NBN bet could have paid off if the Coalition hadn’t messed it up | Australian Financial Review

The Albanese government’s decision to liberate the national broadband network from its obligation to fully recover its construction cost has been hailed by all the usual ideological and corporate suspects as a sign the NBN could never have generated a commercial rate of return.

But all this crowing – notably from The Australian Financial Review, whose editor’s ideology dictates knee-jerk hostility to most forms of government intervention – is based on a deeply flawed factual premise.

The truth is we’ll never know if the NBN could have broken even, because of the Coalition’s catastrophic decision in 2013 to detonate the business and technology model that my government announced in 2009.

Before Tony Abbott took over in 2013, the NBN was on track to deliver fibre-to-the-premises broadband speeds up to 100 megabits per second, at a capital cost of $37.4 billion, by the early 2020s. But that policy was never put to the test because, barely two years after the first homes were connected, it was shredded by the Coalition at the behest of News Corporation.

Abbott, arguably the most ruthless political campaigner of our era, had built his career campaigning against technological change – from mobile phone towers in the 1990s to wind turbines in the 2010s. In pursuit of the prime ministership, Abbott wilfully blinded himself to the future needs of the economy by arrogantly dismissing superfast broadband as “essentially a video entertainment system”. Abbott publicly instructed his communications spokesman, Malcolm Turnbull, to “demolish the NBN”.

Before the 2013 election, the Liberals unveiled their Frankenstein-inspired alternative: a patchwork NBN of older, slower technologies that they wrongly assumed would be cheaper. Adding to the bad omens, Abbott launched his policy at Fox Sports after an invitation by News Corporation, whose vested interest in defending Foxtel’s cable TV infrastructure against superfast broadband was admitted in its own NASDAQ filings.

The Murdoch media provided uncritical screaming front-page coverage for overblown Liberal claims of NBN cost blowouts, spreading the ludicrous myth that the NBN was designed on an in-flight napkin (a lie that the Financial Review continues to propagate). After the election, the Liberals appointed high-profile NBN critics to lead a “strategic review” that dutifully repeated many of their pre-election assumptions back to them.

Stimulus could have helped fix NBN

What happened under Abbott’s “multi-technology mix”? The cost rapidly blew out to $56 billion – higher even than their own strategic review’s estimate for Labor’s plan. Australians were lumped with a much slower, copper-laden network that was infuriatingly unreliable and demanded higher maintenance.

Scott Morrison, to his credit, recognised the Abbott-Turnbull NBN was hurtling towards obsolescence, and in 2020 allocated $4.5 billion to begin rewiring it with fibre – belatedly accepting the logic of our model.

It remains one of the pandemic’s great lost opportunities that Morrison’s record-breaking stimulus was not used to fix the NBN. It could have been funded, with billions to spare, merely by taking Peter Costello’s advice to claw back the $38 billion wasted on JobKeeper subsidies for businesses that didn’t need it. This would have been a much better investment for the nation’s future than inflationary subsidies for home kitchen and bathroom renovations.

Given today’s NBN bears negligible resemblance to what we proposed in 2009, of course its books show the business off-track for a commercial return. The Coalition delivered an entirely different, substantially inferior asset at much higher cost. By changing the specifications of the build, it reduced the product’s competitiveness and hobbled its ability to turn a profit.

But it would be foolish to judge the NBN’s worth solely by its financial statements. It is a public good – like highways, railways, schools and hospitals – and its benefits are therefore spread throughout the community. Despite the political shenanigans of the past decade, there is zero doubt Australia has derived a net benefit from the NBN.

Ask yourself: how much worse off would Australian homes and business be today without the NBN? How would our nation’s businesses have fared during the pandemic, when millions needed to work from home? What comparative advantages have Australian businesses enjoyed because of it? What would have been the consequences for workforce participation, labour productivity, and therefore tax receipts? What has been the improvement to people’s standard of living?

Coalition wasn’t interested in policy merits

The alternative path was to follow the Howard-Costello policy of letting Telstra and Optus continue to chase each other down the same metropolitan streets laying inefficient, duplicated networks while taxpayers footed the bill for household subsidies to buy satellite dishes.

Some are now saying my government could have done more to convince our critics of the policy’s merits. But let’s be clear: we released reams of documentation including the business case, updated corporate plans and a 500-page implementation study, conducted by KPMG and McKinsey, which predicted a rate of return consistent with the long-term bond rate, fully covering the cost of capital.

If you seriously think the Coalition only needed to see a few more reports to get on board, you are living in a political fantasy land. This is the same Abbott who fought tooth and nail against our market-based emissions trading scheme, despite being urged by everyone from the Aluminium Council to the World Wildlife Fund to support it. Policy merits be damned.

I did not make the decision to establish the NBN as a public corporation lightly. As one of the most pro-business leaders the Labor Party has had, it was not something I had expected to do. But – as demonstrated by our expert tender process, steered by Treasury secretary Ken Henry – the free market was simply not going to step up to get the job done while delivering value for taxpayers’ money.

We all wanted to see the NBN deliver a commercial rate of return and ultimately be privatised in the 2030s. But after the Coalition’s decision to junk the NBN and start over in 2013, the ground rules were unilaterally changed. And the Financial Review should be honest enough to admit that.

Originally published: Kevin Rudd: Labor’s NBN plan could have paid off if the Coalition had not messed it up (afr.com)