Monday, June 28, 2010

In which I bag Henry Ergas again

I receive a morning e-mail of a simple blog called Breakfast Politics. It is a very easy way to get a daily overview. It can also be quite entertaining in the way Christine Wallace links to articles, like the one today In which I bag the NBN again (and again), Henry Ergas, Australian.

The article is a general whine about the NBN. It incorrectly claims Telstra offered 18 months ago to invest $10B of shareholders funds in an NBN but this was rejected because of the compensation required. This is incorrect as Telstra never actually bid...their bid was non-compliant despite employing five external law firms on the bid (of whom I'm led to believe exactly none reviewed the final proposal).

The compensation to Telstra was one reason for the move to FTTP, but the bigger factor was the realisation that the FTTN offer that was on the table at that stage entailed costs that would be unrecoverable once the move to FTTP occurred.

Last time I looked, of the $11B to Telstra, $9 is coming from NBNCo and is included in its total funding cost. In addition, the implementation study that Ergas must have read made it clear that peak funding for the project is only $28B - a number more likely to be realised as the project is "de-risked" following the deal with Telstra.

Ergas tries to argue that the $1B being paid by the Government to establish USO Co should be considered a cost of funding the NBN. In reality this is just tidying up some of the policy failures of privatisation. Why is it that we expect one telco to provide the E000 service and payphones. Telstra has been lobbying for these to go on budget for some time.

Ergas and others who regard the NBNCo/Telstra deal as "suppressing competition" need to go back and look at the empirical data on the costs of deploying access infrastructure. Competitive duplication of this infrastructure is inefficient.

I'll believe in competition in distribution networks when I see competition in electricity distribution networks. I can live with the logic of intermodal competition, especially where networks with different features and demands partially overlap - like gas and electricity, or HFC (Pay TV) and twisted copper. But FTTP is a superior delivery technology to both twisted pair and HFC, more diurable and easier to deploy and repair.

I personally think that we are finding evidence that the mobile networks are increasingly "subadditive". Despite a policy bias towards new entry we are back to the three operators licenced in 1992 (except for the market operator differentiating by specialising in data - vividwireless).

Finally Ergas is prepared to throw general mud at the Rudd Government over policy positions. It remains a great shame that the Liberals never saw fit to release the other Henry Tax review - that of Ergas. I'm also trying to figure out how that review was conducted. Ergas maintained that he wasn't "employed" by the Liberal Party to do it. But I can't seem to find it as a donation in kind on the AEC website. It may well have been commissioned by the Menzies Research Foundation - but that would make its non-release even stranger.

Meanwhile I will save for another time and place my ongoing frustration with the deification of "benefit cost analysis" by Ergas and the Business Council of Australia.

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