Saturday, May 21, 2011

Australia - NBN still seen as politically beneficial for Labor Party

[the australian] IN a break from her woes, Julia Gillard this week went to Armidale in NSW to demonstrate that the National Broadband Network is a political winner for Labor with the Coalition still unable to gain traction with its critique.

The NBN may become the greatest white elephant in Australia's history dressed up in hi-tech modernism. But its political agenda still works in Labor's favour as a pitch to regional interests, 21st-century education and Gillard's exploitation of the NBN as symbolic of Labor vision and hi-tech nation building.

"The NBN is the greatest infrastructure project in this nation's history," Gillard declared at this mainland Australia rollout. The technology was "transformative" and, as for the possibilities, they were "absolutely endless and truly global". Trashing the old copper-based services, Gillard said slow connections would no longer plague workplaces, schools, homes and universities. Yes, the nirvana is at hand.

In response, the Coalition struggled. Shadow treasurer Joe Hockey said Labor was offering everybody a Bentley when the nation could only afford a Commodore. Tony Abbott was faced with questions from the regional media along the lines "Isn't it about the future?" and "Shouldn't we have the best infrastructure?". And, moreover, what's so bad about a Bentley?

This week was a reminder: Abbott's political assault on Labor is too narrowly based. So far he has mobilised unpopular issues, notably the carbon tax and boat arrivals, against Labor. But Abbott must show he can shift opinion and win debates on pivotal policies such as the NBN. This was a plus for Labor at the 2007 election, a bigger plus at the 2010 election and critical to Tony Windsor's support for the minority Gillard government.

If Labor can win the NBN battle at a third election, the Coalition will be stamped as hopeless Luddites, a brand Labor will reinforce with Abbott's climate change scepticism.

Remember the political origins of the NBN. It was marketed by Kevin Rudd as a concept both "Labor to its bootstraps" and proof that Labor was the party of the future. Under Rudd, the NBN exploded from a $4.7 billion project to a $43bn colossus that offered 93 per cent of Australian homes broadband speeds of 100 megabits per second. This was the most important financial decision of Rudd's first term outside the fiscal stimulus. There is no public evidence it was opposed by Wayne Swan and Lindsay Tanner, the economic ministers. The Abbott-led Coalition failed in 2010 to grasp the potency of the NBN as a political issue or as a defining economic debate of this era.

Labor's position is that the NBN will eventually deliver a return on investment. The budget forecasts a rapid rollout with the government providing $27.5bn in equity including $18.2bn in the three years from 2011-12. The government will retain full ownership during the rollout to authorise its political aim of prioritising the NBN in regional areas.

Consider the NBN's apparent beauty - because it is a public enterprise that generates a return it is designated as off-budget yet Labor's position is that public ownership is initially essential because private enterprise would never meet these social policy specifications.

Finance Minister Penny Wong says because the NBN will get a return the government's $27.5bn contribution is not recurrent funding and, therefore, cannot be redirected. The potential contradiction is the project is a Labor-engineered national infrastructure venture but also a commercial venture.

When it comes to the NBN, opposition communications spokesman Malcolm Turnbull is lethal. Turnbull has a comprehensive grip on the policy, financial and technical flaws. His critique is withering yet this week proved the Coalition lacks any "cut through" attack. Turnbull went on to ABC1's Lateline on Wednesday night to hammer Labor on the NBN. The result? The news instead was Turnbull's criticism of Abbott's climate change policy. Turnbull said he did not anticipate crossing the floor again on carbon pricing but his critique of Coalition policy (virtually by describing that policy) was unmistakable and a break for Gillard when she was under pressure. Indeed, it was a double negative - Turnbull got no traction on his NBN attack and he gave Labor a free kick on climate change.

The point is the Coalition cannot govern successfully unless it prevails, some time, in the NBN battle. Failure to carry this debate will damage its prospects at the next election anyway. It is the NBN, more than any other single issue, that documents the economic policy gulf between Labor and Coalition.

The principles that constitute Turnbull's attack are, first, that the NBN is the zenith of Labor's indulgent attitude to finances and refusal to honour its own words by applying a cost-benefit analysis to a project that, using Labor's own figures, has a price tag heading towards $50bn.

Second, the NBN is a government-owned monopoly that is likely, as the Organisation for Economic Co-operation and Development said, to weaken competition in wholesale broadband services with the risk that prices will be higher than otherwise (highlighting Labor's constant willingness to impose higher prices on households).

And third, by putting all its bets on "fibre to the home" Labor has gambled on one technology and one method, revealing its faith in government's ability to pick the best technology years ahead. As Turnbull says, the decision to build an entirely new fibre to the premises regardless of whether cheaper network architectures would do the job, and the decision that this will run to 93 per cent of homes, "is an ideological choice, not an engineering or economic necessity". Indeed, Turnbull argues that "fibre to the node" or "fibre to the curb" would deliver high speeds at half the cost.

The economic argument made by Gillard and Communications Minister Stephen Conroy relies on productivity. But productivity is tied to cost. The test here is whether Labor delivers genuine productivity or the biggest white elephant in Australia's history.

Turnbull argues that, for most people, the extra bandwidth "is of no real value". Indeed, he compares it to a farmer 50km from town who agitates to get the road sealed, only to find the local council builds a six-lane highway to his property. The extra capacity has no value. And it is entertainment functions (think video), not noble productivity enhancements, that drive bandwidth demand.

Turnbull's tactic is to hold Labor to account for "every misstep, every setback", aware that take-up rates and prices will make or break the NBN's success. On impressions so far, the NBN risks having lower-income households subsidising higher-income households that are de facto entertainment centres. The other subsidy is from the city to the regions, a declared virtue of the minority government parliament.

Indeed, legislating the NBN is the most significant decision so far of the current parliament. Yet the NBN, compared with carbon pricing, receives scant attention. In many ways the NBN is the purest example of contemporary Labor philosophy - its justification being the need to compensate for market failure via a government-directed national project. This model is instinctively grasped by the Australian public, remains popular and has deep roots in the nation's old-fashioned pre-reform culture. At the heart of Turnbull's response is a difficult idea: the separation of means and ends. That is, the Coalition believes in universal broadband but thinks the NBN is an extravagant and inefficient answer.

Of course, the Howard government contributed to the Coalition's current dilemma. Conroy's model achieves the long desired structural separation between retail-level services and the network infrastructure. By contrast, one of Howard's worst mistakes was to privatise Telstra as a monopoly.

This week, speaking to the Queensland Media Club, Turnbull fingered the looming Telstra-NBN deal being negotiated - it sees NBN Co paying Telstra about $9bn in net present after tax value terms in return for it decommissioning its copper access network. Turnbull argues that if an incoming Coalition government wanted to redesign the NBN and use part of the copper customer access, then "it would have to negotiate a new deal and pay Telstra yet again".

In short, Turnbull says a Coalition government will face difficulty unscrambling and re-designing the NBN. Indeed, this is just the start, given the political expectations Labor has fuelled.

Turnbull got headlines this week, much to his anger, because of his climate change policy remarks. The truth, however, is that Turnbull, as communications spokesman, faces an immediate battle that penetrates to Labor's political strength, to core Liberal-Labor policy differences and to Turnbull's own political skills. One necessary step is for him to abandon his public declarations about climate change policy. But none of this denies Abbott's problem: on broadband policy Labor still wins in the political optics. Abbott has an image problem in this area that is overdue to be addressed.

NBN plays to Labor's strength

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