Australia: NBN 'consensus' fractures

David Kennedy, Research Director, Ovum

AUSTRALIA: Two weeks ago, Australia’s national elections resulted in a hung parliament. The Labor party’s National Broadband Network (NBN) project, once seen as a fait accompli, now faces an uphill battle for survival, and the apparent industry consensus around the project has fractured.

The lesson is that a major intervention like the NBN policy must have a solid economic justification if its future is to be secure.

The NBN loses political cover
On 21 August 2010, Australia went to the polls to elect a national government. Earlier this year, the ruling Labor party seemed almost certain to be returned, securing the future of its NBN project to extend high-speed broadband to 100 percent of the population at a cost of up to A$43 billion using FTTH, wireless, and satellite.

But after a bruising year Labor has lost its majority in the lower house and the opposition coalition parties have drawn roughly level. Which of them will form the government depends on a single Greens party representative and four rural independents. The NBN project, closely identified with Labor, is now under serious threat.

The NBN was a political "football" during the campaign, with Labor criticizing the coalition for a lack of vision and the coalition proposing a much cheaper wireless-based alternative. During the campaign, the telecommunications industry seemed firmly behind Labor’s plan. The earlier doubts about the cost of the project had been put to one side; the likelihood of a Labor victory made the NBN a fait accompli.

The industry consensus fractures
The fragility of this apparent consensus has been exposed by the election result. This week, a group of industry critics of the NBN have publicly called for a rethink of the project, citing the lack of demonstrated demand for high-speed broadband. They have proposed a number of new, cheaper approaches, including greater emphasis on wireless.

Financial market critics have also been emboldened, with one describing the NBN business model as a “recipe for disaster.” On the other side, some operators have placed newspaper advertisements in support of the NBN! Press commentary has concentrated on the political implications. However, the main implication is that the NBN consensus has fractured.

The NBN project now faces an uphill battle. If Labor is able to form a government with the help of the Greens and rural independents then the NBN will proceed, most likely with a strong focus on rural areas in the initial phase. But there is no guarantee that such a government will last a full term.

The political differences between Labor and the coalition parties mean that any change of government would mean the end of the NBN, so the project is overshadowed by political uncertainty for the foreseeable future.

The lesson: solid policy development needed
Why is the NBN now facing this uphill battle? In the rush to implement the project, the government refused to perform any cost-benefit analysis, with the minister recently declaring such research a “waste of time, waste of effort, waste of money.”

Instead, they commissioned a A$20 million implementation study that didn’t provide a clear business or economic case. The supporters of the NBN now lack ammunition, and the project finds itself exposed.

None of this proves that the NBN is a bad idea. Rather, in the absence of a research-based economic justification of the NBN, there is no way to resolve the issue either way.

A major policy intervention like the NBN cannot have a secure future until a genuine consensus has been forged in politics, the industry, and the community through solid policy development.

The best local comparison is the long, arduous process of opening the Australian telecommunications industry to competition in 1997. The governments of the day set out to research, publish, and consult extensively as they developed the framework for open competition. In the end, not everyone was satisfied but all understood the reasoning, and the framework drew widespread support.

That opportunity has been lost to the NBN, at least for now. And any government considering policies in support of fibre rollout would do well to study the Australian situation closely – and do it differently.