High Speed Broadband - Rudd Labor and the business of ‘National Building’

Rudd Labor has announced - on April 7^th -  a plan to finance and construct a massive ‘fibre-to-the-home’ broadband network – supplying service to 90% of Australian homes.  This comprises a remarkable sea change in public policy.     

According the Septhen Conroy, the project will: “directly support up to 25,000 local jobs every year, on average, over [its] 8 year life”  http://www.minister.dbcde.gov.au/media/media_releases/2009/022

As reported on the SBS news website, the new company, formed by the government,

“will spend more than $43 billion delivering high speed broadband to 90 per cent of homes and businesses.”   http://www.sbs.com.au/news/article/1014650/Mixed-reaction-to-broadband-announcement

Meanwhile, the remaining households would be provided with Wireless and Satellite technology.

The plan  in its entirety, however, would “set back the deliver of high-speed broadband to the entire country until about 2018.”   http://www.news.com.au/heraldsun/story/0,21985,25301678-661,00.html

Presumably the plan is for rollout to begin soon – perhaps even mid-2009 for Tasmania – but to take many years for completion.

Here, time is of the essence.  Australia could well become a world leader in new communications, information, and entertainment industries.  Close scrutiny needs to be applied, therefore, in ensuring the swift deployment of the promised infrastructure.  If the deployment can by 'fast-tracked' it would be preferable.

Currently, the government plans to take a holding of at least 51 per cent in the company, including the issuing of bonds to the public ‘Infrastructure Bonds’.  http://www.news.com.au/heraldsun/story/0,21985,25301678-661,00.html

The ‘slack’ is supposed to be ‘taken up’ by the private sector – but with financial crisis – and shortage of liquidity, that may not be viable for some time.

For many years, now, Australian governments have eschewed the kind of nation-building infrastructure investments which are so vital to our country’s  future. 

Now, however, Kevin Rudd has placed this announcement in the same league as the iconic ‘Snowy Mountain hydro scheme’. 

Again, the author emphasises: The investments we make now might provide for Australian information, communications and entertainment for decades into the future.   So it is essential for the government to ‘get it right’.

At the ‘Left Focus’ blog, this writer had argued in February for a public ‘fibre to the home’ network.   Importantly, such a substantial investment stands to deliver productivity gains, and drive real improvements to material living standards.  http://leftfocus.blogspot.com/2009/02/national-broadband-network-make-it_06.html

New technology in this sector looks set to deliver a revolution in communications, information and entertainment. 

As the author wrote in February, new technology could involve;

“the fusing of digital television with internet services and content.” 

While the new paradigm could be “interactive, participatory, open, and consumer driven.” , “consumers [might] be able to shift seamlessly from ‘pay for content’ services, to free-to-air content.”  

Such content could be “sponsored through pinpoint advertising - adapted to consumer profiles, or where such information is unavailable, adapted to suit the content.”

http://leftfocus.blogspot.com/2009/02/national-broadband-network-make-it_06.html

Another possible use for the new technology would be “video-telephony/video-conferencing.”    As John Quiggin has written at his blog:

“It can be done, just, with existing technology, but the possibilities would be radically transformed by the advent of near-universal fast broadband.”.   http://johnquiggin.com/

This could have important ramifications for education and health care - with real time medical consultation or lectures over the internet.   (across the country - or even internationally) 

According to Kerry Barwise, the  "greatest benefit...will be to promote a move to more knowledge-driven and creative industries, helping to transform Australia's economy.

http://www.abc.net.au/news/stories/2009/04/08/2538155.htm?site=qanda

 

Why not keep it public?

Many years past such investments would be considered a matter of ‘nation-building’, delivered as natural public monopoly.  Today, however, Rudd Labor felt obliged to qualify its announcement by suggesting the new company would be privatised at some later date.

There are many reasons why the government needs to reconsider.

Firstly, given the centrality of new information and communications technology to everyday life, there is the spectre of ‘information rich’ and ‘information poor’ households’. 

A company or authority – remaining in public ownership – could cross-subsidise provision of service for struggling households – including those on low incomes and welfare. 

However - even a part-private company would be divided in its loyalty to the public, and to shareholders.  Assuming eventual full private ownership, there would be no-scope for cross subsidies.  Furthermore – profit margins would see more expensive service than if a public authority had run the network on a not-for–profit basis. 

A ‘Communications Levy’ on business, the wealthy and high income earners (say 1%-2%)  meanwhile, could cover the gains made by business as a consequence of emerging new markets, and technology-driven productivity.   This could provide for the cost  of debt servicing into the future.

 

Furthermore, should the new body – under private ownership - hold a 90% stake in the national broadband market – surely it would be easier – and wiser – to avoid the potential abuse this could involve.  By this I again clearly infer a case for full public ownership.

And surely the Wireless network should be provided publicly too.  Again – an effective private monopoly here could result in the fleecing of rural customers who have no other choice. 

Indeed: many customers will want ‘the best of both worlds’ – and could benefit from ‘package deals’ that enable a natural public monopoly to take advantage of its economies of scale.

Finally – a fully-public authority would be more compatible with ‘national security concerns’. 

Infrastructure as sensitive as a state-of-the –art communications network needs to be run by an authority committed to the privacy of Australian citizens.   And there needs to be information security for Australian intelligence and defence interests.

 

Conclusion

In condemning the kind of ‘extreme capitalism’ that saw the collapse of finance markets worldwide, Kevin Rudd suggested a fundamental shift in outlook – away from the neo-liberal paradigm.

Now, though, we are again being told to accept a privatisation agenda that few ordinary people really want – and which doesn’t really even make sense.

 Surely governments of the Centre-Left today can be confident enough to reconsider the value of a ‘democratic mixed economy’. 

 Natural public monopolies, here, ought be considered ‘part of the picture’ – especially when they so directly provide for human need.  Add to this the imperative of  avoiding wasteful cost structure duplication on the one hand; or the dangers of private monopoly on the other.

 

A public National Broadband Authority – or government-owned company with a public service charter – could provide for the real needs of Australian consumers and business. 

 As stated: such a body could provide cross-subsidies to those otherwise disadvantaged for lack of wealth.  And it could provide cheap – but high quality service – being run on a not-for-profit basis. 

 And again: Debt-servicing costs could be provided for through a ‘Communications Levy’ upon high income earners and corporations.

John Quiggin has suggested the following scenario: presuming a  “10 per cent return to cover capital costs and depreciation”   the new company would need “ revenue of around $4 billion a year, on top of operating costs, say $1 billion a year.”

He continues:

“ That would require 5 million households and small businesses to pay $1000 a year (about $80/month) each.”

While Quiggin is unsure whether or not these conditions will be met, the author of this paper believes the possibilities will be broad. 

Again: there is the possibility of “fusing of digital television with internet services and content”: A paradigm which is:  “interactive, participatory, open, and consumer driven.”

The Greens and other Senators on the cross-benches could have leverage here – so focus upon these people is key.  

 And as the next ALP National Conference approaches there will be many with whom the arguments made in this paper would find resonance. 

 The goal of a democratic mixed economy, here, should not be only the preserve of the ALP Left and Greens   It should matter to al social democrats, and those who care about the public interest, and the rights of the poor.

If it’s worth doing, it’s worth doing the right way. Let’s organise to make sure this time the government - and other core Parliamentary players - get it right.

 

Tristan Ewins

National Broadband Network: Make it Public

Australia: The Case For Re-nationalising Communications

by Tristan Ewins

January 30, 2009

Even now it does not seem so long ago that a genuine "mixed" economic model prevailed across nations the world wide.

In the wake of Depression and World War II, the challenge posed by communism - and emboldened social democratic and labour movements - framed the parameters of a virtual consensus.

On the one hand, policies of Keynesian, state-guided demand management, and full employment were combined with strategic public ownership. Areas were broadly accepted as being the realm of "natural public monopoly": especially infrastructure and utilities. This included transport services and infrastructure, welfare services, power, water and communications.

"Natural public monopoly", here, provided for nation-building and the minimisation of underlying cost-structures. Progress was also achieved elsewhere: progressive tax transfer and welfare systems, free public education, socialised health care, and so on. Strong investment in public infrastructure, goods and services also complemented attempts to preserve a "full employment economy".

Additionally: in Australia, there was the Commonwealth Bank and numerous state banks; and there were also state-owned insurance providers, state lotteries, public broadcasters, public housing and the like.

Importantly, it was recognised that provision for human need cannot be reduced to the working of "free markets". The poor and the marginalised, and minorities, in particular, do not commonly wield significant "market power" as consumers.

The benefits of the "mixed economy" model were many. Public enterprises provided dividends that could then be redirected into vital services. Cross-subsidisation helped ensure that essential services such as water and power were available on the basis of need. Public housing was provided for many who would otherwise go homeless.

Government ensured support for pure and applied scientific research - while there remained a role for public and home-grown defence industries - which some might have identified as being a matter of "national security". In banking, insurance, and elsewhere - strategic intervention actually complemented competitive forces in markets which otherwise might have been characterised by oligopoly and collusion.

Communications infrastructure - the focus of this essay - was provided as a matter of natural monopoly - reducing potential cost structures, and venturing into rural Australia: where "free markets" would refuse to go. And despite claims that the private sector was being "crowded out", public ownership - considered broadly - was strategic. Despite hysteric cries from the neo-liberal Right, there always remained a deep, pivotal, and ongoing role for responsive and competitive markets.

For most on the social democratic Left, this was never in question. Indeed, there was a productive tension between the socialist aim of eliminating exploitation, and the liberal preference that ordinary people be free to invest their wealth as a matter of personal choice. However, in the wake of the second oil shock and stagflation, the old consensus was all but wiped away by a new one: neo-liberalism.

The proponents of the new orthodoxy waged war on the mixed economy model, as well as upon the role, influence, and perceived legitimacy of organised labour.

In Australia, labour and financial markets were deregulated. State-owned banking interests and insurance agencies were privatised. Gas, water, and electricity - were all privatised - or otherwise corporatised - in anticipation of privatisation at a later date.

In many areas there dawned an ideological fetish with privatisation and markets that defied sense. Competition in energy and water, in particular, was "anti-intuitive" for consumers; and is, in many ways, unworkable without great waste.

Other social objectives such as full-employment - were also abandoned by many so as to provide "anti-inflationary discipline" in labour markets; but it is beyond the purpose of this paper to analyse such ramifications in depth.

The Logic Of Privatisation - Australian Telecommunications

Of particular interest for this paper is that communications services and infrastructure were gradually privatised. Over time, this process unfolded only with the rise of private oligopoly and wasteful cost structures because of duplication. Notable here was Telstra's continued monopoly interest of the copper-wire network, and the sheer waste of competing mobile phone networks owned by Telstra and Optus.

While there was an explosion of new communications technology in Australia around the time the sector was opened to "competition", this was not merely the result of market forces. The same services that have arisen since the advent and spread of mobile phone telephony and internet technology would arguably have proliferated anyway had a public monopoly of infrastructure remained. Indeed, it is certain that more efficient cost structures would have resulted in cheaper services for consumers.

"Competition" no value for consumers

Writing in 2005 in the wake of the agenda of privatisation and competition, veteran journalist and economist Ken Davidson noted that:
Since the [1990s] ... [when] Telstra was a regulated monopoly ... OECD figures show that the cost of a representative basket of services ... increased relative to the average by 15 per cent - equal to about an extra $140 a year on the average household telephone bill.

Davidson described this as an "effective tax households pay annually to subsidise the Government's competition fetish". Furthermore, Davidson noted how, in the name of competition, Telstra has been forced "to pay a higher wholesale price for access to its own network than its competitors do". He cites the example of Optus, which "paid $800 million to get a cross-subsidy from access to the network worth about $2 billion".

Such arrangements provide a massive subsidy to "rent-seeking" retail communications enterprises, which has come directly at the cost of consumers and citizens. While regulators have attempted to combat the tendency towards monopoly in the sector, Telstra has been prevented from delivering the full benefit from its economies of scale. It seems, thus, that consumers lose either way: facing the risk of exploitation by a private communications monopoly, or otherwise suffering the costs of maintaining artificial "competition".

As a fully public concern, monopoly did not necessarily pose a problem. Before corporatisation, privatisation, competition - Telstra (formerly Telecom) - was accountable to government, and hence to citizens. It could be bound to a public charter, and could provide benfits from its economies of scale without any cause to exploit consumers or workers.

The debacle of telecommunications in Australia shows that whatever legitimate role there is for innovative and responsive markets - there are places private markets will not, and sometimes should not go.

Options for the "National Broadband Network"

Now, though - with Rudd Labor's promise to invest in a National Broadband Network - we have the opportunity to break with flawed assumptions, and to establish a natural public monopoly in the new fibre optic broadband infrastructure.

Such a massive undertaking could also be a central force driving employment in difficult times.

Before the 2007 Federal Election, Rudd Labor had promised to provide what it estimated as around half the necessary funding for a new "fibre to the node" network: roughly $4.7 billion. The cost of providing a National Broadband Network to all Australians, however, may have been underestimated.

Telstra spokespeople themselves have insisted that the government must "[increase] the size of the tender from $4.7 billion to about $15 billion" to provide full coverage to 98 per cent of the Australian population.

Should further funds be committed, this might also imply the alternative option of full "fibre to home coverage"- as opposed to "fibre to the node". Such technology would most likely have greater longevity, greater speed, and would place Australia at the forefront of the ongoing global communications revolution.

As Monash University senior lecturer Nicholas Beaumont suggested: "[with] faster speeds ... I believe it would be [a] huge driver of innovation." He continues, arguing that the formidable investment can be justified: "when people have built other infrastructure like railways, people were aghast at the sums involved but they drove our productivity into the future." The flexibility of "wide area wireless" technology should also receive consideration as demand for internet use "on the go" becomes greater. Increasingly, there is likely to be demand for the convenience of wireless, and the higher speed of fibre-optic broadband. Seeing as so many consumers will likely want "the best of both worlds", there is strong cause for both such networks to complement each other in the form of one nation-wide authority.

In building the National Broadband Network, such implications must be given due consideration. Rudd Labor needs now to "get the policy settings right", to provide maximum speed, quality, and flexibility to all Australians - and affordability as well.

And, whereas it is essential that communications policy not discriminate against rural communities, the spectre of public investment on such scale raises the question: why not simply establish the new network as a fully public concern?

A natural public monopoly - bridging wireless and fibre-optic networks - with cross-subsidies for low-income consumers would provide flexibility, speed, breadth of access, and affordability. Even regardless of the prospect of wasteful infrastructure duplication -surely a private monopoly - or even a part-private monopoly - should not be acceptable given the danger of such market power being abused.

Re-socialising Telstra ...


While any new public network might depend partly upon access to existing Telstra infrastructure, Labor Communications Minister, Stephen Conroy supposes Telstra could be bypassed in any tendering process.

The need for such new infrastructure would not have posed a problem had Telstra remained a fully public concern. The only question, then, would indisputably have been the public interest. Now over a million Telstra shareholders could stand to lose. But, private investment typically involves risk: and the public interest, considered more broadly, must prevail.

Importantly though, there is an alternative: a re-socialised Telstra.

Such an organisation could capitalise on the company's deep pool of talent and equipment, overseeing a generational shift to state-of-the-art communications infrastructure.

Two options include the following:
o structural separation: with a public monopoly of infrastructure; or
o full re-socialisation including retail arms of the enterprise.

The first option may seem attractive to some as it represents a rearguard compromise with the dominant neo-liberal ideology. Hence there is likely to be less immediate resistance. Such compromise could be seen as a necessary stage en route to a regroupment - and ultimately establishing a new dominant paradigm of the "mixed democratic economy". Importantly, such moves could also garner broader support as there is still some residual popular preference for the concept of "natural monopoly" in the case of such infrastructure.

The second option, however, represents a more immediate shift towards such a paradigm: reclaiming a role for strategic and competitive Government Business Enterprise, as well as socialised infrastructure.

Apart from a prevalent ideological opposition to the mixed economy - and even to public ownership "in principle" - arguments for re-socialisation are strong. (Although Optus' mobile network cannot but remain private as duplication here is entrenched beyond remedy).

A re-socialised Telstra with a new natural public monopoly in fibre-optic cable communications infrastructure - and wireless infrastructure - could potentially provide cheaper and higher quality service. Partly, this could be the consequence of rigorous scrutiny from consumers and government: and partly following more efficient cost-structures. A public Telstra, under such circumstances, would have no cause to abuse its market power.

Following re-socialisation, subsidy for "rent-seekers" could be wound back - with the public carrier once again being released to provide the full benefit of its economies of scale. Again - the consequence could be cheaper service for consumers.

And importantly: many consumers are conservative in preferring the Telstra "brand" and hence there is strong demand for ongoing Telstra involvement in concerns such as Big Pond. Government should be sensitive to popular sentiment in this regard.

Finally, we are on the verge of a new digital entertainment and communications revolution. Old communications and entertainment paradigms are likely to decline with the fusing of digital television with internet services and content. The new paradigm looks set to be interactive, participatory, open, and consumer driven. Imaginably, consumers will be able to shift seamlessly from "pay for content" services, to free-to-air content - if necessary sponsored through pinpoint advertising - adapted to consumer profiles, or where such information is unavailable, adapted to suit the content.

Of course there is need for the involvement of public enterprise, here, alongside co-operative and community enterprise, and private enterprise as well.

Public communications/entertainment enterprises need to be especially bound by a charter. This includes quotas and funding for local content, and content for minorities. It is much easier to bind public concerns to such a charter than it is in the case of private concerns - which pursue profit and share-value-maximisation ahead of provision for an inclusive and diverse tapestry of human need.

Under such circumstances, there is a potentially core role for a public Telstra, along with public and community broadcasters working together: taking the lead in the provision of content.

It is time for Rudd Labor; and for Communications Minister, Stephen Conroy in particular; to divest themselves of neo-liberal shibboleths - and reconsider the meaning of social democracy, and the democratic mixed economy - for the "new frontier" of telecommunications.

Tristan Ewins is a freelance writer based in Australia. He describes his politics as 'liberal socialist' and 'left social democratic'. He has been published widely - including in 'On Line Opinion', Australia's 'Centre for Policy Development', 'The Canberra Times', and others. He can be reached by email at tristane@bigpond.net.au
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