be a monopoly.

Furthermore addressing the need for fast broadband by establishing the NBN Co (and the National Competition Council's argument that no cost benefit analysis was needed for the NBN - see Competition chief rejects cost-benefit analysis) raises huge questions about Australia's National Competition Policy (NCP). Though complex, the NCP's main impact was requiring that what had traditionally been regarded as public goods and services should be provided 'commercially' in response to market signals. Though the NCP included provision for a 'public interest' test (ie that there can be occasions in which the public interest required governments to act non-commercially), in practice this provision was seldom used as it was hard to make a case and all the political pressure was to move in the opposite direction. Thus pseudo-commercial arrangements have at times been put in place that are likely to be counter-productive (of which the worst example arguably involves attempts to reform Australia's health and hospital system - see Making a Bad Situation Worse?) Moreover the most serious adverse impact on the public interest (ie reducing governments' ability generally to govern in the public interest - see Neglected Side Effects of NCP) still remains neglected.

John Craig

In brief this suggested that: (a) rather than simply establishing a government owned corporation (GOC), efforts could first have been made to increase and test the commercial value of independent initiatives; (b) establishing a GOC made sense if a broadband network is a natural monopoly - but this had not yet been proven; and (c) undertaking such a function through a GOC called even further into question the adequacy of the major plank of micro-economic reform over the past 15 years (ie the National Competition Policy).

This Question Does Not Seem to Have Been Considered

It is important to get details right, if the presumably-worthy goal of establishing a national broadband system in Australia are to be realised.

However an examination of The Top 10 NBN Myths Debunked suggests that the methods for developing this function have probably not received much attention. For example:

  • Item 2 suggested that the private sector could not afford to build such facilities. However this overlooked the possibility of exploring the opportunity to create such a network in such a way as to potentially allow the discovery of initially unrecognised benefits (and so make commercially implausible investments commercially viable);
  • Item 4 suggested that the OECD supports governments building FTTP networks. However there was no mention of the reasoning behind the OECD's view. Another document, OECD makes the case for a better-than-the-NBN FTTP rollout, referred to what seems to be the OECD's report on the subject - and noted that the OECD believes that externalities exist (ie benefits accruing to other parties that could not be captured by those who develop the network) that would make a broadband network suitable for governments to take the initiative. While this may be so, one outcome of the method for exploring such opportunities suggested above is to enable such secondary benefits to be identified and perhaps incorporated into commercial dealings. Thus, even though the OECD may be right about the existence of externalities, it may simultaneously be wrong about the conclusion it drew from this.

The OECD undertook a cost-benefit analysis, but this is quite inadequate because cost-benefit analyses allow economists' assumptions about benefits and costs to be compared, whereas it is possible (and now necessary) to increase the benefits by adopting a different approach.

Why? Economists emphasise analysis rather than stimulating learning within the real-economy. Some observations about the limitations of conventional economics are in The Advantages and Limitations of Financial Criteria. Economists emphasise analysis because economics is seen as a 'science' (ie as dealing with matters concerning which behavioural laws can be developed as the basis for analysis).

However the standard is now higher - and requires changing the behavioural laws of economic systems, rather than merely using them as the basis for analysis. This alternative is illustrated by: (a) the methods for accelerating economic development in East Asia; (b) the shift in emphasis from comparative advantages of regional economies (ie their pre-existing advantages) to their competitive advantages (ie those that can be created by strategy); and (c) the shift in favoured corporate management styles in the 1990s from strategic 'planning' to strategic 'management')

Details Matter

No matter how beneficial a broadband network may be, getting the details right in the way such functions are developed is necessary, if governments are to be effective in what they do (as the now well-understood cases of grandiose school building and ceiling insulation programs launched by the Rudd Government tend to prove).

The functions of government are getting harder - for reasons suggested in Australia's Governance Crisis and the Need for Nation Building. The latter notes that one of the responses to those difficulties has been a shift by politicians towards populism (ie making announcements that sound trendy, even though they may not work in practice) - see also On Populism . One of the favoured techniques of populist politicians when confronted by an intractable problem seems to be announcing the creation of a new organisation (eg Infrastructure Australia, NBN Co) whose name implies that it is the solution to the problem. While this tactic defers the need to really solve the problem for several years, it can ultimately prove quite counter-productive.

An example of this was the 'reform' process for Queensland's neglected public sector by the Goss Government in the early 1990s. That 'reform' process (in which Australia's former Prime Minister had a central role) was based on across-the-board restructuring and restaffing (ie creating umpteen new organisations whose names implied that they would perform miracles). This sounded fantastic to the media and to academics - but it actually achieved almost nothing because the real challenge was to figure out what government needed to do and how to do it (ie to get the details right), and this never happened. The result was that, almost unbelievably, an already bad situation was made much worse, and Queensland's system of government remains ineffectual and crisis prone to the present day (see Queensland's Worst Government?)