Australia - OECD raises questions over the cost of the NBN in its economic review

[arn] The Organisation for Economic Co-Operation and Development (OECD) recently released comments calling for more telco competition im Australia and questioning the Government's NBN plans. Here are the unedited comments from the summary of the "OECD Economic Surveys: Australia, November 2010" report:

In the telecommunication sector, the government’s project of building a new fibre network, the National Broadband Network (NBN), holds the promise of delivering potentially large benefits.

However, as the cost amounts to 3¼ per cent of GDP, it also entails substantial financial uncertainties. The authorities’ strategy will improve Internet services for the entire population and promote a fairer competition between private firms on retail services.

Part of the plan is to shut down the existing copper network and the country’s main cable network. While establishing a monopoly in this way would protect the viability of the government’s investment project, it may not be optimal for cost efficiency and innovation. Empirical studies have stressed the value of competition between technological platforms for the dissemination of broadband services.

It would therefore be preferable to maintain competition between technologies in the broadband sector and, within each technology, between Internet service providers.

The existing regulation guaranteeing third party access to infrastructure, the National Access Regime (NAR) developed in the mid-90s, raises a number of issues concerning the appropriate balance between efficient use of existing networks and stimulating private investments. The implementation of the NAR implementation over the past 15 years seems to vary across industry. A detailed assessment would help draw lessons from the experience to date and finetune regulatory provisions.

Adequate and well-functioning infrastructure is a key ingredient to growth and wellbeing. The benefits to activity of efficient spending in energy, water, transport and communication sectors go well beyond their contribution to capital accumulation. Good infrastructure facilitates trade, bolsters market integration and competition, fosters the dissemination of ideas and innovations and enhances access to resources and public services.

These benefits are particularly important for Australia because of its size, the geographical dispersion of its population and production centres, and its remoteness from other markets.

Nevertheless, Australia has an important infrastructure deficit. This is in part due to underinvestment in the 1980s and 1990s, while the rebound in capital spending at the beginning of the 2000s has been insufficient to deal with capacity shortages exacerbated by the strong demand generated by the mining boom, expected population growth, technological progress and environmental concerns.

To ease these shortages, the authorities have put bolstering infrastructure to the top of their economic policy agenda. This entails greater government expenditure in this area, but also structural reforms to optimise public and private investment choices and the use of existing facilities with better regulation.

OECD’s unedited comments on the NBN and telecommunications