OECD report highlights strengths and flaws in NBN plan

Australia is by no means the only nation considering a taxpayer-funded investment in the construction of new broadband networks to stimulate the economy.

The Organisation for Economic Cooperation and Development (OECD), a global thinktank on economics and policy has this week released a report highlighting the best approaches to public sector investment in such infrastructure.

Yesterday, Liberal party Senator Nick Minchin zeroed in on one of the main conclusions of the report - that governments engage in cost-benefit analysis studies before rolling out national broadband networks - to criticise the Federal Government's approach to the NBN thus far.

The report, authored by American academic Taylor Reynolds and titled The role of communication infrastructure investment in economic recovery, provides a series of recommendations as to how Governments should go about networking the nation.

Is the report indeed at opposites to the Rudd Government's approach, or is Australia's NBN plan straight out of the OECD textbook? Let's take a closer look and see which recommendations match up.

• GOVERNMENT BROADBAND INVESTMENT STIMULATES DEMAND IN FLAT ECONOMIES

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Reynolds says that at any normal point in history, network investment should be led by the private sector. But today's economic environment, he says, calls for government intervention.

"Telecommunication operators historically have had strong cash flow positions during economic downturns but may face increasing difficulties raising sufficient capital to extend and upgrade their networks," his report says.

"The strongly pro-cyclical nature of communication network investment also means that skilled labour and equipment may be left idle and planned projects shelved until the economy improves."

This labour and equipment, he says, can be "quickly shifted to government-sponsored projects."

The report recommends that wherever an OECD member (government) is pumping stimulus money into a slowing economy, it should be focusing on those projects that "simultaneously increase the longer-term productive capacity of the economy."

Investment in network infrastructures such as electricity, gas, water, transport and communications, has an "immediate impact on demand and employment" as well as a "strong potential to expand future supply," the report says.

Reynolds' only disclaimer is that governments "must ensure that interventions do not interfere with properly functioning markets or displace private investment."

The potential regulatory changes announced in tandem with the NBN could certainly be considered as interference into the private sector market - but whether or not that market is "properly functioning" is another matter.

Even the regulators think Australia's telecommunication market is, well, irregular. 

• NBN'S SHOULD BE BUILT ON 'OPEN ACCESS' PRINCIPLES

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When a new network is paid for using the taxpayer's purse, the OECD rightly notes that the public should expect "improved service and greater choice" in the market.

The OECD recommends public-funded networks to be available to retailers under "open access" rules. Specifically, that means retailers can access the wholesale network on "cost-based, non-discriminatory terms."

The direction of the 'new, new NBN' announced by Prime Minister Rudd announced thus far certainly meets this criteria.

Further, the Government intends to introduce legislation to ensure that the network always operates as a wholesale-only, open access carrier into the future regardless of its ownership, ensuring that "no retail company will be able to control the network in its own interests."

• PUBLIC NETWORKS SHOULD CATER FOR PRIVATE INVESTMENT

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Reynolds' paper also recommends that "all national plans involving public investment specify a leading role for the private sector in ownership and operation of the networks receiving public investment."

Senator Conroy has on several occasions hinted that Australia's telecommunications and internet industry have the opportunity to trade their infrastructure and skills for equity in the National Broadband Network company.

The Government also intends to sell the NBN Company to the private sector after the first five years of operation.

• START WITH SMALL WINS

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The OECD recommends that Government's considering an NBN build should try and get some early runs on the board to make sure their plans no longer fit market conditions.

The direct benefits of network investment are "extremely time sensitive", Reynold says, "and will not have their desired impact if the projects take too long to come online.

"As a result, policy makers may decide to assign higher priorities to projects which can be rolled out quickly - even if the secondary benefits of other projects may be higher," the report said.

The Government could easily argue that its $250m Backhaul Blackspot scheme and efforts to provide Fibre to the Home in Tasmania would constitute some 'early wins'.

In what areas does the Rudd Government's plan deviate from OECD recommendations? Read on to Page 2.