Adam Schwab’s NBN reply

Yesterday I posted a fairly blunt attack on Adam Schwab‘s analysis of the national Broadband Network (NBN). Today he sent this response, which I publish in full.

Stilgherrian is, on most occasions, one of the leading technology writers in Australia — his coverage of the planned internet filter was first class, as was his recent reporting of the planned $400 million under-sea cable between Sydney and Los Angeles. However, Stilgherrian let his lofty standards drop and seriously damaged his journalistic credibility with his blinding support for the National Broadband Network (NBN). Sadly, it appears that Stilgherrian’s ostensible desire that other people to pay for a shiny piece of broadband infrastructure has gotten in the way of him actually considering whether the multi-billion dollar public investment is a good idea for Australian taxpayers.

Stilgherrian launched a blistering attack on an article I wrote in Crikey, alleging that it was “full of misunderstandings and straight-up mistakes”. A somewhat ironic comment given most of his criticisms were themselves quite obviously incorrect. Specifically, Stilgherrian stated that:

[Schwab] thinks the NBN is an internet service provider (ISP). He wants it to deliver short-term commercial return on investment. And he doesn’t differentiate between needs now and a decade or two or three in the future.

Perhaps Stilgherrian should have either read the original article properly or spent thirty seconds contacting me before jumping to incorrect conclusions as to my ‘thoughts’. Nowhere in the original article was it stated that the NBN would be a retail network. The NBN has always been a wholesale network. The original article referred to the speculated final retail prices which may result from the NBN, but did not specify that the NBN would be the retailer. Nor was that point even remotely relevant to the main intent of the article.

Second, the original article also never referred to a ‘short-term commercial return on investment’. Rather, the it noted that no proper cost/benefit analysis had been undertaken. It is correct that ‘return on investment’ to taxpayers is not a purely financial determination (for example, returns from a public investment will partly be in the form of higher living standards which flows from the investment). But the article was making the specific point that no analysis of the returns had been undertaken (instead, proponents of the NBN had pointed to rather unconvincing benefits, like eHealth or the ability to hold videoconferencing as justifications for the project).

It is certainly possible that if such an analysis were ever carried out the study may deem that the NBN is in the best interests of taxpayers (although critics claim that such is unlikely given the inevitable ‘waste’ and inefficiencies which would result from a public project of such a size). The point remains — no such determination was ever undertaken.

Like many proponents of the NBN, Stilgherrian falls into the trap of simply assuming “faster internet is better”, regardless of the costs. Of course, prima facie, faster internet is superior to slower internet. I, like most people, would prefer faster broadband. I, like most people, would also like the Government to buy me a Porsche. However, it is preferable that the Government does not make spending decisions based on the desires of certain individuals rather than the economy as a whole, as that would result in misallocation of capital and a terrible waste of taxpayer money. (Admittedly, there are many other terrible Government policies from both sides of the political spectrum, so the NBN is certainly not the worst Government promise, just the most expensive).

A decision on the scale of the NBN should be properly considered — the costs (which are obviously financial, and look like bring are in the range of $30-$35 billion — depending on the final result of the Telstra deal) should be weighed against all the benefits of the faster broadband infrastructure which too may be substantial but are in the most part, still unidentified.

Stilgherrian then submitted a range of reasons why the public benefit resulting from faster broadband outweighs the cost, including inserting a nice-looking graph prepared by none other than the National Broadband Network itself.

Stilgherrian also made a couple of valid, yet obvious points — wireless in itself is not a sole solution and certainly isn’t able to carry the amount of data of fibre. But that is to ignore other existing infrastructure and the fact that private companies (like iiNet, TPG, Foxtel and Telstra) are also able to roll out high speed broadband to compliment existing infrastructure. (Most CBD businesses already have high speed broadband).

There is also the option of having a broadband network which covers predominantly higher density areas at a marginally lower speed, substantially mitigating the cost but retaining many of the benefits Stilgherrian referred to.

The NBN was drastically altered at the time of the global financial crisis by a Government which was looking to stimulate the economy without proper economic analysis. The plan went from a $6 billion to a $4 billion to a $43 billion scheme at what appeared to be the whim of a now deposed Prime Minister. The original article questioned whether that remains the correct decision for Australian taxpayers. It may be, but to the decision has become so politically clouded that taxpayers can’t be confident that they are receiving a return (be it financial or otherwise) from their investment.

I haven’t properly digested this response yet, but I do think it’s nice to be able to continue the conversation. I’ll probably write something on the weekend.

4 Replies to “Adam Schwab’s NBN reply”

  1. The thing is, faster communications access is a vital enabler of our future productivity across all strands of business. This is about much, much more than faster internet access at home – it gives businesses large and small access to services like videoconferencing, teleworking, collaboration, cloud services, back-up, VOIP. This is already happening in various parts of the world, and for Australian businesses to remain competitive they will need access to massively increased bandwidth.

    The thing is, the current copper network is physically unable to cope with these rapdily growing bandwidth requirements (100Mbps plus). Wireless broadband does not and will never have sufficient capacity to substitute for fixed (although it will do a good job filling in the gaps and enabling mobile access at good speeds, the nature of cell sharing and limited spectrum means there are physical limits to what can be achieved with wireless).

    It is this simple: we are going to need to migrate to fibre networks, and we’re going to need to do it soon. There is no getting around this! What is the government’s role if it isn’t to build vital infrastructure where the market is failing?
    This is a long term investment that will be a crucial enabler of future productivity. I’m more than happy for my taxes to be spent on that.

  2. While twitter is down (obviously Conroy has rated it RC) I might put in a plug for an upcoming “ACS” Telecommunications SIG event. It isn’t free but it’s quite cheap for those who have money ($90 pp ACS members $120 others )

    Charles Todd Oration Luncheon

    Dolton House
    Darling Island Wharf
    Wharf North
    48 Pirrama Road

    Wednesday 18th August 2010
    11.45am for a 12.30pm start – 2.00pm

    The Telecommunications Society of the Australia (TSA) has been hosting the Charles Todd Oration in Sydney for some fifteen years to honour the achievements of one of Australia’s leading telecommunications pioneers Charles Todd. As a visionary thought leader of the time, Charles Todd saw the value that telegraphic communication would bring to the world from as early as 1854. Soon after arriving in Australia as Government Astronomer and Superintendent of Telegraphs for South Australia he was charged with connecting Australia with world. This lead to building an overland telegraph from Pt Augusta North of Adelaide through to Darwin to carry the ‘rapid dot-dash’ of the telegraph, equivalent to 2-3 bit/s in current terms. In the 1870s the new telegraph was emerging as ‘the key to prosperity and wealth’ across the still separate colonies and the link between Port Augusta and Darwin is regarded as an example of outstanding engineering in Australia.

    This year as the inaugural CEO of NBN Co it is only fitting that Mike Quigley joins an illustrious group of Australian and International figures who have delivered the Charles Todd Oration. The Charles Todd Oration has featured a number of provident and eminent industry leaders including Professor Fred Hilmer prior to him becoming CEO of Fairfax Holdings, Frank Blount as CEO of Telstra, Dr David Skellern who is now head of NICTA in Australia, Therese Gattung as CEO of Telecom New Zealand, and Professor Don Lamberton of ANU, on the economics of telecommunications.

    NBN Co’s role is to realise the vision of the Australian Government for the development of the next generation of communication infrastructure in the form of the National Broadband Network (NBN). The NBN will provide the infrastructure that will allow Australians to have access to a new range of advanced digital services. This multi-billion dollar investment will be one of largest nation building infrastructure projects in Australian history. The Oration this year appropriately features the NBN, in keeping with the recognition by Sir Charles Todd of the importance of telecommunications to delivering prosperity and wealth.

    The high calibre of the speakers, and the material delivered at the Charles Todd Orations have made the Oration a significant part of the history of Telecommunications discourse in Australia.

    Mike Quigley was appointed as Executive Chairman of NBN Co. in July 2009, the company established to deliver the National Broadband Network.

    Mr Quigley is an example of an Australian executive who has reached the top of their profession globally, and is now able to bring the benefit of that experience home.

    Few people in the world have first-hand experience with the deployment of the type of network our National Broadband Network plan involves. Mike is one of those people. He understands the technology, the applications, and all of the considerations that go into making a network viable.

    Mr Quigley has had a distinguished 36 year career at Alcatel, one of the world’s largest telecoms technology and network deployment companies. Following his extensive education at the University of NSW where the achieved a B.Sc in Mathematics and Physics, and a B.E (Hons 1) in Electrical Engineering he joined STC (before it was acquired by Alcatel) in the area of R&D and technical management. He then took on progressively more senior general management roles in Australia before becoming responsible for Alcatel’s business in Australia and New Zealand.

    1999 saw Mr Quigley appointed as COO and then President and Chief Executive Officer of Alcatel USA. In 2003 he was appointed President of Alcatel’s Fixed Communications Group in Paris, responsible for infrastructure products including network switches and optical communications systems.

    His most recent role with Alcatel was as President and Chief Operating Officer of the company, leading more than 55,000 staff and responsible for operations in 130 countries. During his tenure of office Mr Quigley led Alcatel’s team in the negotiations of the Euro 21 billion merger with Lucent Technologies which was completed in November 2006, before his decision to return to Australia in September 2007.

    During the course of his career, Mr Quigley has led the development and integration of large scale Fibre-To-The-Premise (FTTP) and Fibre-To-The-Node (FTTN) implementations for some of the largest US carriers.

    Mike is known for his energy and values. These will be crucial as he builds this fundamental national infrastructure for this generation and the next.

    Mike Quigley was born in Kent, England in 1953. He is an Australian citizen and is married with three daughters. He is a Non Executive Director of the Prince of Wales Medical Research Institute.

  3. A few things have been bugging me about Schwab’s reply, but I find the following sentence mystifying:

    But that is to ignore other existing infrastructure and the fact that private companies … are also able to roll out high speed broadband to compliment (sic.) existing infrastructure.

    I was under the impression one of the reasons for the NBN was exactly to prevent this sort of duplication in infrastructure. (As it is, Telstra currently charge $99 to return to their infrastructure if you use another ISP’s — e.g. Internode, Adam, …)

    Relying on privately owned infrastructure is going to make it very difficult for start-ups or smaller ISPs to compete, since they’ll have to lease from larger companies. And we all know how well that worked out last time…

    And this private infrastructure is supposed to go around singing the praises of the existing network? (Pun intended.)

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