Costings: Only $150m on backhaul in Coalition's first term

By Ry Crozier on Aug 10, 2010 4:47 PM
Filed under Networking

Will deliver at "snail's pace", says Conroy.

The Coalition will spend less on its rollout of an open access backhaul network over the next four years than the Government has committed to spend on its own backhaul blackspots scheme, according to costings released today.

A broadband policy document [PDF] published on the Liberals website showed no funding had been allocated to rolling out competitive fibre in the first two years.

The Coalition had allocated just $50 million to the project in 2012-13 and $100 million in 2013-14, the document stated.

The costings were seized on by the Communications Minister Stephen Conroy at a press conference in Canberra.

"There's only $150 million of the $2.75 billion program in forward estimates," Conroy said.

"In the first four years they're only spending five percent of the funding. It's going to crawl at a snail's pace."

Conroy said in contrast the Government's own $250 million regional backbone blackspots program - awarded to Nextgen Networks - would see 6,000 km of links ready by September 2011.

He said the program was just the first step in NBN Co's plans to deploy competitive backhaul nationally.

"We're building the most comprehensive broadband network," Conroy said.

"They're not planning on doing more than five percent of it by 2014/15. They've got a pretend plan to reach all of these communities".

Conroy lambasted the National Party for agreeing to the proposal and singled out Nationals Senator Barnaby Joyce.

"Where's Barnaby?" Conroy said. "This is a complete sell out of rural and regional Australia and the National Party should be ashamed of themselves."

Costings

The Coalition had allocated most early funding to its "optimisation" of existing DSL infrastructure, particularly upgrades of RIMs and pair gain systems.

It allocated $200 million in 2010-11 and a further $350 million in 2011-12 to the project.

No new wireless networks would be built in the first year of the Coalition's plan, either.

The grants for networks in rural and regional Australia would start in the Coalition's second year of power, should it win at the election, and continue evenly over the following five years.

And the construction of networks in outer metro areas didn't start to receive funding until the fourth year - 2013-14.

It committed to spend about $1.6 billion of the over $6 billion next-generation broadband network in its first four years of office.

Costings: Only $150m on backhaul in Coalition's first term

16 comments in this discussion

"@Ace "I don't believe I've ever heard people complaining about government investment in the road 'market'. How is this any different?" You don't have to pay for every KM or hour you drive on a ..."

By MerariSchroeder

Tags

election10, coalition, tony, smith, nbnco, nbn, broadband, policy, opel, backhaul, costings, wireless, spectrum

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Comments: 16

MerariSchroeder Aug 11, 2010 9:09 AM	It does sound quite slow. I hope they can defend their position. It's possible that concentrating on exchange upgrades may actually deliver faster services to more people in a shorter time frame than the NBN plan. Also, remember that it has taken this Government a full term, and they're not in full swing yet. Effectively there is no difference between Labor and Libral's timeframe, except of course the Librals are to be elected a term later.
Ace Aug 11, 2010 10:30 AM	Does this mean that the Coalition plan to inject a lot of money into Telstra? It appears that they don't see telecommunications as a vote influencing issue. Maybe it's all part of the over-arching policy of getting back to the old days.
Bob Aug 11, 2010 11:57 AM	I hope it just means they will let the carriers invest their own money at their risk. Then it will happen within a short time as it did with Next G wireless. The government plan would never happen because it depends on private money invested in a minority ownership of a venture owned by a government that runs at a loss.
Ace Aug 11, 2010 1:01 PM	So, infrastructure status quo is OK? The Australian geography makes it extremely prohibitive for anyone but the biggest telcos to install network infrastructure that can service most of the population. (and I don't mean wireless, which doesn't cut it for non-mobile users). It would seem to make sense to install common infrastructure, and rent it out, wouldn't it? I don't see any need for the government to make money out of it. That's not there business. They don't even have to break even financially, because there are so many indirect economic benefits. Does the govt in NSW make money from M2 tolls? Not even close. Could NSW do without it? Technically yes, but the indirect benefits from having it are obvious.
RDEFCON1 Aug 11, 2010 3:08 PM	Basic economic question here. How much is the backhaul market worth in $p.a. terms? Is $150m over 4 years ($35m per annum) a lot or a little? Is that 1% of the annual market revenues? 5%? 10%? Hard to have any understanding of the value/impact of this without some form of market context. For that matter, what is the fixed/wireline market worth today? How does $40bn NBN cost compare against the annual revenue potential of the fixed access market? Hard to believe this whole debate is being made without the basic economic facts even being on the table.
Ace Aug 11, 2010 4:51 PM	@RDEFCON, you seem to be missing some of the basics. I realise it is tempting to think that if you pay $5 for something, you should get $5 for it when you sell it. But even business understand the concept of future earnings, and will wear a loss for future gain. What if better bandwidth allowed a farmer to get better access to land and weather data, and was therefore able to increase productivity of crops, increase exports. What if it had the same effect on 300,000 other businesses? Wouldn't that be good for the GDP? How do you put that into your spreadsheet? Isn't it pretty reasonable to expect that improved communications and other services would lead to such productivity gains? Well obviously. It's been proven over and over throughout the last 2000 years. It's not rocket science. If business and government were run by accountants who fret over every dollar spent, we'd all be subsistence farming.
itonlinelearning Aug 11, 2010 4:52 PM	I for one really want a faster internet, there is another side to the coin and that is economics. The govt has no money to spend. Its only asset is its workforce, and every cent a govt a spends has be taxed (overtly or covertly) from its workforce. In my humble opinion, Australians would get more real value out of Tony's alleged $2.7 Billion than we would get out Conroys $6bn, as we would not be feeding the slavering Union beasts ravenous appetite. Fact of the matter is, the money Conroy wants to spend does not exist, and the cost of borrowing it is unsustainable, especially when one considers the almost insurmountable mountain of debt we have run up over the last 3 years. So yes lets have a faster internet, but lets also do it sensibly, intelligently, afford-ably, and at the BEST value for our tax dollars. Using the BER model as a benchmark, one could safely assume that a transparent,well managed, strictly cost controlled NBN roll out, would cost a fraction of the Present Govt's cost estimates. Just something to number crunch when you've got a few spare hours over the weekend :)
RDEFCON1 Aug 11, 2010 5:07 PM	@Ace - I don't think you got my meaning. If the government is going to intervene to the tune of $150m in a market worth $200m p.a. - that has a much bigger impact than if the market is worth $2bn p.a. Likewise, if the competitive backhaul market currently has investment of only $100m of new infrastructure a year, then $150m is a big deal. But if service providers are investing $2bn a year in new infrastructure, then $150m isn't going to have such a big impact. The relative benefit you can attribute to an investment depends on the market context in which that investment is being made. You can just throw in a nice figure like $150m or $42bn and then say "Isn't it pretty reasonable to expect that improved communications and other services would lead to such productivity gains". Causality isn't always intuitive, espcially in economics - and wise investment required a slightly more sophisticated economic analysis than "oh well, they're gonna spend a lot of money and it sounds like a good idea".
Ace Aug 11, 2010 6:05 PM	I'm not I understand what you mean by 'market'. Which market is this? We're talking about national infrastructure, not 'markets'. I don't believe I've ever heard people complaining about government investment in the road 'market'. How is this any different? In the end, it doesn't matter who implements a decent network, we all still pay for it. The benefit of government negotiating and funding is economy of scale. If I asked Telstra to install fibre to my street, I'm pretty sure they're going to charge me a damn sight more than what the govt could negotiate on my behalf. Of course, the $42 billion everyone keeps quoting is at the top end of the potential spend. What the actual cost will be over the next 5 or 6 years would be very hard to pin down. Things can change - especially in technology, and in politics.
RDEFCON1 Aug 11, 2010 7:12 PM	@Ace - Wow. I just typed an essay in response, but I got an 'internal server error' and it got lost! Anyway, the market is for telecommunications services. Just like roads are part of the market for transport services, which includes public transport as a substitute to private cars and trucks on roads. I actually do hear a lot of people complain about government investing in roads instead of light and heavy rail. Also safe bike paths could be considered another part of this market which people would rather see investment in. BUT, the government for over 50 years has picked a winner in this market... roads, cars and trucks. Are you happy with this? I really disagree with your 2nd para. On this logic, the government can also negotiate better for your food, clothes, home, etc. If they're so good at delivering all these services, why don't we let them buy and deliver our food, clothing, housing, and everything else? Can't they do it more efficiently?
RDEFCON1 Aug 11, 2010 7:13 PM	(continued) The whole capitalist system is based on the idea that the market can better pick winners and losers than can government. Obviously the market occasionally fails to meet a need. This can happen for a variety of reasons, and in those cases there may be justification for government intervention in a market. However, the NBN policy is about a very large scale intervention in a major part of the telecommunications market. This market has not failed, although it may not be perfect. I don't disagree that there are some areas where government intervention in this market may be beneficial. Some areas where there are pair gain systems, or which are outer regional areas, are not getting good quality services. Accelerated investment for SMB infrastructure is another area where the benefits would exceed the costs. However, IMHO, large scale intervention in the entire telecommunications market is not justified.
RDEFCON1 Aug 11, 2010 7:14 PM	@Ace (final) Re: '$42bn... is at the top end of the potential spend', as you say things can change. The Vic Govt forecast <$500m over 3 years for the Myki ticketing system and now it's $1.35bn plus higher than expected operating ocsts, and it doesn't even work as expected. That's how good the government is at picking winning technologies. I guess we'll just have to hope that NBN does a better job at keeping costs under control, and delivering technology that works!
Ace Aug 12, 2010 2:27 AM	I agree there is a market for telco services. A big market. Just as there is for road transport. How many transport companies own the roads we drive on? 0% rings a bell. And what's more, most private companies set up to build and operate a road somewhere under PPPs have gone bankrupt. It doesn't mean we don't need the road. It simply means that operators cannot gain from the indirect benefits the road brings, they can only charge for actual usage. Am I happy with current levels of road investment by govt? I live in NSW. Roads need as much, if not more attention than rail. I would agree the govt could invest a bit more in the road systems. Services should not be confused with infrastructure. They are two different things. If you let the market pick winners, then the only people with broadband and telephone in Australia would be those in cities. Just like in the US. The rest of the people miss out. The Australian government decided this was unacceptable many years ago. Forget 'not getting good quality services in regional areas', there would be no telco services at all. It simply wouldn't make commercial sense to lay and maintain a million dollars worth of cable to a community of 300 people. A holistic approach is a great approach, as evidenced through the success (even today) of pre-Telstra telecommunications infrastructure roll-out. Letting the market decide on infrastructure has not been a great success anywhere it's been tried. In my opinion, the telecommunications infrastructure is now so important to the economy, it would be recalcitrant of the government not to keep a pretty tight reign on it.
Ace Aug 12, 2010 2:37 AM	On another note, one should not assume that business can somehow save money where the govt cannot. Businesses also suffer from cost over-runs, blow-outs etc. It's just that the accounts of businesses are less transparent than government, and things do tend to get juggled around a bit to keep investors happy.
deteego Aug 12, 2010 12:14 PM	As I said in some other news link, Liberals plan is better by the mere fact it is more flexible You spend 43 billion dollars (still going up) on a network which the market will not use instantly and substantially (what Steven Conroy said was the whole "working from home, health distance services etc etc) then you have basically put the whole country into massive debt. There is nothing stopping from private investors from laying down Optical Networks for the sectors that require them (or even in general) and as mentioned the government would step in to provide rebates in areas if if there is no market for them (rural areas) Ultimately Labors plan is a hit and miss mark. If it hits (that is, as soon as NBN finishes suddenly all sectors will change and use the technology to its full potential to make a return) then there isn't an issue, but if it misses, then the benefit of a Fibre Optic network only helped a myriad of small people, the rest of which would have done fine with just a 12 meg service at substantially less cost The matter of fact is, unless enough people use the optical fiber network to its full potential, it is a waste of money. Also @Ace, I would argue that the current government is just as transparent as most business. Problem is that you are forced to give them money (tax), you are not forced to give business's money
MerariSchroeder Aug 12, 2010 5:18 PM	@Ace "I don't believe I've ever heard people complaining about government investment in the road 'market'. How is this any different?" You don't have to pay for every KM or hour you drive on a road - so yes, there's no market. You do have to pay for logistics services - logistics market. Consumers don't have to pay for the laying of cable (ie. Roads). But they do have to pay ISPs to switch the packets, billing, email etc.. (Ie. Logistics). You should compare apples with apples. Communication = Logistics (not roads). "one should not assume that business can somehow save money where the govt cannot" That's not what experience tells us. Government bureaucracies are well known for throwing billions of dollars at a problem and getting no where. It looks like NBNCo are tracking well at the moment, but they're still walking a tight rope with only around 7% of profit margin. Why take that risk, when the risk can be placed on the communications market which knows how to handle it properly? And when there are alternative technologies which can deliver the same speeds for a fraction of the cost? Such as LTE and FTTN.