Synposis:

To spend tens of billions of dollars to build a telecommunications network – without knowing how much you can charge customers to use the network – is an extremely risky move. But that is what NBN Co is doing. NBN Co has announced the prices it plans to charge.

(Click here to read the original published version of this article)

In the federal cabinet reshuffle on Monday,  Bill Shorten became Minister for Employment and Workplace Relations but retained his responsibility for financial services and superannuation.

One of the features of the global financial crisis was banks using highly misleading accounting. So called ‘off-balance sheet vehicles’ involved the transfer of billions of dollars of debt to a separate entity.

What is the point of Julia Gillard's carbon tax?

(To read this article at The Drum Opinion online click here)

LAST week's announcement of the deal between Telstra and the NBN Co is another reminder of how comprehensively the National Broadband Network has perverted telecommunications policy in Australia.

The theory behind the government's spending on the NBN doesn't match reality, writes Paul Fletcher.

But if he were leading a company seeking to raise $27 billion in equity funding from private sector investors, the scrutiny Quigley would face would make the existing processes look tame in comparison.

Indeed, Quigley's complaint suggests a useful thought-experiment. If an information memorandum for the NBN had landed on the desk of a private investor, and that investor were sufficiently interested to commence a due diligence process, what are the kinds of questions that Quigley would now be facing?

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There is a lot of talk about Australia establishing a sovereign wealth fund.

Other resource-rich countries have established them. One of the best known is Norway, but according to the International Monetary Fund, over 20 countries have such funds; and over half of the total assets in these funds are held by countries which are significant oil and gas exporters.

Several business leaders – including the Commonwealth Bank’s Ralph Norris, the ANZ Bank’s Mike Smith and Tabcorp’s Elmer Funke Kupper – have called for Australia to establish a sovereign wealth fund. The reason most commonly cited: we should put away some of the proceeds of the resources boom for a rainy day.

Strong demand for Australia’s natural resources – such as iron ore, coal and natural gas – mean that Australian companies are currently exporting larger quantities, at much higher prices, than in the past. 

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Are decisions about the National Broadband Network being made based on rigorous evidence of demand
for the services to be delivered over the network?

Or are they being made for essentially political reasons, to demonstrate to the media and the electorate
that this shiny new network is a good thing for Australia?

According to the Tasmanian Chamber of Commerce and Industry, appearing last week before the
House of Representatives Infrastructure and Communications Committee, the choice of the three first
release sites in Tasmania – Scottsdale, Midway Point and Smithton – was a political one. TCCI argued
that if you wanted to maximise the number of customers on the network, you would have chosen more
built up areas in Tasmania.

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Those OECD broadband rankings have a lot to answer for.

As you contemplate your tax dollars being vaporised in the great NBN punt, you might well wish the OECD had never starting tracking and publishing statistics on broadband penetration.

In Australia, as in many other countries, these statistics are closely watched.

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The cost is staggering. We learned last week that the Gillard government's NBN Co will spend $49 billion on the network between now and 2020, up from the $43bn first quoted when the plan was announced in April last year.

We have heard a lot about the supposed 'new paradigm' in this Federal Parliament.

Announcing Labor's deal with the independents on September 7 this year, Julia Gillard promised far-reaching reforms to make the Government and its functioning more accountable to the Australian people: "So, let's draw back the curtains and let the sun shine in; let our parliament be more open than it ever was before."

THE Rudd-Gillard Labor government just does not "get" competition.

In policy areas as diverse as banking, telecoms and Julia Gillard's $16 billion school hall stimulus program, Labor's policies are failing badly -- and a core reason is Labor's indifference to competitive private sector markets.

In recent days we have seen record bank profits -- and banks increasing their home loan rates ahead of the Reserve Bank's cash rate.

Rudd-Gillard Labor government just does not "get" competition.

In policy areas as diverse as banking, telecoms and Julia Gillard's $16 billion school hall stimulus program, Labor's policies are failing badly -- and a core reason is Labor's indifference to competitive private sector markets.

In recent days we have seen record bank profits -- and banks increasing their home loan rates ahead of the Reserve Bank's cash rate.

When the cash rate was increased by 25 basis points last Tuesday, Commonwealth Bank increased its rates by nearly twice that amount.

Treasurer Wayne Swan blames "a culture of arrogance among the banks".

The real explanation is quite different. On Labor's watch, concentration in the banking sector has significantly increased -- reducing competition and increasing the pricing power of the big four.

During this period significant non-bank operators such as Wizard, Aussie, Rams and Challenger exited the home loan business or were acquired by the banks, while Bankwest was acquired by CBA and Westpac bought St George.

The banks say their rates are going up because they need to recoup increases in their funding costs. But in business there is no automatic relationship between your costs and the prices you charge your customers. It is only if you have market power that you can increase your retail prices with impunity.

In a more concentrated market, the banks now have significantly greater pricing power -- and Australian home loan customers are suffering.

It is a pity that the Rudd government did not think about the competition implications of the panicked decisions it took in 2008 -- decisions it said were necessary because of the GFC.

With its rushed introduction of a bank deposit guarantee of $1 million, Labor gave the big banks a competitive free kick.

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The Rudd-Gillard government's decision to spend $43 billion to build the NBN has been the subject of intense controversy.

The Coalition has repeatedly criticised the fact that there has been no cost-benefit study, and there was no business plan prepared before the decision was made.

We have also criticised the assumptions in the implementation study subsequently prepared by McKinsey and KPMG. These firms found that the venture would generate a modest return of 6-7 per cent.

Private sector telecommunications companies think very, very carefully before they build a new network.

In eight years on the senior leadership team at Optus, I saw how much work goes into preparing the business case for a new network.

It is critical to work out how many customers you are going to get - and how much they are going to pay.

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With the election over and the subsequent horse-trading now finished, it is time for the post mortem. Was it a good result for the Liberal Party and its supporters?

At the most basic level, clearly not. We set out to win government - and we did not get there. It is natural and appropriate to feel bitterly disappointed.

But it is no contradiction to say the Liberal Party ran a very successful campaign. Under Tony Abbott's disciplined and energetic leadership, we took a first-term government to the very brink. Labor lost 16 seats.

When I entered Parliament at a byelection in December - the same week that Tony Abbott became leader - predicting such an outcome at the next general election would have seemed impossibly optimistic.