Background of NBN
Discuss about NBN policy of Australian government and its issues.
The national Broadband Network (NBN) is a project of Australian government, based on the national wholesale open-access data network. This project contains components of radio and wired communication, introduced and operated by NBN Co. Limited (Valle de Souza, Dollery and Kortt 2018). Retail service providers (RSPs), mainly Internet service providers, contract with NBN for accessing the network and consequently can sell fixed internet access to their end customers. The specified project regarding national telecommunications infrastructure has several objectives among which replacing the existing telephony network of copper cable has become an important issue, required to overcome rapidly due to increasing demand for internet access. Initially, it has been proposed that wired connection has the capacity to provide up to 1000 Mbit/s. However, in 2013, this speed has decreased to a minimum of 25 Mbit/s after the election of Abbott government (Alizadeh and Shearer 2017). NBN has experienced significant political disagreement as it has remained the largest infrastructural project of Australia and this in turn has become an issue in federal elections. The NBN proposal has risen first by the Rudd Labour opposition though the Howard government has dismissed it through considering it as unnecessary (Wilken et al. 2015). After that, various political parties have delivered their own opinion regarding this project. Initially, the Coalition has also exposed NBN as a dangerous vision. On the other side, senator of national party has said that NBN has represented a proposal with the help of their think tank, where they have delivered an outcome of strategic infrastructure. Moreover, according to the Senator, it is also essential for this project to spot failed markets of Australia. However, the chief reason of debates regarding NBN has occurred on the size of investment done by this Australian government. In addition to this, the Economist Intelligence Unit has criticised this project due to its higher cost to the public sector. Hence, this report has intended to describe NBN policy of Australian government and its issue precisely.
In 2009, the Labour Government of Australia has proposed this NBN plan not only to develop broadband performance of this country based on its availability and performance, but also the plan has made a structural separation with Telstra (Freeman, Fisher, Baum and Friel 2018). This structural separation can help the government to prevent broadband services from being retail one. The Budget Review 2013-14 of the Parliamentary Library has provided background on NBN policy commitments of major parties prior to the election. Both plans have stated about the using a mix of technologies for accessing all premises. The NBN plan of Labour party has stated to connect 93% of premises with optical fibre while for remaining 7% of premises the plan has suggested to use a mixture of fixed wireless and satellite (Park et al. 2015,). The Coalition Government has provided almost same solution regarding this specified plan for the 7% of premises though for remaining 93% premises the government has suggested to use a mixed of technologies and moreover these premises have required to connect with optic fibre (Aph.gov.au. 2018). The technical mix has three chief components, which are, fibre to the node (FTTN), fibre to the premises (FFTP) and hybrid fibre coaxial cable (HFC).
To discuss about the NBN, it is also important to mention about its structural separation. The NBN Co., a government-owned enterprise, has built and run this NBN. This wholesale only network has constructed not to provide direct retail services to end-users. Instead of this, retail service providers (RSPs) are its customers and Telstra is one of them in the market (Aph.gov.au. 2018). Hence, this policy has started with legislation. As a result, any proposed changes are required to bring before parliament. After rolling out of fibre network, Telstra may cease to supply retail services over the copper network, which this specified retail service provider controls. Moreover, based on the legislative definition of structural separation, this network has provided a consistent service. Telstra has maintained copper lines for many premises under an agreement with the government of Australia. According to this agreement, payphone and standard phone services can operate in accordance with the universal service obligation. The Coalition party has also supported this structural separation of Telstra (Gerrand 2017). However, the party’s technical solution refers to use copper lines of Telstra to the premises and for this; it has proposed to purchase copper lines from this provider. This concept has supported the cost-benefit analysis. In 2013, the Coalition won Government has implemented a policy stating that it would give sufficient speeds for most of the users with fewer costs and fastest speeds this in turn has helped customers to pay lower prices for internet.
Initially, copper lines of Telstra have provided internet access before NBN. Moreover, through providing retail services to compete with other providers, it has earned the incentives and abilities to favour its own retail arm (Coutts 2015). In this context, structural separation has considered as the best solution of this NBN policy.
One of the main bases of this original NBN policy is that nbnTM may charge identical wholesale prices to retail service providers. This implies that for a service under the same technological footprint the wholesale prices can be identical (Morris and Nicholls 2017). For instance, within a fixed wireless area, all 25 megabit per second services may have the identical wholesale price. Moreover, the wholesale price for at least the basic service can be identical regarding all technology footprints.
Based on this policy, the government has identified discrepancies in availability of broadband and price between commercially unattractive and unviable remote and regional areas and commercially attractive metropolitan areas (Ewing, Rennie and Thomas 2015). As a result, it has implemented the policy of charging identical prices to promote same uniform prices of broadband service all over the country. However, the Abbott government has started various review of the NBN in 2013. Among those reviews, the Market and Regulation Report has suggested that this system of charging wholesale price can be replaced with a structure of pricing caps for all NBN-type services (Murray 2017). According to this government, it is not essential to charge uniform caps all over the country and consequently, levy of an industry can be used for subsiding the provision cost of services in comparatively lower profitable areas.
Charging identical prices
According to the Australian Bureau of Statistics (ABS), in 2014-15 the number of households for accessing internet at home has increased to 7.7 million. This in turn has represented that almost 86% of total households have started to use internet while in 2012-13 the number has remained only 83% (Bagaric, Fischer and Hunter 2017).
However, instead of those initiatives, the government has failed to succeed this project because of some reasons. In 2013, the Coalition government has reviewed this project based on its expenses and has reset the timeline and costs of it. However, the government has remained unable to notice changing behaviour of people (Park 2017). Due to slow speed internet, the demand for NBN has decreased though the government has argued this reason. According to the Senator, Australians have preferred to maintain an affordable monthly internet bills while getting 100Mbps speeds of internet have remained unimportant. Moreover, providing excellent internet services with higher prices and speeds compare to the other countries of the world is not chief objective of the government. Rather, the government has tried to ensure that all Australian can access a fast broadband service with affordable prices along with least costs (Aph.gov.au. 2018). Hence, to understand the matter from economical point of view, it is better to discuss the cost-benefit analysis (CBA). By doing so, the government under current policy settings can involve higher expenditure of government to meet objectives of the national broadband network. Moreover, it is essential to understand the extent of the benefits that occurs from the funds of taxpayers, who use this service. In addition to this, rollout of the NBN has considered technological choices, while it is also essential to consider relative merits of other technological choices of different types by considering the increasing demand for broadband speeds.
In this context, this economic concept can help to understand various benefits and costs associated with different NBN choices on a common basis and consequently this tool helps to compare and understand among those choices. Policy makers use this CBA for making decisions regarding technical options and alternative policy that can influence the community. Hence, CBA helps those concerned persons to consider trade-offs and to decide that whether the entire community can be better off or worse off under these alternative technical scenario and alternative policy (ABC News. 2018). Thus, CBA can be considered as powerful tools that can help policy makers from taking poor decisions. According to the panel report of Australian government, the chief element of this CBA is to focus on the excess benefits and costs, which can arise by giving extra speed to households while NBN provides those businesses.
Issues related to NBN policy
Cost-benefit analysis is a tool or process, which helps to analyse business decisions. For conducting analysis, all benefits related to a particular business-related action are considered. After that, all costs for taking this particular plan are subtracted from this total benefits. Hence, from economical point of view, this plan helps a business organisation to evaluate all probable revenues and costs that may occur after the completing this specified project (Reniers and Van Erp 2016). With the help of this CBA outcome, the concerned company can take decision that whether the project is financially feasible for them or whether the company needs to select other project. Hence, for conducting this analysis, the first step is to accumulate a comprehensive list of all the benefits and costs related with the decision or project. Costs include both direct and indirect one along with opportunity costs, intangible costs and costs associated with potential risks. On the other side, benefits include intangible one along with all direct and indirect revenues. Intangible benefits implies increasing production after improving safety and morale of employee or increasing sell from goodwill of customer (Svensson 2017). After doing so, the firm uses a common unit of monetary measurement that s required to apply on all listed items. In the final step, if total value of benefits exceeds the total value of cost then the firm can consider this project to implement further. However, if the costs outweigh the benefits, then the firm needs to review this project again and can do some adjustment to decrease costs or to increase benefits for making the project viable. However, if the concerned firm remains unable to adjust this project, then it is beneficial to reject it.
The CBA intends to compare various options. For doing so, scenarios are formed to consider the best method of rolling out high-speed broadband from which the greatest net benefits can be obtained. Moreover, this method allows calculating of the general net benefits regarding high-speed broadband itself. Hence, this analysis has assessed for chief scenarios from the period 2015 to 2040 (Argyrous 2017). The first scenario is related with no further rollout. This specified scenario assumes the government is not going to invest further amount for higher speed broadband infrastructure and consequently speeds of internet remains unchanged. However, this unrealistic scenario is considered to estimate benefits for higher-speed broadband. Second scenario describes about unsubsidised rollout, which forms the rollout of high-speed broadband using fibre to the node (FTTN) and hybrid-fibre coaxial (HFC) technologies to areas which private sector can undertake without any government subsidy. Thirdly, Multi-technology mix (MTM) scenario states a combination across all premises as proposed in the NBN Strategic review in 2013 (Aph.gov.au. 2018). Lastly, Fibre to the premises (FTTP) scenario assumes rollout in the fixed line footprint, incremented by fixed wireless and satellite in high cost areas for universal coverage. This scenario is based upon the radically redesigned option in the Strategic Review of the NBN Co. On the other side, cost assumptions related to FTTP and MTM scenario are related with the Strategic Review.
With the help of some fundamental assumption, the Australian government finds net economic benefits from these four scenarios. According to this analysis, the operation of high-speed broadband to 93% premises of Australia on a commercial and unsubsidised basis may generate the greatest economic benefit to Australia worth $ 24 billion based on present value terms or in other words, $ 2430 per household (DOBES 2018). On the other side, through this CBA analysis, it is observed that consumption of high-speed broadband to remaining 7% of premises based on fixed wireless and satellite may involve a noticeable net cost. This is because the government costs almost $5 billion for providing satellite and fixed wireless services while the benefits come just about 10% of this total cost. As a result, the community bears a substantial net cost. Hence, the panel faces dilemma that whether they fix wireless and satellite services to remote and regional areas with higher cost and limited benefit or offer a lower level of speed in those areas for reducing costs of taxpayers. The CBA observes that deployment of an MTM NBN including non-economic fixed wireless and satellite rollout may obtain net positive benefit though this remains $ 6.1 billion low compare to an unsubsidised rollout. This unsubsidised rollout has net benefit worth $17.9 billion (Aph.gov.au. 2018). Hence, according to this CBA, the private sector can get all benefits to deliver high-speed broadband in Australia’s 93% of premises under the fixed footprint of NBN and manage to rollout more efficiently and effectively compare to others.
In conclusion, it can be stated that NBN has remained one of the most debatable project of the Australian government. Australia’s Labour government has proposed about this broadband plan in 2009 to provide fast internet service along with structural separation with Telstra. The government has done this structural separation for preventing broadband services to retail and control by a particular provider. Both Labor party and the Coalition government have suggested using mixed technologies in this NBN plan. The plan of Coalition party is based on the cost-benefit analysis under of economics. According to their policy, NBN needs to provide sufficient speeds with comparatively lower costs and this in turn can help customers to pay lower prices for internet. The chief criterion of this NBN policy is to charge similar wholesale prices from its retail service providers by mentioning that wholesale price needs to be identical for similar technological footprint. This policy helps the Australian government to identify discrepancies regarding availability of broadband services and corresponding prices between remote areas and developed areas. However, the Abbott government has suggested implementing of pricing cap structure instead of charging identical wholesale price for all NBN-type services. Though after all those initiatives and taking huge analysis on cost and benefit regarding implementation of this project, the Australian government has failed to succeed this project as NBN has started to provide internet with slower speed. In this context, it needs to mention that the chief target of NBN is not to provide internet connection with higher prices and higher speeds. Instead of this, the government tries to provide fast broadband services with affordable prices across the country.
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