Wednesday, July 22, 2009

Oh dear Kevin

There is one consistent voice out there bagging the NBN - this is Kevin Morgan. He was at it again in yesterday's Age.

Kevin is a former policy officer for the technicians union and has been battling competition reforms and privatisation for years. It does seem somewhat strange that he now seems to come into battle on the side of the privatised Telstra, versus a new Government owned network. Perhaps it is just that defending the network operator has become ingrained.

But he really loses me when he argues that there is an inherent risk in building the network without the incumbent operator being involved. He spins a line about how the strong cash flows and balance sheet can provide security of funding. e however, in this point, also misses the inherent problem incumbents usually have of cannibalisation of that cash flow. Our most recent example was Telstra's reluctance to pursue early versions of ADSL offering sppeds of 256Kbps to "compete" with ISDN delivering speds of 128Kbps.

But that wasn't the first instance. At the 1910 Royal Commissio into the postal service the director-general was questioned about telegram and long distance telephone call rates. He stated that he could drop the price of the telephone calls but it wouldn't make sense given what it would do to telegraph revenues!

Kevin's big call is;

The concept of a wholesale network can only work if access to high-speed broadband is deemed to be a social good, which is not measured by commercial rates of returns. Nevertheless, the Government believes its network can get a commercial rate of return that will attract private-sector investment in the short term and be successful to merit full privatisation five years after it is completed. The Government is deluding itself and squandering millions of dollars on a project that hasn't the remotest chance of commercial success.

In some ways I agree with him about the need to recognise there is a social return here not just a commercial one. I've already written here about part of that issue. There are lots of really easy ways to organise this venture to work.

The only other issue I'd mention is this belief that customers won't swarm to the NBN. Let's just note that a sensible NBN builder will be building in those parts of metropolitan markets where ADSL is not or only barely available. That's quite a bit for the first two years. Then you start building where even ADSL2+ gives you at most 4Mbps. We are now about five years into the build? Will the 40% of premises whose best offer in 2014 is ADSL2+ be clamouring for more...well just ask yourself what people in 2004 were after - that's right just about when ADSL started being challenged by ADSL 2+.

Time we all - including "independent" consultants - took a deep breath.

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