Say ‘no’ to government broadband

[By Justin Spratt]

Australia’s government is trying to push the idea of a national broadband network, or NBN, through that country’s parliament.

It wants Australian taxpayers to build a A$43bn fibre network that connects 90% of homes with broadband access of up to 100Mbit/s.

To put that in context, in SA most households with Internet access are lucky to get an effective 1Mbit/s into the home.

Finland recently promulgated a law along similar lines. It is now a legal right of all Finish citizens to receive 1Mbit/s to their homes. The Finish bureaucrats want to increase this to 100Mbps by 2015. Other countries are also looking at similar laws.

In theory, this is a great idea. In practice, allowing politicians to drive any project, especially a technology project, is a recipe for disaster. Politicians should be confined to policy only.

Before I unpack this, allow me to state the obvious benefits of having an NBN in a country like SA.

In macroeconomic parlance, such a project would provide excellent stimulus for the economy. It would create jobs and the multiplier effects (other sectors benefiting) from spending money on the infrastructure would be fantastic.

It would also be great public relations exercise for SA and, if pitched correctly, could induce foreign direct investment.

For companies like Internet Solutions (the company I work for) it would likely prove to be a boon as we would sell more Internet connectivity.

We would also sell more computer server hosting space as people built new businesses on the back of this fast Internet to the home.

Many industries would undoubtedly benefit.

Sounds incredible, right?

Wrong. All of this is predicated on two fundamental assumptions. The first is that the SA government can deliver on a project like this. The second is that is a project with a profitable payback.

The first assumption is almost certainly wrong. Just look at the “liberalisation” of the telecommunications landscape in SA as evidence of this.

The second assumption is also incorrect. There is no business case in SA, or anywhere in the world for that matter, that justifies such a heavy hand from government. Taxpayers would almost certainly be left carrying the can.

Andrew Mosey, an Australian technology expert working for a large accounting firm, agrees that these projects don’t make economic sense.

“As a heavy downloader I’d be one of a very small percentage of Australians willing to pay more for a faster connection. Even then I fail to see the point of spending A$43bn on such a project,” Mosey says.

He says he’s seen nothing to suggest Australia’s NBN project has a business plan, and he doubts Australians are willing to pay more than about A$50/month for broadband.

TPG, an Australian Internet service provider, already offers 180GB on high-speed ADSL2+ lines for $50/month. Not many would be prepared to pay for a faster connection.

It’s the markets that should be allowed to determine the pace of the roll-out of broadband projects, not governments.

As a country, SA could do with more bandwidth. The Seacom undersea cable and the roll-out of national fibre networks by private enterprise has shown us this. But this is not the argument. It is about who pays.

Politicians need to stick to creating policy — policy that enables the markets to decide what is delivered. Ideally, there ought to be unfettered liberalisation of the telecoms sector. If that were to happen, private enterprise would deliver the best Internet experience over time, without government raiding taxpayers’ pockets unnecessarily.

  • Spratt is co-founder of ISLabs

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  • Adam D

    I’m Australian, and want to point out a couple of things.

    The NBN is a public infrastructure project. It intends to guarantee high-speed broadband for nearly everyone in the country. Private companies currently cannot and do not do that.

    Telstra, which used to be the state-owned Telecom Australia, was privatised in recent decades by short-sighted politicians who thought giving one private corporation a retail arm *and* the country’s only dedicated copper infrastructure would be a good idea. That monopoly severely crippled any chance of genuine competition for many years: Telstra actively pushed back the competition by artificially jacking up the value of the wholesale end.

    Australia’s ahead of SA in terms of internet speeds and costs, but fast (+1Mbps) affordable internet only became a reality here a couple of years ago. The NBN is mainly being put in place to correct the Telstra monopoly and hopefully prevent it happening again.

    Justin, as you’re a co-founder of ISLabs, and therefore presumably represent Internet Solutions and DiData in some capacity (correct me if I’m wrong), it seems pretty clear that you have a vested interest in the internet backbone *not* being handled by the state. The internet is a utility, just like roads and rail and water pipes and power lines; your Comms ministry basically acknowledged that when it planned (recent ISDB lunacy aside) to incorporate basic email capabilities in the digital television roll-out. Essential utilties are put in place to serve people, not to make a profit.

    I’m aware that an NBN-sized project is a far, far greater task in SA than it is in Australia — most of the 55 million potential recipients couldn’t possibly afford to pay their share of a R300bn bill, for a start — but I don’t see how a privately-run solution would be more beneficial to the people using it. The recent broadband price war was a great step forward, but it only made the internet cheaper for those who already have access to it. In the 21st century, that’s not enough.

  • The_Librarian

    Politicians need to be confined to their offices, and only be let out when needed.

  • Hermann

    Let’s apply your argument to roads and bridges.

    If the government had de-regulated the building of roads and bridges and allowed the private sector to build whatever the market required, you would have super highways in the metropolitan areas and pretty much nothing everywhere else.

    By providing infrastructure for the benefit of all citizens, we the citizens are now able to trade with one another using these roads and bridges to carry our goods.

    Why can’t the same argument be made for the information infrastructure?

  • Denis Smit

    I agree with Adam D. It is precisely because it does not make (seemingly) financial sense that Govt is required. If all the major highways, railroads, gas pipelines, sasols etc were required to make (short term) financial sense they would have never happened. Australia should be applauded for their long-term vision.

  • Adam D

    Denis: Sadly our long-term vision includes mandatory internet censorship. We’re fighting that particular proposal but I don’t like our chances.

    I should mention that Australia’s ADSL2+ speeds are rubbish unless you’re lucky enough to be right next to a DSLAM-equipped exchange. I live just a few kilometres from the Melbourne CBD, one street from the local exchange, and my speed has never exceeded 8 Mbps. Much of the time it dips to 3-4 Mbps.

    Also, TPG is kak.

  • Greg

    More an addition of thoughts than a comment:

    I think the people who should handle this isn’t the government, but the local municipalities. They’ve just finishing up redoing the water pipes in my metro, Durban, and they did a fine job – minimal interruptions, hardly any service issues, etc. Ethekwini’s (Durban’s) metro fiber is also starting to pick up and do well. I’m waiting for my installation right now, as it happens… free installation, and costs about 1/3 of Neotel. The big problem is that these idiots didn’t coordinate their efforts, they dug holes and trenches to EVERY SINGLE house in Durban, and EVERY SINGLE office block, put in new polycop water pipes and then covered them all up. Why on earth didn’t they lay fiber at the same time, or at the very least a network of empty pipes they could rent to 3rd parties to build their infrastructures?!

    I don’t think the government should run the actual internet service, but providing the physical infrastructure – I don’t believe a private company can beat local municipalities at that. If you’re going to try and make internet like a utility, treat it as such – lay it along with the water pipes and electricity!

  • http://www.sandboxsavant.com justinspratt

    @Adam_D – I honestly dont get your point, I am sorry. One thing I will say, I never said private enterprise should do a NBN project – I said if the market is there, private enterprise will deliver, but on a national level, I dont see that occurring. As for government owning the physical layer, how does that preclude Internet Solutions from making money? Someone would have to deliver the internet access and network services (think MPLS, etc.). The government would *not* own the access layer, so again, your point is non-sequitur. Furthermore, almost all of the internet access sold by IS is done on other telco infrastructure on the last mile (we are “telco agnostic”), which is what a NBN attempts to do… perhaps you could clarify your point.

    @Hermann – deregulation has worked for public works programs too. Tollgates are the implementation of those. Even community roads have been funded by private consortiums – in South Africa, many neighbourhoods have raised money to fill their own potholes. So, short answer is that I would think it can – in fact, there are very instances where private enterprise wouldn’t deliver a more optimal solution that government. But I really dont have they skills to debate PWP’s, nor is this the platform.

    @Denis Smit – you say government should get involved because it “doesnt” make financial sense. yes, I see, because money is free, right? the government can just print more and we will all be okay. open google and type in: money supply & inflation. you will get your answer there.

    @greg – you want local government to run broadband projects? really? Just because Ethekwini has *appeared* to get it right, doesn’t mean all municipalities can do this. Secondly, I say appears, because it hasnt had nearly the take up, nor has it provided anywhere close to a payback on the initial project, unless of course you can point us to where that is shown… Dont get me wrong, I think Ethekwini has done a remarkable job, but can that been across the country on a profitable basis and if a loss, who is going to pick up that deficit?

    Dear All – my point was this: govt can not deliver on tech – if I have to prove this to you, then clearly we are too far apart. Second, there is no profitable payback for a govt. to do this – remember, *someone* has to pay at the end of the day.

  • Greg

    @Justin I touched base with my mate at the Ethekwini project, and he said it’s not running at a profit yet, but it’s making acceptable losses for it being so young. But then whoever starts a project like that, public or private, that’s the expected scenario.

    I agree with the sentiment that I wouldn’t want to buy my internet service from government, but my comment was a tangent that if they coordinated their infrastructure projects, nobody could beat them for rolling out this sort of thing. Both Neotel and Dark Fiber’s roll-out in my area were horrible compared to Ethekwini Municipalities. Britain set up a whole department to coordinate digging and it failed miserably – no idea why nobody can get something like that right.

    Re: Oz fiber project, I agree it’s a stupid thing.. the problem with a central department rolling out this kind of project, is that they have to give all citizens the same rights, which sounds AWESOME when whoring for votes, but is a disaster when you have to implement it.

    My brother emigrated to oz 2 years ago, and lives in a large-ish (30k residents) farming community – the best internet he can get there, is an 80gig cap on a 3mbit line for AU$40 – I mentioned the NBN project to him and he laughed at it ever working, their local councillors are visciously opposing it, saying so far this year they’ve been hit by 13% electricity, 8% petrol and 10% property rate hikes, and are busy fighting to not have their water bills doubled… how about working on those increases before splashing out AU$43bil please!

  • Colin Alston

    Regarding Ethekwini, while it may seem they have gotten some things right there are some points where are not exposed. For one thing, I expect that Justins affiliation prevents him from adequately arguing that point, which will be exactly my point. Ethekwini did not build the network and they don’t run it either, they just paid for it.

    Ethekwini did a good job because they approached it as a micro economy, with a very direct focus. This is also why some things which work in Finland won’t work in the US or Australia.

    Historically Ethekwini already had a large amount of fibre infrastructure for various reasons. It merely opened this infrastructure up to the industry. The key word being industry, not consumers. Consumers can not buy services from MetroFibre, they can only buy them through an ISP.

    These are all good ideas, and it has word.

    However, the product structure is completely bogus due to the implementation being driven by Dimension Data who actually designed the network and almost dictated the products, and one presumes they did so with Internet Solutions in mind.

    Instead of offering point to multipoint VPLS or MPLS in 100/GE/TGE increments, it’s all broken down to per mbit services where the terminating interfaces essentially leave unused capacity asside from edge termination on the ISPs, and you can only have a connection terminated to an ISP which breaks the whole idea of a MAN.

    Quite simply, it hasn’t had “nearly the take up” because it’s neither very cheap or very useful in a large number of instances. Wasting an expensive fibre port on a 512kbps CIR service is just completely bonkers.

    Which brings me to my point; Ethekwini is hardly a government initiative and has no pretensions about helping communities or people. It’s a business which was setup to make money and provide ROI, and it’s not that great about it.

    Government /can/ deliver on tech, but I’d much rather it didn’t try because what it can’t deliver is quality of service.

  • Brent

    Not having read all the responses I hope I’m not repeating someone else.

    In terms of financial viability, the efficiency and opportunities of such a network would undoubtedly pay for itself 10 times over. This is because of the increaser of GDP it would generate. I say this as a conservative. There is not enough co-operation between companies in SA to accomplish this, if not the government it would likely be a monopoly of merged companies. Of course there will be corruption and chaos, but they couldn’t possibly squander more than the benefits of such a network.

    Besides financial gains, it would allow Mr Rural in the sticks to sell… whatever, mud bricks, rather than turn to crime. It would likely drive the postal system to actually deliver because of the pressures and competition from the likes of eBay… actually the benefits are endless, not purely financial.

  • Colin Alston

    You need no further evidence than Sentech

  • http://www.sandboxsavant.com justinspratt

    @colin – erudite points as always. as always, I have a different view to you on many of your points, but I guess the point you help me make is that the Ethekwini project needed private enterprise to get it working and even still it will take a long time to realise the payback. loved the sentech slight, btw

    @brent – you need a lesson in economics and the practical realities of govt. just because *other* businesses would make money out of the NBN and that that would likely accrue to GDP doesn’t mean the project will have a positive NPV. So I repeat: who is going to pay for the loss on the project? it will be taxpayers. so your Utopian and somewhat naive view of Rural areas being able to sell “whatever” will never happen as a result of a NBN… it will mean less tax money to pay for housing, etc. it really is quite simple math

  • Greg

    @Justin I was mainly agreeing with you that I wouldnt want government to provide me with my internets. My point was that they’re really good at infrastructure, and wondering why they didn’t do more of it, in a more intelligent way. Build on their strengths. In the same way, I don’t like the private companies to dig up the roads – They don’t have to deal with the consequences of their shoddy work and disruptions.

    The real question to me is – why does everybody need such fast internet anyway? I really can’t think of what average users would do with it. Sure, you can roll out triple-play to everyone just for the sake of it, but do 90% of the population actually want that? I’m willing to bet that almost all those people wouldn’t care if they got TV over satellite or fiber. If they government’s aim is to deliver broadband to everyone, wouldnt it be cheaper to just build its own wireless network? A quick google on TC shows 2 articles – CellC saying a 21mbit revamp of their network will cost them R5bil, and Telkom saying their *new* wireless network will cost them R6bil. The main consumers of this would be younger people, and for that demographic, I’m sure they’d prefer cheap plentiful wireless bandwidth and pay for ADSL if needed.

    I can see a few years from now, the Aus government selling this network off for a fraction of what they paid for it, and that’ll be when the internet boom will be in that country.

  • Michael Wagener

    My sixpence worth: the problem with the internet and broadband is that it is typically not profitable, and thus far the SA model, has in my opinion, been a disaster to date.

    Firstly, from a money point of view, the only institution that can afford to make such an investment with little profitability is government. Thinking of the internet as a right moves it into the same category as water and electricity, and I don’t see to much in the way of private enterprise in those spaces in SA. So,the answer here, again in my opinion, is government intervention, and fast. If that means raising a special tax to do it, along similar lines to that which was mooted in the UK, so be it. The internet, if it is a right, should not necessarily be a profitable enterprise, and yes, I believe that the lack of broadband in SA is disastrous for business. SA has some serious catching up to do!!

    Secondly, and equally importantly, in my opinion, the ‘internet-for-profit’ is driving some fairly large gorillas around the economy who tend to hold all the cards in their hands so that when the SEACOM cable goes down, for whatever reason – I am not interested in them and neither is any business minded individual – so that international bandwidth is not available, and it is left in that state for days on end without providing adequate traffic re-routing, this too is a disaster for SA businesses, particularly those who host internationally, and calls for, in my opinion, immediate government intervention to determine just why these situations are being permitted in today’s economy. Disastrous!!

    Oh, and one final comment: hosting in SA is ridiculously expensive compared to international hosting – it is completely outrageous in fact. So, unless there is a massive rethink by the gorillas, I don’t see SA as a serious contender for internet growth anytime soon, and yes, for that reason, I believe that government intervention is imperative.

  • http://www.sandboxsavant.com justinspratt

    here is brilliant piece on why governments, even so-called developed nations, should not get involved in the markets:

    http://www.theaustralian.com.au/news/opinion/hey-big-spenders-hands-off-our-money/story-e6frg6zo-1225891374336

  • Trekelny

    Everyone has a limit when it comes to government involvement in the economy. It’s very hard to argue they should be completely out or in. But one gloss I think Justin is comitting is the idea that “we have to pay for it” if the govermnent sponsors a network as if that’s the end of the chain.

    That’s inaccurate. A private enterprise invests its own money and hopes to see a profit back at some point- easy to isolate and understand. But the government does the same thing, just without the word profit. It invests money (which for argument we’ll agree comes from taxes on citizens) and then it too looks for “profit” in the economic growth that results (which will in turn spread more wealth, and create more tax revenue). The idea that this can never work is specious. You don’t have to suppose an eternal debt resulting from this investment, it is indeed reasonable to suppose they will get it back eventually. You doubt this if you are cyincal about the ability of government to keep its hands clean, to which I say- Enron! JP Morgan! AIG!

    My limit, like those of other posters, is to favor more local involvement over national. I think the municipal BB networks in SA, as around the world, fairly often (not always) do a fine job and hit a sweet spot in the size of target customers that private companies mysteriously ignore. Justin himself pointed out that they can do it with potholes. And that’s local tax money, looking for a boost to the local economy which will in a sense provide “payback” over time.

    In the end, I wouldn’t care if aliens landed and built the network- the great thing is to get the job done. Heck, lie about it! Change ownership structures and agreements if needed once the fiber is in, but get it in the ground.

  • Michael Wagener

    Actually, in terms of government involvement, there are many arguments that can be drawn for good and bad. And that may be interesting or it may not be. However, I will continue to maintain that if we are in a situation where the internet is considered a right, which is pretty much where it is going, even in South Africa, the only body that can afford to meet the costs effectively, just happens to be government. Certainly private enterprise cannot – hasn’t got the pockets for it, or the courage to do it, else it would have been done already and there would be no call for government involvement.

    Furthermore, a project of this variety would by its very nature, not be very profitable, in an immediate sense, and once again, government is equipped to absorb this too.

    So, there are two very compelling reasons for government to step up to the plate with alacrity. In the same way that the World Cup projects were seized and delegated, with wads of tax-payer cash, and completed successfully, so too internet propagation should be seized as well.

  • Karl

    I recently learnt of a massive project currently underway on Reunion Island where (correct me if I’m wrong) gov sponsored enterprises built a circle of fibre around cities (much like a ring-road) and then opened up the infrastructure for private companies to link with the fibre and complete the “last mile”. This appears to be a very workable model as it combines the pros of gov and private enterprise.

    @Justin, while I understand your argument regarding gov inefficiencies and how we as the taxpayers ultimately pay the cost, I still believe we need the gov to make the first move much like any other public utility. Because of the massive capex cost involved, only huge companies could afford national rollouts and then you run the risk of creating new monopolies (not to mention roads sliced up like a carvery) that don’t fully serve the public. Perhaps there is a middleground, much like with Reunion.

    Anyone know of a case study out there on such infrastructure adoption and best practice… e.g. how the South Koreans did it?

  • Karl

    Case study on S. Korea’s ICT rise:
    http://www.itu.int/ITU-D/ict/cs/korea/material/CS_KOR.pdf
    Korea’s broadband implementation started years before with fixed-line penetration by KT, Korea’s version of Telkom.

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