The Federal Opposition has announced its alternative to the National Broadband Network (NBN): an incremental network upgrade based on a mixture of DSL and wireless, supported by substantial investment in rural backhaul. These policies reflect different approaches to the management of risk, but both sides neglect the bigger picture: fitting broadband into a coherent strategy for a digital economy.

The Labor Government is committed to investing up to $A43 billion in the NBN, including a 100Mbps wholesale-only FTTH network to 93% of the population. Wireless and satellite will cover the last 7% of the population. Pilot FTTH sites have been activated, and further sites are under construction.

In contrast, the Coalition has proposed a different approach in its election policy. It will commit a mixture of grant and investment funding up to $6.3 billion to an incremental upgrade of broadband infrastructure, including:
• $750 million in grants for DSL and copper network upgrades to support ADSL2+ in outer urban areas;
• $1 billion in wireless investment for remaining broadband “blackspots” in urban areas;
• $1 billion in grants to construct a wireless broadband network in rural areas;
• $2.75 billion in grants to construct competitive backhaul links on rural routes currently monopolised by Telstra, to support rural DSL and wireless networks; and,
• $700 million to subsidize satellite broadband services in the last 3% of the market.

The coalition has guaranteed that the wireless networks will support a minimum of 12Mbps peak speeds.

Australia’s first female Prime Minister, Julia Gillard.

Two philosophies of intervention
The difference between the two approaches can be summarised simply: Labor offers an expensive gold-plated solution; the Coalition offers a modest and incremental one. This reflects an underlying disagreement about how to manage uncertainty over future demand for high-speed broadband.

Labor’s approach is to prepare for anything that future demand might throw at it. Unfortunately, it is also expensive and disruptive. Further, it requires the Government to manage a complex, long-term infrastructure project. The record of public management of such projects is patchy.

In contrast, the coalition bases its plans on demonstrated demand, and targets investment where service outcomes fall below those in urban areas. This is much less expensive for the taxpayer. However, if demand for high-speed broadband is eventually proven then the issue must be faced afresh. And the incremental approach has its own complexities; for example, how to allocate funding, and how to avoid distorting the market.

Broadband – only one piece of the puzzle
Broadband infrastructure matters, but it is only one piece of the puzzle. A range of applications are invoked to justify investment in broadband infrastructure: e-education, e-health, and smart grids. But many of these could be delivered using existing broadband networks. There are other barriers at work.

In a panel session after the debate, the CEO of the Australian Information Industries Association (AIIA), Ian Birks, compared the broadband network to the railway network of the 19th century, which needed rolling stock to complete its value proposition. He questioned the two sides about their commitment to promoting new services to take advantage of their infrastructure investments.

In contrast to the infrastructure commitments, little was proposed. There has even been a retreat in some areas. Labor has allocated funding for further development of smart grid and e-health technologies, while the Coalition has indicated it will cut e-health funding. Labor also announced it would remove A$447 million in quarantined funding for strategic e-government initiatives, and it appears the Coalition parties support this removal.

The efficiency benefits of broadband will not be realised unless funding and institutional barriers to ICT deployment are removed. The difficulty of creating a national e-health identifier is a classic example. The biggest barriers are not lack of broadband speed, but institutional inertia and perverse incentives. The effort required to lift these barriers will be just as large and important as the effort going into national broadband networks.