Submission to the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

With Gus Hurwitz.

Executive summary: The analysis in the Australian Competition and Consumer Commission’s Preliminary Report for the Digital Platforms Inquiry is inadequate in several ways, most notably:

  • It mischaracterises the relationship between changes in the economics of media advertising and the rise of digital platforms such as Facebook and Google.
  • Its analysis of the dynamics of media diversity is misguided.
  • Its competition analysis assumes its results and makes unsupportable claims about the division of advertising markets.
  • It is recklessly unconcerned with the freedom of speech consequences of its recommendations.
  • It fails to recognise, and proposes to supplant, the ongoing social negotiation over data privacy.
  • It provides a poor analytic base on which to make policy recommendations, as it applies a static, rather than dynamic, approach to its analysis.

There is a real danger that if the policy recommendations outlined in the preliminary report were to be adopted, Australian consumers would be severely harmed.

Available here.

The Abbott Government’s Chance For Real Reform

The word “deregulation” has been steadily degraded over the last two decades. Like the word reform, it is both overused and overly abstract.

Earlier this month Malcolm Turnbull’s Department of Communications released a discussion paper on the way the government manages the radiofrequency spectrum.

The paper has received little attention. That’s not a surprise. Spectrum governance is about as interesting and accessible as how the tax office calculates franking credits.

But what’s being proposed is rather radical and incredibly important – a move away from the Soviet-style command-and-control regulation of spectrum to market-orientated governance.

It is, in other words, the sort of deregulation that the government is going to have to pursue if it wants to be remembered as a reforming government.

Spectrum is one of the economy’s most valuable assets.

We need spectrum for everything from broadcast television to mobile internet access.

The services and technologies that rely on spectrum add billions to the Australian economy. One British estimate of the economic value add of spectrum in that country was AU$90 billion.

Yet for all its economic significance we regulate and control it in an incredibly retrograde way – through central planning and government allocation.

Think of spectrum a little bit like land. There’s a limited amount of it, but it can be divided up almost infinitely and used in different ways.

And of course, some ways are better value than others. We’re using spectrum more efficiently than we used to (the spectrum that once could only fit one broadcast television channel can now fit many) but we’re also demanding more of it as new technologies are adopted.

The Australian Communications and Media Authority (ACMA) dictates how spectrum is allocated – which parts are used by broadcasters, which are free for domestic uses like WiFi, which parts are for military or law enforcement use.

Nobody seriously suggests that ACMA allocates spectrum efficiently – that is, to its best use. And basic economics tells us that inefficient resource allocation is an unnecessary burden on the economy, on long term growth, and ultimately on our living standards. And it slows the spread of new technologies.

Indeed, it is the government’s tight control of spectrum which has kept the entire broadcast sector so farcically protectionist. This archaic system of spectrum allocation is why there is so much rent-seeking and crony capitalism in broadcasting.

The commercial television broadcasters have long lobbied against a fourth television network which would undercut their profitability. When broadcasting moved from analogue to digital, the government gave away masses of spectrum to the existing broadcasters – shirking this once-in-a-century opportunity to inject some competition into the sector.

If you’re unhappy with the quality of commercial television in this country, well, blame the government’s spectrum protectionism.
Likewise, centralised spectrum management gives the government a stick to control the free speech of broadcast media. All those hapless ACMA investigations into Alan Jones are based on a threat – however distant – that station broadcasting licenses might be revoked.

Turnbull’s discussion paper raises a number of proposals to simplify spectrum management.

But the most important is number 8, under the rather bland title “Facilitate greater user involvement in spectrum management”.

Under this proposal, ACMA would devolve spectrum management to users and private spectrum band managers.

Users and private firms would decide how spectrum was allocated, the rules under which it was used, figure out pricing mechanisms, and they’d adjudicate disputes. ACMA would be reduced to a spectrum watchdog.

Imagine band managers with a financial incentive to allocate spectrum to the highest value. This would be a big step towards treating spectrum like an economic asset like any other.

Eventually the vast bulk of ACMA’s regulatory apparatus should be replaced by a property rights based spectrum regime. In other words, the market would decide how spectrum is allocated.

The idea that the market could allocate spectrum better than government planners is an old one in the history of economic thought.

The economist Ronald Coase won his 1991 Nobel Prize for a program of work that begun with an examination of how the Federal Communications Commission in the United States prevented the efficient allocation of spectrum.

A paper commissioned and published by ACMA itself in 2007 acknowledged some benefits of granting property rights in spectrum – not least in reducing the inefficiencies caused by command-and-control allocation.

And we’ve been inching towards a property rights based spectrum regime over the last few decades.

The government has been allocating some spectrum licences through competitive auctions since the early 1990s. The Gillard government’s Convergence Review called for “a market-based pricing approach” for all spectrum, broadcast and non-broadcast. And the Communications Department is trying to figure out how to create deeper secondary markets in spectrum trading.

In other words, fully embracing the property rights model of spectrum management would be reform in the direction we are already travelling.

The Abbott government has trumpeted loudly its deregulation and red tape reduction agenda. But it’s likely that the real reforms will come outside those highly publicised “repeal days”.

Government spectrum management dates back to the Wireless Telegraphy Act 1905, when the Commonwealth decided it wanted absolute control over the new communications technology.

That makes spectrum control one of the oldest and most stubborn regulatory constructs in Australian history.

For more than a century it has been a burden on the economy, a handbrake on the adoption of new technologies, and a weapon for suppressing free speech.

Deregulating spectrum might be one of the most important things the Abbott government could do.

Broadband Is Just The Start Of Turnbull’s Minefield

Bill Shorten’s shadow ministry line-up contains a little Easter egg – a tacit admission that, for the last six years, Labor’s telecommunications and media policy has been an unmitigated disaster.

Stephen Conroy was communications minister for all but the last months of the Rudd and Gillard governments. He was shadow communications minister for three years before that.

In other words, Conroy embodies Labor’s communications legacy. And he has now been shuffled off to defence.

This is a quite a downgrade. Shadow defence spokesman isn’t exactly a super-star position. And Conroy told Lateline he has an “ongoing interest” in communications. He sits on the United Nations Broadband Commission.

The National Broadband Network was supposed to be one of the government’s great nation-building reforms.

But before Shorten announced the shadow ministry, Conroy gave a belated confession: the NBN hasn’t gone to plan.

It was “overly ambitious”. It didn’t meet vital construction targets. In his words, “the construction model that NBN Co put in place hasn’t delivered”.

Bear in mind we’re talking about the second version of the NBN. The first version didn’t go to plan either.

In the 2007 election, Labor promised to “connect 98 per cent of Australians” to “true” broadband within five years. Six years of government later, there are about 70,000 households connected to the NBN. That’s less than 1 per cent of Australians.

(Conroy blames the construction industry for this fiasco. As if making sure the NBN could be feasibly built had nothing to do with him.)

So there goes that legacy.

Australia has never been blessed with outstanding communications ministers. But it is hard to conclude that the communications portfolio for the last six years has been anything but a disaster.

Conroy has a long list of indictments to his name.

The internet filter, for one – a national embarrassment which Conroy delayed and misrepresented for half a decade, until finally he disowned it in 2012. (Well, sort of. Politics aside, the filter lives on in section 313 of the Telecommunications Act.)

Or the series of licence fee rebates for free to air television networks, not just entrenching the networks as Australia’s most protected industry, but actually rewarding them for that privilege.

Or the media reform package earlier this year, so badly botched that it nearly sparked a leadership spill.

Another casualty of Conroy’s attempt to regulate the media was one of his few worthwhile initiatives: the Convergence review. This review was supposed to be a grand and necessary rethink of communications regulation. But, as I wrote in The Drum in March, that noble goal was trampled by Labor’s obsession with News Limited.

This litany of failures means that Malcolm Turnbull inherits the ministry at a critical moment.

Labor liked to imagine it was solving the broadband question once and for all. The NBN was the end of telecommunications history.

Now history is very much resumed. No doubt Turnbull is being swamped by telecommunications lobbyists jostling for a bite of NBN Mark III.

But apart from the NBN, there are political forces converging on the communications ministry which will be very hard to overcome.

Recall that the election-eve release of the Coalition’s cyber-safety policy included a variation of the internet filter Malcolm Turnbull had spent years opposing.

It’s not clear how the filter arrived in cyber-safety policy. But its arrival was revealing – exposing a divide between liberals in the Liberal ranks and the think-of-the-children types.

Turnbull quickly dropped the Coalition’s filter. It was deleted from the cyber-safety document.

But the next time there is a moral panic about children on Facebook or Twitter trolls, a filter will once again be proposed, and cabinet will earnestly consider it.

The pressure to ‘do something’ will be too great. The opponents of heavy-handed paternalism are too few.

As divisive as cyber-safety is, it has nothing on national security.

Under Labor, the Attorney General’s department wanted to compel internet service providers to record their customers’ online activities – the so-called ‘metadata’ – just in case those customers are later accused of a crime.

Conroy of course supported this mandatory data retention policy, and for a typically belligerent reason. He claimed the alternative to data retention would be to “abandon all laws” on the internet. Straw men don’t get strawier than this.

Labor put data retention on the backburner. But it is dead certain that data retention will be reconsidered by the Coalition. Perhaps quite soon.

Turnbull expressed “grave misgivings” about data retention in his 2012 Alfred Deakin lecture. Not just because data retention would be unconscionably intrusive, but because it would be a huge regulatory burden on the telecommunications sector – his portfolio responsibility.

But the ultimate decision about whether to introduce data retention will be taken not by the Communications Minister but the Attorney General, George Brandis.

Brandis’ subordinate, the head of ASIO David Irvine, is lobbying publicly for data retention.

Turnbull is about to discover that the influence of telecommunications lobbyists pales in comparison to the influence of national security lobbyists, most of whom lobby politicians from inside the government itself.

Turnbull wants to be a better minister than Stephen Conroy. With Conroy’s record, that might seem easy. But it isn’t.

Turnbull will have to resist pressure within the government and within his own party to be worse.

We Do Not Need An Internet Overlord

At first glance, the United Nations’ International Telecommunications Union (ITU) seems benign.

The agency helps coordinate global telephone interconnections so we can make overseas phone calls. It manages radio spectrum and satellite orbits. All tedious and technocratic work.

But the ITU is holding a meeting in December to decide whether it – and by implication, the United Nations – should take over the internet.

This meeting in December will be the culmination of a long contest between the decentralised, private internet and the leaden hand of state control.

A UN takeover of the internet could be incredibly bad. Bad for liberty and free speech online. Bad for technological innovation.

Why would we want to hand the basic structure of the internet to a committee of governments – many of which censor the internet at home?

ITU chief Hamadoun Touré pleaded in the Guardian earlier this year that only his organisation had the “depth of experience” to regulate the online world.

The ITU is an agency in decline. It was founded in 1865 to negotiate connections between national telegraph lines, set technical standards, and manage the fees each network would charge each other. Over time, it gathered more responsibilities, dealing with telephone networks from the end of the 19th century, and broadcast frequencies from the 1930s. When the UN was founded in the 1940s, the ITU was wrapped in the blue flag.

This top-down control over telecommunications had a perverse effect. As a paper in the journal International Organization argued in 1990, the ITU “created one of the most lucrative and technologically significant international cartels in history”. It picked winners and entrenched technological monopolies.

It is the last organisation we would want to govern the dynamic, bottom-up internet.

The political economy of communications has completely changed in recent decades.

During the 20th century, governments dominated telecommunications. Telephone networks were state-owned. Even in the United States, which avoided fashionable state socialism, telephone companies were legally-backed monopolies.

The ITU thrived in this environment. When governments controlled the telephone system, negotiating a connection between two national networks was more an issue of diplomacy than private commercial contracts.

Then along came neoliberalism. Public utilities were privatised. Monopolies were exposed to competition. The need for a diplomatic body to manage the planet’s spidering communications infrastructure dissipated.

It’s been a quarter of a century since the ITU’s mandate was renewed. As such, the ITU has no authority over the internet. Network companies have developed diverse interconnection contracts with each other, and have done so independently. Technical standards have developed voluntarily and organically and in response to market demand.

Above all, the internet is largely decentralised. It is a product of civil society, not government. And what few centralised functions the internet does have – for instance, the management of domain names and IP addresses – are managed by non-government organisations based in the United States.

(This is not without problems. The Bush administration intervened to stop the introduction of the .xxx domain, an own goal which undermined American claims of neutrality. But for the most part, the internet still governs itself.)

The advantage of decentralised self-governance means internet architecture is mostly out of the reach of traditional politics and statecraft.

That’s what the ITU power grab is all about.

The ITU doesn’t want control over the internet’s foundations merely to deal with technical issues like interconnection and standards. No, ITU wants policy control: to have a hand in regulating cybercrime, child pornography, even spam. It wants to pursue social goals. Hamadoun Touré talks about creating “a fully inclusive information society” – a phrase which would be easy to dismiss as meaningless if it didn’t reveal an extraordinary mission creep.

Some countries want the UN to control what network operators charge each other. Other countries even want to tax internet telephony firms like Skype to protect the revenue of their old national telephone monopolies.

It gets worse from there. A coalition Russia, China, Tajikistan and Uzbekistan want the UN to regulate online speech by curbing:

The dissemination of information that incites terrorism, secessionism or extremism or that undermines other countries’ political, economic and social stability.

Of course, their idea of what information undermines “stability” may differ from ours.

Will that authoritarian coalition get its way? Probably not. But the absurdity of this last proposal simply demonstrates the risk of UN control. Under the ITU, the internet will be a geopolitical plaything.

It’s hard enough protecting online freedoms from the national security excesses of liberal democracies.

Imagine vesting the power to tinker with the basic structure of the internet with as discreditable a political body as the United Nations.

Communications Regulation Is A Dog’s Breakfast

The way we regulate media and communications is a dog’s breakfast. That judgment has been blindingly obvious for more than a decade now.

But it has now been confirmed by no greater authority than the dog.

A paper by the Australian Communications and Media Authority (ACMA), Broken Concepts, was released on Monday to coincide with the Government’s media convergence review. In it the communications regulator details the complexity and contradictions of laws which regulate everything from phones to emails to subscription television.

For instance: Australian content requirements apply to television, but not to the television-like services broadcast via the internet. Subscription TV and free-to-air TV have totally different content standards. Spam faxes and spam emails and telemarketing are regulated differently. The universal service obligation seems incongruous in a world where most Australians have mobile phones and many people are going home-phone-free.

It goes on. In the regulations and regulatory frameworks they studied, ACMA found the “majority” were broken or have been severely challenged.

This is not a surprise. Regulation and technological change just don’t go well together.

Telecommunications and broadcasting policy has long been characterised by rent-seeking and paternalism.

Indeed, we got off to a terrible start. In 1905, the Commonwealth decided to take control of the radiofrequency spectrum with the Wireless Telegraphy Act. But the Act had been delayed by the Barton government’s worries that the new technology would challenge the existing telegraph companies.

For a century, governments have conspired with politically-protected firms to hold back or cripple new technologies at the expense of consumers.

It’s that century of regulatory perfidy that has gifted us the inconsistency and confusion of the 23 Acts and 523 pieces of regulation ACMA oversees in 2011.

In 2000, the Productivity Commission described a history of “quid pro quos” which “created a policy framework that is inward-looking, anti-competitive and restrictive.” And the Howard and Rudd governments only prolonged this sad tale.

Communications regulation is worth cleaning up for its own sake. Inconsistent regulation distorts investment and consumption. It impairs innovation.

But it’s doubly worth cleaning up considering the pace of technological change will only increase. Governments will forever have to figure out how new technologies fit in.

The ACMA suggests we reframe our views about communications regulation according to a ‘network layers’ model. This model was developed in the early 2000s by communications academics who took the internet challenge to legacy media seriously.

Communications technologies have traditionally been regulated separately and distinctly – in “silos”. But treating technologies like silos doesn’t make sense any more. The copper wire network is no longer the only way you can make a phone call. Free to air television isn’t the only place you can watch a television show.

Instead of silos, the layers model views all communications networks as consisting of a number of layers, from infrastructure (copper wire, for example, or mobile phone networks) up to content (television programs or phone calls).

ACMA suggests a model with four layers. There are other options. The original theorists talked about seven, others talk about five, or three.

But the idea is the same. All infrastructure should be regulated consistently, no matter what technology that infrastructure is made of. All content should be regulated consistently, no matter how it is delivered.

The layers model is elegant. It’s probably the only model which will accurately and flexibly describe the communications of the future.

However, ACMA may not be aware the network layers model implies something more than moderate reform.

In a regulatory environment governed by such a model, the communications regulator would probably have nothing to do. Adopting a layers model would bring radical deregulation.

After all, if a regulator treated internet and free to air exactly the same, how would they enforce Australian content requirements on both? ACMA would be unable to insist that a certain percentage of all websites were Australian even if they wanted to. Same for the broadcasting standards and codes of practice – how could a regulator insist on “balance” on the internet?

That’s content. If the Government wanted to regulate infrastructure consistently, would it insist every owner open its network to competitors – as Telstra’s copper lines were treated? Or would it leave infrastructure to the market – like mobile phone networks? The economic logic of infrastructure investment suggests less regulation would be imposed, not more.

Of course, regulation being regulation, the current dog’s breakfast has supporters. Industries have grown up relying on this regulatory mess. Any change is a threat to the commercial status quo.

And the hysteria we saw from the actors’ union after a minor change to the Foreign Actors Certification Scheme earlier this year will be nothing compared to the outcry when the Government concludes, rightly, that Australian content requirements are anachronistic and impossible in a digital world.

Furthermore, as hostilities between News Limited and the Government increase, there’s no political appetite for media deregulation. No matter how obvious or necessary.

But credit for ACMA where it’s due. It’s a rare regulator which recommends such radical change. Especially change which could, if done properly, close that regulator down.

Savaging a popular policy a tricky task for Turnbull

Malcolm Turnbull’s elevation to the shadow communications portfolio may be just what the debate over the national broadband network needs. It could be just what the Liberal Party needs, too. But Turnbull has a hell of a job: to persuade the electorate that a gigantic, government-subsidised gift of a super-fast internet is a bad idea. An Essential Report poll late last year found 65 per cent of Australians thought it was important the NBN was built. Sixty per cent of Coalition supporters did, too. As a general rule, Australians like free stuff even if eventually they have to pay for it through tax.

Both the government and the opposition have lined up their new portfolios in time for the next sitting of Parliament.

The election is over and Lab or wants change, not continuity. Julia Gillard has tried to eliminate all traces of the embarrassing Kevin Rudd era.

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On the other side, the Coalition did astonishingly well at the election. So, Tony Abbott’s thinking goes, why fix what’s working? Turnbull’s move to communications is the only significant change.

The Coalition’s broadband message was an unmitigated disaster during the election – the biggest problem with an otherwise robust campaign.

It’s possible that Abbott is laying a cunning trap for his rival. From now on, the debate over the broadband is going to be intimately linked with Liberal Party leadership questions. And who would want to be saddled with the job of opposing one of Labor’s most popular policies?

But Abbott needs Turnbull to do well. Ever since he took over in November 2009, Abbott’s leadership has burnt fast and hot. His strategy was to barge into The Lodge. Now it seems likely the Coalition faces a full term in opposition. Abbott has to turn off his fast burn and apply slow, indirect heat to the Gillard government. He will need his shadow ministers to break down government policies bit by bit, not try to blow them up as quickly as possible. In other words, Abbott is relying on Turnbull to make the broadband network look like insulation, not the mining tax. Turnbull may be able to do so.

Since 2007, the government’s Communications Minister, Stephen Conroy, has successfully portrayed any Coalition critic of his broadband plan as a Luddite, as if they were opposed to the very idea of the internet and just a sledgehammer away from machine breaking. Conroy won’t be able to play that card now. You couldn’t parody Turnbull’s love of technology. He was not just the chairman of Ozemail; he recently released an iPhone application dedicated to all things Malcolm.

The Coalition can’t stop the broadband network, but it will be able to show how poorly thought through the project has been. After all, the network the government is building is not the network it took to the 2007 election. That first plan failed.

On a now infamous flight between Canberra and Sydney in April last year, Conroy used the time he could get with Kevin Rudd to explain their $4.7 billion scheme wouldn’t work. The two men sketched the

$43 billion scheme we’re getting now.

If we’ve learnt anything about the internet, it’s that we always find new uses for it and we always want more speed. But that doesn’t mean this specific network at this specific price, built in this specific style is the best way to get it. And it doesn’t mean the network has to be built by government. Before the 2007 election, Telstra was desperate to roll out high-speed broadband itself. Had the Howard government made some regulatory changes, we would already have the network at no cost to the taxpayer.

There’s a catalogue of problems with the NBN. A decade after Telstra’s privatisation, the government has taken responsibility for telecommunications.

Unfortunately, the Coalition’s alternative policy does little to resolve the deep regulatory issues that have held back Australian broadband. But right now, the burden of proof is on the government to show its NBN is worth the price tag.

The Liberals need their old, discarded leader to knock serious holes in the national broadband network.

Chris Berg is a research fellow with the Institute of Public Affairs.

NBN: Crippling government regulation to blame

At the Labor Party launch on Monday, Julia Gillard made the National Broadband Network central to her pitch for reelection.

And if you were introduced to the broadband debate this year, you’d be forgiven for thinking there wasn’t really an alternative to the government’s plan.

Communications Minister Stephen Conroy described the opposition’s broadband plan as a “failure of imagination”. The fact that this seems like a powerful critique shows how stilted the debate over broadband has become – apparently the problem with the Coalition’s broadband proposal is it doesn’t soar with the eagles.

But think back: just a few years ago Telstra was begging the government for permission to build its own super-fast broadband network. At no cost to taxpayers. Completely free of government subsidy. If the previous government or the Australian Competition and Consumer Commission had allowed it, there’s a good chance the private sector could have been building the broadband network already.

After Tony Abbott’s performance on the 7:30 Report last week, you bet he regrets the previous government didn’t take broadband policy off the political table.

There was a stickler of course. Telstra was asking for a regulatory holiday – that is, to exempt its new fibre investment, for a time, from the requirement to share it with its competitors. Failing that Telstra wanted the ACCC to nominate the price that the company would be compelled to share its new network, before they built it. After all, telecommunications networks cost a lot of money. The ACCC sets the price competitors pay to access Telstra’s network, and Telstra wanted some assurance it would be able to charge a price sufficient to recoup its investment.

The ACCC refused to do so. The Howard government wouldn’t make any legislative changes. Telstra ramped up its rhetoric, attacking both the government and the ACCC chairman, Graeme Samuel.

Into this bitter quagmire stepped the Labor Party and Kevin Rudd’s open chequebook.

NBN boosters like to say there is a “market failure” in telecommunications. But the government’s regulatory framework is the problem. It’s not the marketplace which has failed to deliver broadband. Government failure has.

The NBN plan tries to sidestep the regulatory failure, by having the government assume responsibility for telecommunications investment now and into the future. That’s exactly what Telstra’s privatisation, way back in the 1990s, was supposed to leave to the market.

So Australia is still struggling to break away from a century of nationalised communications. And doing so will mean making peace with an independent Telstra.

There is widespread anti-Telstra sentiment – not only from the Labor Party, but also from rural Liberals and the National Party, who imagine the high cost of providing telecommunications services in the bush is just thinly disguised anti-country bigotry.

On the other hand, many Liberals are understandably reluctant to be brutal to Telstra because the Howard government encouraged everybody to dump their life savings in Telstra shares.

The Labor Party has taken to presenting broadband as if it is simply a giant present from government to its people, and anybody who objects to the NBN must hate the internet. And the opposition, afraid of looking too close to Telstra, is trying to ape Labor’s approach without completely surrendering its debt and deficits attack on the government.

At least it’ll be cheaper, I guess.

Here the absence of a cost benefit analysis for the National Broadband Network is telling. Does anyone doubt the government wouldn’t like such an analysis (if it was flattering) to help defend their policy? Or NBNCo? Or the many firms which will get some of the huge amount of money the government is about to dump into the telecommunications sector?

As the tech publisher Grahame Lynch said in The Australian last week, it is “astonishing that not one … has mustered the modest resources required to prepare a credible cost-benefit analysis that attempts to measure the claimed externalities for the NBN in areas such as telecommuting, e-learning and telemedicine that are bandied about ad nauseam.”

It seems certain at the very least Treasury would have made some effort to look at the costs of the NBN relative to its benefits.

If it truly hasn’t happened – if Treasury really haven’t bothered to investigate whether this investment is worth the money – then the government is extraordinary negligent. Let’s give them the benefit of the doubt, and say they’re not, and the results just haven’t been released.

So the absence of the cost benefit analysis in the public sphere is a very strong hint the government’s broadband spend doesn’t really have much of an intellectual case. Julia Gillard and Stephen Conroy can talk all they want about how broadband will boost e-health, productivity, education, and things we haven’t imagined yet.

But if only the government had dealt with its crippling telecommunications regulations, the market could have been boosting all that already.

PM’s National Broadband Plan Really Is No Net Gain

Has there ever been a major Commonwealth program more hastily conceived than the national broadband network?

After it was clear their previous $4.7 billion broadband plan was a dismal failure, it was reported Kevin Rudd and the Communications Minister, Stephen Conroy, dreamt up this $43 billion plan while on two flights between Sydney and Canberra in April.

That’s not just policy on the run. That’s policy desperately sprinting from a horde of angry zombies while trying to pretend that the bite mark on its arm is nothing to worry about.

This latest iteration of the great broadband plan is three months old and already behind schedule. The Tasmanian leg – supposed to be available to consumers from this month – has been pushed back until mid-2010.

The project’s conception is still at an embarrassingly early stage. The Government’s financiers haven’t yet been consulted about exactly how the funds for the project will be raised, as a Senate committee heard last month. It’s veiled in secrecy. The Government has told the Opposition they’ll have to cough up $24,000 to see the documents which were supposed to have recommended the Government build the network.

And, unsurprisingly for a project entirely developed by two career politicians in the brief time while the seatbelt sign was off, the broadband network’s business case is supremely flawed.

The economist Henry Ergas has calculated it would have to cost individual subscribers at least $215 a month for the network to pay off its investment, and only if almost every broadband customer in Australia – 80 per cent – signs up.

Furthermore, the Government is discovering to its surprise that it can’t untangle the telecommunications industry’s dense knot of competitive rivalries and regulatory quagmires just by waving around a giant novelty cheque.

Yet to argue that the great broadband plan is perhaps just a tad undercooked is to invite accusations of Luddism. This seems to be because a lot of people view the broadband network as less an infrastructure project, and more the first tranche of broad social and economic revolution – the opening set-piece for the utopian-sounding “digital economy”.

So we’re repeatedly told it is a tragedy that Australia’s broadband take-up rates are somewhat lower than in other developed countries like Korea, because … well … think of all the cool things you can do online!

For these supporters, the technicalities of the national broadband network are just technicalities – what really matters is the internet’s sheer awesomeness.

So, fittingly, the Communications Minister’s pronouncements about broadband are rarely little more than a checklist comprising of a few key terms: “smart infrastructure”, “digital education revolution†and the more mundane “œmobile banking”.

Those are all wonderful, of course. Who isn’t looking forward to “e-Government”? But most e-Gov ideas are usually either stunningly obvious (such as more government information being provided online) or fashionable but pointless (the vapid, machine-written “blogs” of Stephen Conroy and Kevin Rudd).

Another commonly cited benefit from the Government’s broadband plan is its potential to revolutionise Australian hospitals with “telemedicine”.

But hospitals have been the recipients of a decade’s worth of special government programs to deliver them the best internet available. It seems silly to have to point this out, but Australia’s hospitals aren’t on the same ADSL plan the rest of us are.

Sure, your internet connection might have frustratingly capped just before you finished downloading that handicam copy of Transformers. But that doesn’t mean surgeons at St Vincent’s have to wait for another doctor to finish downloading x-rays before they can start the next heart bypass.

The most common argument for government-sponsored broadband is productivity. But the national broadband network isn’t going to be a magical productivity switch. There just aren’t many potential Australian entrepreneurs having their innovative business plans stymied because their broadband isn’t fast enough. Some businesses might find a faster internet connection useful, but few people seriously think our present internet speeds are what’s holding the economy back.

Anyway, our hunger for ever-greater productivity might be better satisfied by allowing the private sector to build the network. (As much as four years ago Telstra was begging the government for a regulatory reprieve so it could build a new broadband network by itself.)

Hell, if it’s productivity we want, perhaps the Federal Government could just reduce a few taxes. That’d give the economy a bit of a kick-along.

Of course, faster broadband for everybody would be delightful. But so would government subsidies for sunshine, flowers and walks on the beach.

Just because everybody loves the internet doesn’t mean that this $43 billion government-owned national broadband project is good public policy.

The Winds Of Change Will Not Wait For Rudd’s Broadband

The failure of the National Broadband Network tender to find a sensible and willing private sector company is not surprising. But the failure cannot be blamed on the global financial crisis – the economy may look pretty dismal, but the government’s broadband policy was never very good anyway.

Partly this is because technological change has boxed the government into a corner. Earlier this year, while the NBN expert panel was dithering about looking for a firm to make good on the Labor Party’s election promise of a 12Mbps network, Telstra announced that it was planning to upgrade its already-existent cable network to 100Mbps, without a scrap of government support or subsidy. Even the firm’s mobile Next G service – which right now covers far more of Australian population than any future fixed-line network could hope to – is being upgraded to 42Mbps. And it’s not just Telstra – Optus has been periodically upgrading its cable network to match the speeds of its competitor.

Simply put, it would have been humiliating for Communications Minister Stephen Conroy to trumpet a 12Mbps network while there are superior products in the broadband marketplace.

And these are just the private sector’s plans for the next twelve months. The government intends to roll its network out over eight years – who knows what we will expect from our internet connections in 2018? There’s a very good chance that the new network will be long obsolete by the time it is finished.

While the Prime Minister announced that the network will cost “up to” $43 billion over those eight years, it has only committed to an initial $4.7 billion investment into the project. This cost is, at least on the face of it, a drop in the bucket. Since coming to office, the Rudd Government has increased the size of government by a massive 21%. And the Commonwealth Government’s contingent liabilities have increased ten-fold in the last year. Nevertheless, the new NBN plan opens the door even wider to future financial obligations, especially if the fundraising and rollout doesn’t proceed as smoothly as the government is hoping.

So far no government has been willing to treat the cause of our broadband problem – the long outdated access regulations which compel Telstra to share its network at a regulated cost.Today’s announcement just maintains the fiction that the government can buy its way out of a long-term regulatory mess.

Radical Reform Needed To Clear Up The Telco Mess

Telstra’s exclusion from the bidding process for a national broadband network reinforces how much of a fiasco Australian telecommunications policy really is.

The Labor Party’s high-profile promise that it would have in place by November 2008 a fibre-optic network was supposed to outflank the regulatory stagnation that had developed since Telstra first announced its plans to build such a network in late 2004.

Communications Minister Stephen Conroy clearly had no idea how difficult and entrenched the regulatory problems were.

The latest decision sets a terrible precedent for a minister with an already poor reputation. The Government is claiming the Telstra proposal was rejected because the company had not included a detailed plan to involve small and medium enterprises in the network’s construction. The first striking thing about this requirement is just how extraordinarily micro-managing it is. Does the Government want the fibre-to-the-node or not? Surely voters don’t care whether their broadband network is built by big companies, little companies or robots subcontracted by aliens.

Nevertheless, it is hard to avoid the impression – and certainly this is Telstra’s view – that being excluded over this odd requirement is nothing more than a convenient excuse to kick Australia’s biggest telco out of the running. After 11 years of forced access regulation, there is a lot of bad blood between Telstra, the industry, the regulators and, of course, the Government.

This decision signals a government willing to make decisions based on animosity rather than neutrality. Big Australian companies will be quickly learning how important their Canberra lobbyists are under the Rudd Government: with a resurgent industry policy, an emissions trading scheme with more exceptions than consistencies, and a steady program of commercial bail-outs, it has been a long time since having the ear of a minister has been so important.

The Government can’t claim to be concerned about the influence of lobbyists in the halls of Parliament while making it impossible for companies to do business without them. The problem facing Australia’s communications industry is deceptively simple. The original regulatory approach was to try to inject some competition after the industry’s partial deregulation. And so Telstra was forced to allow its competition to access the copper wire network, and at a price set by the ACCC.

Yes, Australia has seen an explosion of small telcos. If competition is a synonym for hundreds of companies selling pretty much the same product, then regulators can declare victory. But the more important point of the forced access model was to encourage companies – after they had a comfortable foothold in the industry – to build their own networks. That has not happened. Instead, Telstra’s competitors have invested more and more of their own resources into the ageing copper-wire network.

And when the idea that we need a new network comes along, it creates a perfect storm. Telstra isn’t sure how the access regime will be applied to a whole new network on which it wears all the financial risk. Telstra’s competitors are disgruntled because suddenly all their expensive equipment will become obsolete, and mortified by the prospect of being unable to compete with a flashy new network. The Government doesn’t like copping public criticism from a company that used to be its political stress ball, and the regulators would prefer it if they could issue orders unchallenged, as they could before.

With stakeholders at each other’s throats, the industry is unable to build the network. But this is no market failure by any definition of the phrase; it is a failure of the Government’s regulatory policies, which discourage investment in infrastructure.

It must be easy for politicians to imagine that a government could magically fix problems by throwing money at them. But yesterday’s exclusion of Telstra from the broadband tender indicates that the Labor Party might find our regulatory mess a trifle more complex to deal with.

The forced access framework has, ironically enough, cemented Telstra even further into the centre of the telecommunications industry. It will take radical reform to fix the telco mess. Governments are going to have to step back from micro-managing the telecommunications sector. Market forces need to determine the shape of such a quickly developing industry, not regulators.