Why Labor Got It Wrong on Broadband in the Bush

December 12, 2014
Ministerial Feed

Labor has criticised the Government’s telecommunications reforms announced on Thursday for including a proposal to replace the National Broadband Network’s current ACCC-regulated prices with ACCC-regulated price caps.  Labor claims this will mean broadband users in the bush pay higher prices for the NBN than broadband users in the cities.

Jason Clare issued a press release stating we would "make the bush pay more than the city", while Joel Fitzgibbon tweeted a picture of a story in The Australian, saying:

There are four important points to make about this.

First and most importantly, people in the bush are not going to pay more if NBN prices are turned into price caps (a policy change which the Coalition took to the 2013 election, and which the recent Vertigan review also recommended).

The wholesale prices that NBN charges service providers such as Telstra or Optus today (and they pass on to their customers) are regulated by the ACCC, and are essentially set in stone for the next five years.  The Government is not proposing to increase these prices – rather, the ACCC-approved prices will be turned into price caps set at exactly the same level.

A price cap is exactly what it sounds like – a maximum price level.  The difference is that while the maximum price the NBN Co can charge is capped, it would be, under our policy, free to charge lower prices where it needed to do so to remain competitive.

Second, there is no basis for the claim that broadband and telephone users in the bush (or in any other part of Australia for that matter) are going to pay more for the NBN under the Coalition than under Labor.

On the contrary, they will pay less over time, because the Government’s approach to the NBN project will enable us to complete its construction for at least $30 billion less than would have been the case had Labor’s policy remained in place. The cost savings are almost entirely in the cities, by utilising existing pay television and copper networks where we can rather than taking fibre into each and every premises in the fixed line network. In the bush, on the other hand, the access technologies of fixed wireless and satellite remain the same under our approach to the NBN as they were under Labor’s.

The NBN Co’s Strategic Review published in December 2013 found that if we had continued the project under the settings in Labor’s plan, typical household broadband bills would have increased by up to 80 per cent or $43 per month. And that is the inevitable consequence of a more expensive network.

Third, the NBN remains perhaps the most generous broadband policy in the world for people in regional or remote areas, and the subsidy that is going to the bush is arguably the largest provided in any country in the world.

The Government estimates that over the 30 years to 2040, the fixed wireless and satellite networks (covering the 7% outside the fixed line footprint) will cost about $13.16 billion in capital expenditure and $9.45 billion in operating expenses for a total cost of $22.6 billion. Against that will be revenue of only $5.36 billion resulting in a total loss of $16.8 billion, more than half a billion dollars a year.  That massive loss is cross subsidised by city broadband users and amounts to about $6.70 per user per month for every city customer.

(As an aside, this is not the only form of subsidy to the bush for telecommunications.  Because Labor insisted on keeping the copper network in the fixed wireless and satellite areas, there is also a subsidy of about $300 million per year locked in for the next twenty years and paid for by the TUSMA levy.)

Fourth, without the shift to price caps the NBN’s ability to deliver a cross-subsidy from high-profit (often urban) areas to high-cost (often regional or remote) areas will be threatened by rival telcos cherrypicking the urban areas that have low connection costs and high revenue potential. If the NBN Co cannot cut its wholesale price to meet that competition its rivals could simply undercut NBN Co’s fixed price by a few dollars and over time seriously threaten the economics of NBN Co for absolutely no consumer or public gain.

Having a transparent levy to cover the massive subsidy to the bush (via the fixed wireless and satellite services) does NOT increase the cost of the NBN - it simply makes transparent and explicit what had previously been hidden in its prices.

Such an approach would, however, ensure competing broadband suppliers make a contribution to the subsidised services in the bush too. That is how universal service obligation levies have always worked and it is thoroughly equitable. It’s how the TUSMA levy set up by Labor works.

While price caps create the potential for the NBN to lower costs in the city, it is expected that this will be very much at the margin. 

The alternative is to try to prevent all competition to the NBN.  That is hard to achieve – as Stephen Conroy found out with his flawed legislation containing the loophole which let TPG start rolling out broadband in high-value areas.  And by foreclosing on the option for any competition, you are imposing huge costs on all users of this infrastructure.  Competition is good for consumers, for the industry generally and for NBN Co in particular so long as it is on a level playing field.

Labor’s vision is that it doesn’t care if people have to pay more for Internet access, so long as everyone is slugged equally.  A Conrovian vision splendid of egalitarian misery. But imposing unnecessary costs on a subset of users isn’t just unfair, it actually undermines the goal of achieving equality of access.

Clare Confused on How the NBN Actually Works

In a number of interviews in the past 24 hours Jason Clare has also revealed that he has little idea how the NBN actually works, despite more than a year in the communications portfolio.

Mr Clare told ABC radio:

“If you're buying an existing home, then your taxes pay for the NBN to be installed into your house if it's not there already.  But if you decide to buy a home in a new estate, then on top of the cost of buying the house and the stamp duty and the lawyers costs that you have to pay, you're now going to have to pay at least $900 in a new NBN tax to pay for the NBN to be installed and connected to your house.”

Perhaps he’s forgotten that when the current version of the NBN was announced by Labor in April 2009, Kevin Rudd and Stephen Conroy assured the nation that it was a commercially viable project that would deliver a commercial return on any public money invested in it – in fact Mr Rudd said on national television that it was such a great investment the public – “mums and dads” - would be lining up to invest. 

Mr Clare now says people will have to contribute to the project twice – once through the NBN’s charges (whether up front or ongoing) and a second time through their tax payments.  Does this mean Labor admits the NBN may not be commercial, and may need to be subsidised by the Government into the future?  That certainly appears to be true of Labor’s irresponsible version of the network, which NBN Co estimated in December 2013 would take until at least 2024 to finish and cost at least $73 billion or $78 billion if measured on a like-for-like basis with the Coalition’s alternative plan.

Whether Mr Clare and his colleagues like it or not (and whether they admit it to the electorate or not) the truth is that every dollar spent on the NBN will in the end have to be recouped.  That includes the immense cost of the waste and mismanagement that occurred under Labor’s oversight, which runs into the billions and will never be able to be recovered.  These funds will be recovered one way or another, regardless of which party is in office.

Some will be recovered from consumers in the form of charges for broadband access and telephone services – don’t forget that the NBN Co business plan under Labor assumed the average Australian’s monthly broadband bill would triple between 2011 and 2028.

Money not recovered from consumers will be recovered from taxpayers by the Government simply writing off much of its investment. 

We can’t reverse many of the decisions Labor made which have loaded up the NBN business model with unnecessary costs.  But we should seek to recover costs in the most efficient way possible.

That means in greenfields estates, charging developers and customers up front in exactly the same way that they pay for other infrastructure, and in a way that promotes competition and prevents the situation that occurred under Labor, when thousands of people moved into houses without having any fixed line connection for more than six months.

We’re not asking people to pay for the NBN twice as Clare claims and Australians should be especially wary of Labor politicians promising things “for free”. 

Labor “freebies” always end up costing us a lot more – whether as consumers or taxpayers or both.

Let me close with one more observation about the Labor Party’s newfound concern for broadband consumers in the bush.

One of the core objectives of the NBN was surely to offer better service to those outside the big cities.  Where was Joel Fitzgibbon when Stephen Conroy’s NBN, incredibly, managed to underestimate the probable number of NBN customers in the bush by 440,000?  Where was he when Labor spent over $300 million on an interim satellite service that was so incompetently managed it only delivered dial up speeds to its customers in the bush.  And where was Joel when Labor managed to overlook the fact that it did not own, and had no plan to acquire, the spectrum required to provide fixed wireless services to over 80,000 Australians living outside the big cities?

And last of all, how was it that Labor spent six years in office and did not spend one cent on rectifying mobile phone black spots. The Abbott Government on the other hand has committed $100 million to a black spots programme in this term.

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