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Thoughts on the NBN

The following is adapted from a comment I made in a thread regarding Australian politics, mostly in response to those who support the new National-Liberal Coalition government’s plan to reduce the scope of the in-progress project, the National Broadband Network or NBN.

For those of you who don’t know, Australia currently has some of the slowest, most expensive Internet in the developed world. There are multiple reasons for this, not least of which being that the vast distances between population centres require that any attempt to address this will require outlays an order of magnitude greater on a per capita basis than what a similar measure would require in (say) Singapore, Britain or Japan.

One of the former Labor government’s policies was to remedy the issue by installing an optical fibre network along the Australian coastline, linking major urban centres together, then reaching inland rural areas via fixed wireless or satellite links. The plan was to have optical fibre connections connect each home, business and school to the exchange, delivering the fastest connection possible to every home. The popular media term for this is Fibre to the Premises, or FTTP.

The new government, however, is a conservative one and their general view of this project while in opposition has been disdainful, to say the least. There have, additionally, been problems with the way the rollout has been planned, managed and implemented, with schedule delays, cost overruns and failed targets, making the NBN an easy target for budget hawks to attack what they feel to be wasteful government spending.

Now that the Coalition have gained power, they have made moves to implement their election policy of changing this FTTP type network to a Fibre to the Node (FTTN) type one. Under the new plan, the government aims to save money by running fibre only as far as the exchange, leaving the final leg to the home as a traditional copper connection. People will, of course, have the option of paying for that last leg of fibre to be installed at their own expense, but I would argue this is prohibitively expensive for the majority, costing thousands. That is the very worst outcome in a situation where the benefits are maximised only when everybody has the same facility.

I, like many others who see technological change as not just an inevitability, but as an opportunity, disagree with this approach. I can see this plan saving a bit of money in the short term, but costing vastly more when it becomes clear that the half-baked system being proposed will need to be upgraded.

The major objections to the plan have centred on the idea that it is an extravagant boondoggle that the country cannot afford, at least without raising taxes. Again, for those of you not aware, raising taxes is anathema to the new government, whose ideology skews toward a small government philosophy. While there’s a debate to be had here, much of what has been said in the Australian media about it has been misleading and reductive at best, downright ignorant at worst.

I personally would be in favour of a tax increase or levy to pay for an NBN. I believe that public infrastructure is best paid for collectively and that responsible governance means that this will sometimes necessitate higher taxes. Even if I weren’t in favour of a tax, with government debt running at just 27% of GDP (the 4th lowest in the OECD), the nation could well afford it. I believe the economic benefits of having the infrastructure in place will more than pay for themselves in the years to come.

I see the NBN as vital infrastructure for Australia’s future akin to roads, sewage systems and the electricity grid. It will (eventually) be a public good that people will rely on and everyone will benefit from economically because it will enable new, data-driven businesses to become possible as new markets are opened up.

The same concept can be applied to road and rail infrastructure in the 19th century. Towns boomed when rail lines and highways came to them. Expanding infrastructure makes living and doing business in far-off markets viable, which increases the wealth and standard of life for everyone, not just those who were formerly at the periphery.

Unfortunately, there are big downsides to building infrastructure from a private enterprise point of view.

First is the gigantic capital cost required to get even the smallest projects off the ground. The amount of credit required to build a power plant, for instance, bars all but the biggest players from even contemplating such a thing. It’s hard enough trying to run a profitable business using existing plant, let alone trying to manage acquiring it in the first place.

Second is the fact that the economic dividends of building infrastructure aren’t necessarily immediate upon completion. The growth of a small town into a bustling regional centre is a process that can take a generation. Furthermore, even after the infrastructure is built, it may generate negative revenue for you for decades as the positive effects accumulate.

Then there is the issue of gathering that revenue in the first place. A business can only generate revenue from a plant by asking its end users to pay fees, subscriptions or tolls. That’s fine when you’re talking about non-vital services, like a self help line, but what about stuff that everybody benefits from?

Farmer Giles and Hipster Sven both benefit from Wholesaler Jimmy having use of the road between the Giles farm and the organic food market in Sven’s filthy hipster enclave, but only Jimmy ever uses the road or pays the toll. This means that Sven is bearing the brunt of the cost as it’s passed on directly by Jimmy. It also drives down the prices Giles is able to charge for his goods and limits his customer base only to people who are prepared to pay Jimmy’s outrageous prices (like Sven). However, if you could levy a fee on everyone who will benefit or potentially benefit from the road being there, you’re able to spread the cost around and no individual ever needs to be charged $5 for a mango. This way, Office Worker Wilma can head down to the same food market and buy Giles’ goods without feeling ripped off and everyone in our little story benefits. There! Everyone just benefited from being taxed.

Taxation to pay for infrastructure is a well-trod concept and I’d hate to beat a dead horse here, but it’s really important.

Consider street lights. Street lights can do a lot to improve safety in an area, by moving potential criminal activity elsewhere, enabling business to continue beyond sunset or by simply allowing night traffic to see all hazards. Everyone in a neighbourhoods benefits, even if they never drive at night.

Trouble is, if you make that a user pays system, nobody will ever put one in. They’re individually expensive, tricky to maintain and the benefits you get are diminished by the fact that the neighbours down your street opted not to pay for one. One light does not make a lit street, after all. If you owned a restaurant and lived in a world where street lights are user-pays, you’d be forgiven for concluding that it’s not worth the investment.

This is why the government’s decision to install FTTN over FTTP is a bad idea. By making it so that that last connection is user-pays, you limit the benefits of everybody having access. This means that if, in five or ten years time, virtual offices relying on (say) VR headsets and streaming, high definition 3D video and stereo sound were to become viable on entry-level computer hardware, businesses couldn’t take advantage of the savings a distributed office network offer (no renting office space, no facilities management, employees are able to work flexible hours without impacting the bottom line etc.) because they couldn’t rely on their employees having Internet connections fast enough to handle the data requirements.

Same goes for potential realtime medical monitoring, future distributed computing applications, cloud-based anything, IP telephony or on-demand HD or 3D television services.

The FTTN plan will probably be okay for now. Perhaps it’ll still be okay in five years. In ten though, in twenty? We’ll be getting spanked by Swedish firms that don’t even bother to rent office space anymore. FTTP could last us another fifty years or so, once the fibre is in the ground. What’s valuable about it is the reliable channel that will only get faster as switching technology is improved and upgraded at the exchange.

Right now we’re routinely doing things that are so data intensive they would have been unimaginable in 2003, let alone 1998. The government is being penny wise and pound foolish and crippling the Australian economy for years to come.

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