Since early last year I have been commenting on the potential write-off that is needed in order to get the NBN back into a more viable business model. During that time others, such as PWC, Standard & Poor and the Productivity Commission, have made similar comments. With an election looming and a possible change of government now is an opportune time to look at this in some more detail.
In 2005 one of the reasons for the then government’s interest in broadband as a common good was based on presentations and discussions about the social and economic benefits that such a national infrastructure project had to offer.
We discussed the digital economy, e-health, e-education, e-government, smart energy and so on. These were all important elements and they were even discussed in a range of personal meetings with various cabinet ministers. But when it came to the crunch at election time these issues were put in the too-hard basket as they were very hard to grasp for those steeped in neoliberal economics. They were even laughed at on occasions by economists and finance experts. None of the political parties dared to launch a cost benefit analysis taking such national benefits into account.
I believe this is the key reason we have ended up with the current NBN mess. It is impossible to build such a network based purely on neoliberal economics. If you want to truly promote this as critical national infrastructure you will have to take the national interest into account and put a value on productivity, innovation, cost savings and so on.
I don’t think that anybody out there today is trying to say that a national broadband network is not in the national interest. But just saying it is no longer enough. We need to be far more specific about this. And we need a national cost benefit statement. Yes, it will be difficult to come up with hard economic figures that exactly calculate all those benefits, but politicians should be brave enough to accept a best national effort on this. In the end they are the ones who must show leadership and make the decisions. Economists, financiers and others are simply there to advise. For this we need progressive, not conservative, politicians to take the NBN to the next stage.
Given that the investments made so far have not been based on a proper national infrastructure plan it is no wonder that the NBN is in a bit of a mess. People like me have been predicting this both publicly in blogs and the media, as well as in private conversations with politicians, including Malcolm Turnbull.
But there is no use in crying over spilt milk, so we now need to look forward, as more and more people and organisations claim that the current financial model is not suitable for the next step.
But a random, unsystematic write-off is certainly not what is needed to fix the problems.
Before any serious decisions are made in relation to the NBN we need to have all the financial facts on the table, and to date only selected data has been publicly provided by NBN Co. Furthermore, we must return to the dreaded cost benefit analysis and address the fundamental issues, to find out what part of the investment can be done in a commercial way and what part needs government investment based on the benefits it will deliver to the national good. The latter will see its return through productivity increases, cost savings and other economic benefits – such as new jobs and business activities. Over a longer period the commercial part can be financed along well-established commercial processes.
As we did in the 2005-2009 period this should include the broader society, which at that time showed great unity in its advice to government on how to move forward with the government’s plans for what became the NBN. The plan had 80% public support and 70% business support.
So, will it be third time lucky, and will we get it right this time? Will we get the political will to do it properly this time round?
As a ballpark figure my estimate is that roughly 50% of the investment can be earmarked for the national good and the rest can be financed commercially, based on a long-term utility investment model. This would fit in nicely with predictions from others – that roughly 50% of the current investment needs to be written down, re-evaluated and reclassified in order to make it a proper investment for the upgrade of the network that will need to take place over the next 5 to 10 years.
As has become clear from the recent ACCC report this will largely involve the FttN part of the network, again totally in line with earlier predictions. In other words, this write-down could have been avoided if the project had been done properly in the beginning.
Obviously such a plan will need to be looked at in detail by economic and financial experts. However it will require political leadership and a solid progressive cost benefit statement from the government. If we continue with the NBN based on conservative neoliberal policies then NBN 3.0 will also fail.