Tuesday, December 21, 2010

The $50 Billion Entertainment System

Federal Opposition Leader Tony Abbott has responded to the release of the National Broadband Network Business Case by asking “do we really want to invest $50 billion of hard-earned taxpayers' money in what is essentially a video entertainment system?” Of course, the reality is that the Network will actually do a whole lot more than just become a video entertainment system, and the cost to the federal budget will not be $50 billion. In any case, the investment is projected to start showing a profit in just over ten years, so there will actually be a return on investment for the taxpayer over time. Nonetheless, it is still a legitimate question to ask if we are spending too much on a network we don’t need.

To take the second part first, there is no question that Australia desperately needs to have a network upgrade to deliver 21st century technology to as much of the population as possible, so the debate has really been about how much capacity is required. The network is promised to deliver connection speeds of 100 megabits per second, although the business plan acknowledges that ten years from now only about one third of customers will actually choose to use that much. Instead, most are expected to opt for the slower and cheaper 12 megabits per second service. Even then, there are some who are concerned that as the network replaces the old Telstra wires they will be forced to pay more for something which exceeds their requirements.

The fact is that over the last twenty years, internet speeds have gone from about a thousand bits per second for anyone actually able to access the net back then, up to eight million bits per second or even more for many home users today. At the same time, consumer expectations have increased just as dramatically as connection speeds. That being the case, it is only reasonable to assume that both speed and customer expectations will continue to increase over the next twenty years. Just because 100 megabits per second exceeds most people’s needs, doesn’t mean that will be the case in twenty years time, or even ten when the network is completed. Far from being in excess of our future needs, I believe that the planned network reflects the likely continued growth in demand.

As for whether we are paying too much, surely the real question is whether we can afford not to make the investment in this essential 21st Century infrastructure. While some might describe the network as an expensive video entertainment system, it is the impact on commerce, education and health that will really justify the investment. While the price tag appears to be very large indeed, the money will generate jobs for the next ten years, and at the end of it all there will be another huge public asset just waiting to be privatised. When that happens, it will make the sale of Telstra look like a lamington drive, and return a cavalcade of cash to government coffers.

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