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Nick Minchin

Leader of the Opposition in the Senate
Shadow Minister for Broadband, Communications and the Digital Economy
Liberal Senator for South Australia
Nick Minchin


Senator the Hon Nick Minchin

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Kent Town SA 5071

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Kent Town SA 5067

Phone: 08 8362 8600
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Wednesday, November 05, 2008 Printer Friendly Version

Address by Senator the Hon Nick Minchin
Shadow Minister for Broadband, Communications & the Digital Economy

Today I’ve been asked to give a Coalition perspective on the Rudd Labor Government’s proposed National Broadband Network.
I want to emphasise up front that both sides of Federal politics are committed to ensuring Australians have universal, reliable and affordable access to broadband services. - Where we differ is how we get there.

Liberals are naturally suspicious of “Government knows best” approaches based on central planning, big Government and huge dollops of taxpayers money –whether in the Communications portfolio or anywhere else.

We have much more faith in the free market and the private sector and believe taxpayers funds should be carefully targeted at areas of most need.

So in Government our approach to Broadband was characterised by encouraging private sector investment, and developing Government programs like the Australian Broadband Guarantee to target assistance.
And thanks to the efforts of our Government and this dynamic Australian industry, we now have, according to the Australian Bureau of Statistics, more than 7.2m internet connections in Australia, 78% of which are broadband.

Our OPEL contract was a $958m Government investment in rolling out a high speed metro-equivalent network servicing rural, regional and remote Australia, where clearly, targeted Government assistance is needed.

Our approach recognised the reality that on a continent like ours, a mix of technologies must be utilised to ensure equitable and reliable nationwide broadband coverage – and that is it either cynical or naïve to suggest some simple big bang solution.
But of course that is just what Labor in Opposition proposed.
And upon its election to Government, Labor scrapped OPEL, to the detriment of regional Australia, and began implementing its promise to spend $4.7b of taxpayers money on a fibre to the node network to service 98% of Australian homes and businesses within 5 years.
Nearly 12 months since that election, the National Broadband Network tender process has reached a critical stage.

Sadly, it has been deeply flawed from the very beginning.
Labor based its entire broadband approach on a glib election promise, rather than a foundation of sound, robust and realistic public policy.
And now, just 3 weeks before the deadline for tenders, the Government is being monumentally exposed as things unravel at the seams.
In the lead-up to the election, the Rudd Government adopted a vague, simplistic, yet purely populist broadband strategy.

It ignored reality, provided scant detail, but delivered a basic message that its focus groups told it people liked to hear.

Labor repeated its rhetoric ad-nauseum.

They said when it comes to broadband Australia is in the dark ages, the Coalition has done nothing and a Rudd Government will spend up to $4.7 billion to deliver 98 per cent of Australians a new supersonic, fibre-to-the-node National Broadband Network.

Labor promised to select a network builder within six months, start construction, as well as bring new services online, before the end of 2008 - a promise they must have known they could never keep.
Essentially, that was the extent of the Rudd Government’s broadband policy.

A myth was perpetuated via the media, the Australian people were conned and within months of the election the fraud was exposed.
Self-imposed project deadlines have been broken, the Government’s Request for Proposals farce has been widely condemned and there are genuine concerns this process will end in a train wreck.

The hot topic at the moment is understandably the ridiculous situation where proponents are expected to lodge their bids, in a difficult and uncertain economic environment, without the Government providing any detail or clarity in relation to regulatory arrangements, including access and pricing.

It is unbelievable that just three weeks from the bid due date Senator Conroy expects proponents to fly blind into the starters’ gate.
All they have to work with is a clutch of broad-stroke ambitions outlined in the RFP.

Despite this fog, the Minister, quite extraordinarily has sought to gag possible proponents from commenting on the process through an RFP clause, regardless of how legitimate their concerns are.
Yet, when asked about any of the many problems with his process aired by stakeholders, he simply dismisses them as part of the argy bargy of competition.

Publicly, he claims to welcome the media commentary and debate, holding it up as evidence of a healthy and robust process.
If this is so, why did he include the gag order in the RFP?
You would be aware that the Opposition has used various means to try and get some sense out of the Minister as well as some answers for the industry and consumers, including through Senate Estimates hearings – all to no avail.

You may recall the Opposition was criticised by the Minister for establishing the Senate Select Committee on the NBN.

The key motivation behind the establishment of the committee was to provide a transparent forum for stakeholders to have a decent say. An opportunity not provided by this Government.

It is pleasing that many have taken up the opportunity to make submissions to the committee and to also provide evidence in person.
The quality and diversity of this input and the willingness of many to speak frankly and openly has totally vindicated the Opposition’s decision to establish the committee.

The Select Committee has confirmed that it is certainly not just the Opposition which has genuine concerns with the way the NBN process is unfolding.

Last week we saw Kevin Morgan, described by CommsDay as a telecoms industry consultant and former ALP telecoms adviser, afford himself the opportunity provided by the Select Committee.
Mr Morgan described Labor’s NBN plan as a “fatally flawed” policy.
“We could have a winner but their business case would rest on regulatory conditions that are not yet determined and which ultimately may be the responsibility of parliament to frame,” he told the committee.

All the public information, including the RFP itself, suggests that regulatory and legislative reform will be essential for the NBN.
Developing and finalising these processes could take the best part of next year. That could apply to the drafting, debating and passing of legislation alone.

Common sense suggests this would occur after what would likely be lengthy negotiations between a preferred tenderer and the Government.
Negotiations surrounding crucial elements such as access and pricing regimes; dispute settlement mechanisms, national security requirements, partnership arrangements.

I am certain that bidders who are trying to cost and secure finance for their proposals would love to have some idea about how much money the Government is actually willing to invest and on what terms?
Is Mr Rudd’s election campaign commitment to the joint venture, 50 per cent public equity model, with a commercial rate of return for taxpayers still the preferred option?

And what will the Government consider an acceptable annual rate of return on investment for the network builder?

So many questions, yet so few answers.
And from November 26 the ACCC has been given six weeks to make a submission on the regulatory implications of the bids received. A period which takes us through the Christmas and New Year period.
And in relation to establishing a robust regulatory framework, the ACCC has given a hint of the timeframe it expects to be working to.
In August its manager of regulatory affairs Joe Dimasi told Computerworld: “There are a lot of issues and the ACCC can’t yet give out its views but we will have significant discussions over the coming year.”

So common sense suggests there is a lot of water to go under the bridge before any roll out commences, yet the Minister remains in denial.

In Senate Estimates on 20 October Senator Conroy refused to say whether he believed the Commonwealth and a proponent could sign binding contracts for roll-out before legislative and regulatory reform was carried out.

He in fact indicated that could occur, which I contended was a ridiculous proposition. This brings us to the types of bids Senator Conroy might receive come November 26.

To begin with, Telstra has publicly indicated that it may not even lodge a bid in the absence of Government guarantees that it will not i
mpose functional or structural separation on the successful bidder.
I believe Telstra is serious when it says it will not bid in the absence of a clear declaration by the Government ruling out structural separation.
I acknowledge that many of Telstra’s competitors see the NBN process as the opportunity to break up Telstra.

The Government refuses to say what its position is; while the ACCC says it does not believe structural separation is an essential prerequisite.
It is of course essential that Labor’s NBN proposal is premised on a pro-competition, non-conflict, open access model. But like the ACCC, I do not think structural separation is an essential prerequisite.

My own view is that it is far too late in the history of the evolution of the telecommunications industry in Australia to still be discussing the break-up of Telstra.

The time to consider that was when the previous Labor Government created what is now Telstra in the early 1990s.
Now in the 21st century I believe Telstra will never voluntarily separate the company, and I do not believe it is at all realistic to suggest a forced break-up of the company.

Indeed if Telstra was forced into a structural separation prior to it commencing a fibre-to-the-node rollout, Labor’s NBN would become even more of a mirage.

I concede that many in the industry will be disappointed by my remarks.
But I have never subscribed to the political tactic employed by too many of telling people what they want to hear.
I am in politics to tell it as I see it.

The Terria Consortium has of course been the primary public advocate of structural separation. May I say I have a high regard for the companies and individuals involved in Terria, and I express my sympathies for the difficulties it has recently experienced.
As we all know, it has lost 3 members in quick succession, and 2 of those have expressed strong criticism of the NBN process.

First we had AAPT CEO Paul Broad, saying “it seems to me that the rules of the game are being determined by the bid itself, which is completely the wrong way around. The Government’s got it arse-about.”
Then Soul-TPG followed with Soul executive chairman David Teoh telling CommsDay that his company is not even convinced of the need for the type of fibre roll out being prescribed by the Rudd Government.
He noted that “currently our ADSL2+ customers can obtain a connection speed averaging in excess of 14 Mbps, which is faster than the base speed being sought for the NBN.”

And while iiNet has indicated it will remain with Terria, Managing Director Michael Malone certainly hasn’t let the gag stop him from expressing his views.

After Soul made its decision public last week, Mr Malone described the NBN bidding process as corrupt.

“The one thing that everyone in the industry agrees on is that this is a bad investment and it’s a completely corrupt process. The government is just pissing money up against the wall with this project because it failed to define the rules of the bidding process.

The availability of ADSL2+ is more than solving our needs and now that ISPs can buy the wholesale service from Telstra, the market will solve and surpass what the NBN can offer,” Mr Malone said.

And quite rightly there has been commentary about how these difficult economic times, including the tightening of financial markets, will be an important consideration for both proponents and the Government.

Not surprisingly, Senator Conroy has downplayed the impact the global financial crisis could have on the NBN project.

He ignores the issues of access to finance, and the massive drop in the Aussie dollar.

The 1/3 drop in the $A dollar against the US dollar means the Rudd Government’s taxpayer contribution of up to $4.7 billion (Aust) towards the NBN, is now worth something like $3 billion US.
This reduction in the dollar will obviously impact adversely on a proponent’s capacity to buy in network-related components and expertise.

These commercial realities seem lost on this Minister.

In relation to the broader economics of this planned project – the Government’s single biggest election infrastructure promise – I find it absolutely extraordinary, that in this climate, Senator Conroy has confirmed that his Government has not carried out a scrap of economic modelling or cost benefit analysis work.

In Senate Estimates he justified the Government’s position by simply saying it was an ‘election promise’.
In May 2007 the Department of Communications wrote in its report The Economic Benefits of Broadband: an Australian perspective: “There have not been any studies undertaken in Australia that seek to estimate the contribution of broadband to productivity across the country.”
While the Government says it will apply rigorous cost-benefit analysis to other projects to be funded out of its $20b Build Australia Fund, this one project, which will absorb 25% of the BAF, will be completely exempt from any such analysis.

Nobody doubts that access to fast, affordable and reliable broadband, brings with it a potential economic upside, including improved workplace productivity and efficiency.

It also delivers educational and entertainment benefits and other social advantages such as teleconferencing and enhanced e-health diagnostic capabilities and the like.

But in the absence of any credible economic modelling data commissioned by the Rudd Government, most of the available information is anecdotal, speculative and quite limited.
So much for the ‘evidence based policy’ approach the Prime Minister likes to trumpet.

And when you consider the Government is prepared to risk $4.7 billion of taxpayer’s money on this project, the Opposition believes this is simply not good enough.

I can only concur with AAPT CEO Paul Broad who in calling for a Productivity Commission Inquiry, said recently “we have got to come clean and say, does this investment really stack up.”

But it is interesting what can be made of the research and studies that have been done.

For example, let’s take the recently released Australian Industry Group and Deloitte survey: High Speed to Broadband: Measuring Industry Demand for a World Class Service.

The survey – which found that 66 per cent believe their business will greatly benefit from a faster broadband network – was hailed by the Government as vindication for its NBN plan.

Yet the same report found that just a quarter of CEO’s surveyed indicated a willingness to pay a ‘premium price’ for higher speed broadband. –While nearly 40 % of respondents indicated they were unaware of their current internet speeds and for the ICT sector it was 50 per cent.

And ZD Net blogger David Braue wrote on October 24 that most respondents didn’t want to do anything new with higher speeds, with 90.5 per cent seeing the key benefit of an NBN being faster file down loads.

Many suspect that only a minority of internet users will take up the opportunity to access higher speed broadband under the NBN at potentially much higher prices.

Human nature dictates that if you asked all broadband users if they want faster speeds at no extra cost, most would of course say yes, but if it involved significantly higher cost, there would be far less enthusiasm.

The reality is many, many Australians do everything they want and need to do online today, through existing broadband offerings at prices they are comfortable paying.

Research released by ACMA on October 22 found that email, online banking, paying bills and getting news and weather updates, accessing maps and telephone directories, purchasing airline tickets, instant messaging, booking accommodation, shopping, studying and downloading audio are the most common uses this year of the Internet by Australians.

Senator Conroy seems convinced that every Australian Internet user wants and needs to do everything online at higher speeds under his one-size-fits-all approach, and pay more for the privilege of doing so.
And if the NBN process ends in the sub-optimal outcome that many suspect, the affordable broadband options that are available today will be bypassed with consumers left to pay that premium price for a premium service.

To put it simply, the telcos sector is not the right place for a half-baked, yet profound Government intervention of the kind proposed by Labor.
While the continuing roll-out of fibre in metropolitan Australia is obviously to be encouraged, it is undoubtedly in Australia’s interests to do so by having policy settings which encourage private sector investment rather than by Labor’s multi-billion dollar schemozzle.
I firmly believe the Coalition had it right at the time of last year’s election with our “Australia Connected” broadband program, announced in June 2007.

That was a comprehensive, realistic, affordable plan to ensure 99% of the population had access to fast affordable broadband by June 2009.
Regrettably now we are lumbered with the ever-deepening morass that is Labor’s ill-considered NBN proposal.

The Opposition will continue to subject the Government’s proposals to intense public and parliamentary scrutiny, and as the 2010 election approaches, looks forward to working with the industry and consumer groups to develop constructive Coalition policies to encourage the highest possible cost-effective penetration of broadband.

In the meantime I congratulate the industry on the level of enthusiasm, energy and innovation evident to all, and on the exceptionally cost-effective, high-quality service provided to Australian consumers of telecommunications.

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