Actually, We're Not Paying More For Less

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The National Broadband Network may be the biggest infrastructure project in Australia’s history, but it’s not too massive to get kicked around as a political football. The $36 billion project is one of the principal points of policy difference between the two sides of politics — and as a consequence any sliver of NBN-related news is quickly amplified. 

A recent example is the release of The Economist Intelligence Unit’s 2011 Government Broadband Index (gBBi) report. While Australians are used to seeing our nation languishing at the bottom of international broadband rankings, this report assesses countries’ broadband on the basis of government planning rather than current network capability — and so served as excellent fodder for political point-scoring.

Australia came in at 9th place (out of 14), well behind the usual east Asian and Scandinavian suspects. South Korea took out the number one spot.

Australia’s low ranking in the study was dismissed as fatally biased by Communications Minister Senator Conroy, who labelled it "ideological dogma". Here, he was referring to The Economist’s clearly stated preference for a minimum of public involvement and a maximum adherence to free market principles.

Ideology aside, the report’s comparisons to South Korea are indeed unflattering and make for some good copy: "One tenth the speed at 24 times the cost" ran one headline. South Korea plans to offer speeds of 1 gigabit, (10 times the NBN’s offering) by 2012 — with only about a billion dollars in public investment. These figures seem to indicate that the Australian public would do well to demand a cost-benefit analysis to ask why are we paying so much more for an inferior product?

On closer analysis, though, the lessons we can draw from comparisons with Asia may in fact bolster the case for building the NBN, rather than for scrapping it.

It is certainly true that South Korea’s landscape and demographics are different to Australia’s and are vastly more broadband-friendly. With a population density of 487 people per square kilometre (compared to less than 3 in Australia), hooking up Seoul’s apartment buildings was always going to be an easier and more commercially viable job than bringing fast networks to Australia’s urban sprawl and rural areas.

More importantly, South Korea simply got an earlier start than us in the broadband race.

Following the Asian financial crisis of 1997 the South Korean government made a strategic decision to invest heavily in telecommunications and information infrastructure, setting ambitious national goals and working hard to foster competition. In the meantime, Australia lagged not only in physical connections but in terms of competition as well; Telstra’s near-monopoly persisted long after that of Korea Telecom, and will only end when a final agreement is signed with NBN Co this year.

It is therefore hardly surprising that with such a lead, the Koreans now need less government investment in their national network. And if we are comparing value for money, it’s worth noting that in 2006 the South Korean government announced a plan to spend 26.6 trillion won (US$28.3 billion) to invest in network infrastructure including Fibre-to-the-Home (FTTH), just like the NBN. Their latest plan requires an investment of 34.1 trillion won (USD $24.6 billion) over the next five years to achieve the new targets, including gigabit speeds. While only 1.3 trillion won will be supplied by the government (the rest will come from private investment), it’s clear that investing in broadband infrastructure is not cheap, even in South Korea.

Based on these numbers, and bearing in mind our geographic distances, Australia’s proposed broadband investment looks far from outrageously expensive. The clear difference is the level of public versus private investment. And if private investment is preferable to public, are both not infinitely better than no investment at all?

Senator Conroy’s criticism of the gBBi report’s bias may have some merit. The Economist Intelligence Unit’s methodology is weighted to favour market-based solutions, or as they put it, "fostering a competitive broadband market". Marks are awarded for public funding that puts "the least amount of pressure on public-sector finance". This point is debatable and too great a focus on funding models avoids addressing whether or not the public will ultimately end up with a superior service suited for the 21st century economy.

It would be interesting to know how well the Coalition’s own pre-election broadband policy, which called for $6 billion in public funding to achieve 12 megabit speeds, would fare under such an analysis. "One 100th the speed at six times the cost" is hardly an improvement, especially given the fact that the fibre network will be able to to match Korea’s gigabit speeds without further investment in the laying of cable.

The NBN has been both praised and criticised from foreign quarters, with Google chief evangelist and internet pioneer Vint Cerf "envious" of us being "way ahead" of the US, and Mexican tele-monopolist Carlos Slim criticising the plan as being "too expensive". The fact is, Australia has demographics, geography and a competitive landscape that are unique, and so comparisons to other countries are of limited value. It may not be optimal for the government to invest so heavily in providing internet connectivity, but it’s surely better than letting the nation fall even further behind other developed economies.

 

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