Matters of Public Importance: Broadband

The question before the House in this matter of public importance debate this afternoon is a very simple one: are we getting value for money from the National Broadband Network or is it a very large expenditure which cannot be justified? To put the question another way: is Labor’s plan to spend $50 billion a sensible way to achieve the objectives which are uncontentious between the two sides of this House? It is uncontentious that we need to update and improve our broadband infrastructure. It is uncontentious that Telstra should be structurally separated to address the vertical integration problem. These issues are uncontentious. The issue of contention is whether the plan that Labor is pursuing is a sensible one to achieve policy objectives. And you would not have got a persuasive answer to that question from what we have heard this afternoon.

The Minister for Infrastructure and Transport told us in wafty general terms that it would transform productivity, but he could not answer the precise question: what can be done for 100 megabits per second that cannot be done for 12 megabits per second or for slower speeds so as to justify the massive increase in expenditure that is required? He gave us wafty generalisations that fibre was a future-proof technology. Then we heard from the member for Greenway that apparently Google says that the National Broadband Network is a very good thing.

I have no doubt that, if you are in the business of delivering internet content and somebody proposes at their expense to build a brand-new network which you can use to deliver your content, that is an attractive proposition, but for those of us who are being asked to foot the bill—and that is every one of us, every Australian taxpayer—we probably want to give this proposition rather more scrutiny. What I want to put to you is that in fact this is not good value for money for three fundamental reasons: there is a very large amount of money here at risk for essentially political reasons without the business case having been made out, it is very unclear what public policy problem it is designed to solve and it is very, very wasteful.

My first proposition is that this is about politics. The reason there is $50 billion proposed to be spent is that Labor got itself into a hole when the policy it took to the 2007 election, which was to spend $4.7 billion on a fibre-to-the-node network, could not be delivered. The solution was political shock and awe—pull a big number out of the air, $43 billion, be visionary and say that we are now going to deliver fibre-to-the-home. The reason for this was not based upon any analysis of what could incrementally be delivered by fibre-to-the-home over other technologies, it was not based on any analysis of productivity benefits or other specific benefits; it was based upon a political need. If you look for evidence for that proposition, look at the business case—$41 billion put at risk, and what do we get for it? A return of seven per cent.

Interestingly, the corporate plan of NBN tells us that the company’s weighted average cost of capital will be 10 per cent. Let me make a basic proposition of corporate finance. You determine the value of the project by comparing the return to the cost of capital. Your desire is to have your return exceed your cost of capital. If your return is less than your cost of capital, you are destroying value—you have a project with a negative net present value. That is one of the most fundamental propositions of corporate finance. This project, on the admitted documentation of the National Broadband Network Co., is destroying taxpayers’ money. It is claimed to be justified on commercial grounds but, as the corporate plan itself says, no private sector investor would be attracted to this proposition. It is based upon unrealistic assumptions about take-up and it is driven fundamentally by political motives. It is perhaps not surprising that a Prime Minister who stood in front of the Australian people in April 2009 and recommended that this would be a first-class investment opportunity for mums and dads is no longer with us because what an unconscionably misleading thing that was to say.

The second problem which demonstrates why this National Broadband Network of Labor’s is not good value for money for the Australian people is that there is a real lack of clarity about what public policy problem it is designed to solve. If the problem is that we want to increase broadband penetration—the press release the Minister for Broadband, Communications and the Digital Economy, Senator Conroy, put out just before Christmas said that, because the OECD statistics show that that we are 19th in the world for broadband penetration, that added to the case for building the National Broadband Network—and if you believe that Minister Conroy is putting to us that the objective of the National Broadband Network is to drive up broadband penetration, this raises the very obvious question: how is it that building a new network is going to drive up broadband penetration when, by necessity, you are then constrained in your capacity to offer lower prices?

As Prime Minister Gillard correctly told the House last year, Australia has the fifth highest broadband prices in the world. What is the most powerful driver to increase broadband penetration? It is reducing broadband prices. When you go back and look at the data, as I have done very carefully, between 2000 and 2005 you saw a very clear relationship when Telstra, then the dominant provider of DSL, dropped its prices and penetration rose. But we now have a policy under which Labor is spending $41 billion, plus additional money. It is said there will be a commercial return on this and to achieve this return prices will have to stay high. In fact, the entry-level wholesale price that the NBN will be offering is $24. How does this compare to the band 2 unconditioned local loop service price, which is presently the basis on which competitive DSL prices are offered to the majority of Australian households? That price is $16. In other words, we are going to see a 50 per cent increase in the basic price, the wholesale price, which is the foundation on which retail prices are built. So Labor’s policy does not address the fundamental objective, which it says is inherent in the policy of increasing penetration because you are increasing prices.

The third reason which demonstrates beyond doubt that this is not good value for money is that this plan will see useful telecommunications infrastructure trashed. The copper network owned by Telstra will be trashed. NBN Co.’s own corporate plan says that more than one-third of customers served by the copper network today can receive 16 megabits per second or more, yet that infrastructure is simply to be trashed. The hybrid fibre co-ax network can today deliver 100 megabits per second in Melbourne and, with simple upgrades, can deliver the same speed in the other four capital cities where the Telstra HFC network operates. The Optus HFC network operates on the same technology. These networks can, either today or very readily, deliver 100 megabits per second. They too are to be trashed. They are to be thrown away, they are to be squandered and they are to be shut down, and we are to be left with a National Broadband Network which will be a monopoly.

Indeed, to support the monopoly status of the NBN, which Stephen Conroy, the Minister for Broadband, Communications and the Digital Economy, gleefully goes around reminding us all of, there will be legislation passed which specifically places impediments in the way of persons proposing to enter the market in competition with the National Broadband Network. This is a profound reversal of 20 years of bipartisan telecommunications policy, which has always been underpinned by a commitment to increasing competition in the private sector market so as to stimulate lower prices. We have seen a profound reversal of that policy, and we have a policy which is designed for political reasons, with an unconscionably large amount of taxpayers’ money at risk with no realistic prospect of a return, with a lack of clarity as to what policy problem is being solved and with scandalous waste in the destruction of the existing infrastructure. (Time expired)