The following article is a response from Minister for Broadband, Communications and the Digital Economy Stephen Conroy to Business Spectator's debate about the economics of the national broadband network between Shadow Communications Minister Malcolm Turnbull, Editor in Chief Alan Kohler and Associate Editor Stephen Bartholomeusz.

There are times in our nation’s history and development where governments have a responsibility to step in, to drive and shape our future. Australia has seen these times before with the delivery of the Snowy Mountains Scheme, and ubiquitous electricity networks. Building the national broadband network (NBN) is another nation building opportunity of similar scale and importance and the Gillard government is ensuring it is delivered to every Australian.

When you’re building Australia’s largest nation building project in our history it is right to debate the issues around it. I welcome Malcolm Turnbull’s appointment as the fourth Shadow Communication Spokesman since 2007. I welcome the energy he will bring, and the knowledge and experience he can draw on from his involvement with Ozemail. I welcome the debate, but let’s make sure we’re debating the facts when it comes to broadband.

Fact: NBN – a sound investment for Australia

Let’s be clear, the NBN is an investment by the government which will earn a rate of return to cover its cost. This is clearly outlined in the implementation study, which was carried out by McKinsey and KPMG, and is available online. The study’s detailed financial analysis includes revenue and cost modelling and confirms the NBN will have a strong and viable business case and will be able to deliver affordable prices for consumers. Mr Turnbull chooses to ignore this fact in the Implementation Study in his claims that the NBN is a waste of money. This is despite telling the National Press Club last year that ‘debt which is incurred to fund infrastructure that increases the productivity of Australia will, in time, pay for itself because it produces a stronger economy…’ (National Press Club, 6 May 2009).

Mr Turnbull’s claims that the NBN will be worth a fraction of its build cost are also misleading and based on no evidence. The implementation study shows that NBN Co will have a strong and viable business case with projected returns of 6 - 7 per cent, becoming earnings positive by year six and generating substantial free cash flows.

Fact: The private sector won’t build broadband for all Australians

For 12 years during the Howard government the private sector had the opportunity to deliver fast broadband and it failed. On coming to government, we undertook a rigorous assessment of the private sector’s capacity to build the NBN. The independent expert panel advised us that none of the proposals were value for money given our objectives.

Instead of standing by while Australia falls further behind the rest of the world – the OECD ranks Australia as the 17th out of 31 developed countries on broadband penetration – the Gillard government is delivering the NBN for all Australians.

Mr Turnbull told ABC radio recently that ‘most people live in cities’ (ABC Radio National 15 September 2010).This is insulting not only to the 40 per cent of Australians who live in rural and regional areas, but to the thousands of people in our capital cities who don’t get adequate broadband services today. The policy the Opposition took to the election, which has now been dumped by Mr Turnbull, would further entrench the digital divide and that is simply not good enough. The NBN will ensure that every Australian, no matter where they choose to live or work, can have access to affordable, high speed broadband.

Fact: Wireless is not a substitute for fibre

The implementation study and experts agree that fibre to the premises is accepted as the optimal future-proof technology. Wireless broadband will be complementary to fibre, not a substitute. The benefits of e-education and e-health are simply not possible over a wireless network because wireless does not have the capacity to cope with the download and uploads that are required for services such as remote rehabilitation and diagnosis.

Wireless is an important complementary technology to fibre to the premises and that’s why the government is facilitating the development of wireless in two important ways.

First, we are creating the infrastructure for next generation of wireless technology through the switchover to digital broadcasting. The switchover, which began in Mildura in June, will free up valuable 700MHz spectrum from the free to air broadcasters, which could be used for wireless broadband.

Second, next generation wireless, along with next generation satellite, will form an important part of the solution for the premises outside of the fibre to the premises footprint. These technologies are better suited to the low population densities found in these areas.

The Gillard government’s NBN is ensuring that we make the most of all technologies available, while ensuring Australians get the best possible service in their particular location.

Tony Abbott again highlighted his total lack of understanding when it comes to broadband last week. Mr Abbott said:

‘I mean, you look at all the people sitting in cafes using the internet. They’re all using wi-fi. Not one of them is going to thank the Government for spending $43 billion of taxpayer money, running up billions and billions of extra debt, if they’ve then got to go and find a cable somewhere to shove into their computer,’ (2GB, 21 September 2010).

Mr Abbott doesn’t understand that the wi-fi people use at home, in cafes, airports and hotels is an extension of a fixed line to those premises – it is not mobile broadband. The better that fixed line connection, and fibre is the best, the better the wi-fi service will be.

Mr Abbott has said he is not a tech-head and he’s right and therefore he should stop trying to make misguided technical criticisms of the NBN.

Fact: Increased competition is good for consumers

According to the latest OECD data, Australia has some of the most expensive broadband services in the developed world. This has been exacerbated since the Liberals and Nationals voted to privatise Telstra and create the vertically-integrated monopoly we have today.

The NBN will be a wholesale-only, open access network. It will introduce genuine competition to the telecommunications market and this will open up genuine choice of services and drive highly competitive prices for consumers, whether they live in a capital city or in rural and regional areas. NBN Co will offer a service at a uniform wholesale national price no matter where a premise is located. Already we are seeing competition in action with some very competitive introductory prices on offer in Tasmania.

Just as we look back and wonder how people ever managed without electricity, I have no doubt that our children and grandchildren will look back and wonder how we ever managed without the NBN. The Gillard government is ensuring that every Australian has access to the technology of the future.

It is right to debate projects of the scale and complexity of the NBN, but let’s make sure the facts are at the centre of the debate.

Senator Stephen Conroy is the Minister for Broadband, Communications and the Digital Economy

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Notice that Stephen Conroy doesn't mention the glaring omission of a cost benefit analysis. (See Turnbull's dodgy NBN connections, September 27).
There's only one reason why Conroy wouldn't implement one, and that's because he knows he won't like what it says: ie that the NBN is a money pit for taxpayer funds. In other words, Conroy is fully aware he's lying to the Australian people when he says the NBN is commercially viable.
Furthermore, this so-called "implementation study" was made before Conroy decided to prioritise regional Australia in his bribe to the independents, which will change the economics for the worse. Very convenient he didn't mention that either.
Maybe Conroy should go back to constructing his internet filter as it's clear that's where his real passion lies.
So, Australia ranks 17 out of the 31 developed countries for broadband penetration yet our current economic performance is close to the best. (See Turnbull's dodgy NBN connections, September 27).
Some further work may need to be done on the correlation between broadband penetration and economic outcomes (high speed broadband does not seem to have done much to stimulate the Japanese economy....).
A small amount of commonsense and social analysis will reveal that the vast majority of people do not actually need fast speed broadband as their primary use for it will be to download movies, games etc i.e. activities that do not improve the productivity or economic performance of our country.
It is somewhat ironic that the other so-called "nation building" project you compare this to is the Snowy Mountains Scheme – I believe that this scheme only currently produces electricity for about 30 days a year and is now essentially used by electricity traders to make money rather than having much real economic output.
In resonse to Liam Hudson (Conversation contribution, Selective search terms in Conroy's response, September 27), Malcolm Turnbull is on record as saying that even if a cost benefit analysis supported the NBN, he wouldn't commit to building it. Why not?
He also claims he was not out to wreck the NBN yet Tony Abbott tasked him with destroying it.
So what is the real reason the Coalition don't want the NBN built and who is speaking the truth about the Coalitions intentions, Abbott or Turnbull?
Stephen, more food for thought: there has been some talk about equalising rates between rural and urban for broadband. Some talk that rural users would not pay $100 per month – nearly twice current rates. Yet for my business, in the metropolitan bush about 15km from the CBD, $100 per month for fibre sounds really good, much cheaper than I'm paying currently. With those rates I hope that the 'urban bush' gets the same rates as rural users.
Stephen, bring on all the details, I want to know projected pricing for businesses in my area. (See Turnbull's dodgy NBN connections, September 27).
No doubt there will be some margin compression for current providers of fast broadband to businesses.
Approximately 100 years ago electricity was delivered to our homes to provide light. Nobody had heard of television, microwave ovens, refrigerators and so on.
Broadband is the same. Ways of utilising it have not been thought of yet, but when it does it will change our lives.
Broadband is more than downloading movies and music. (See Turnbull's dodgy NBN connections, September 27).
To those who oppose the NBN, you are all so short sighted. (See Turnbull's dodgy NBN connections, September 27).
This is the future of Australia, we're talking about the next 50+ years. Do you think the copper network was built for the internet or the electric grid was built for all applications that we used today? I love to see you use your dial-up from now on.
Once there are more applications that demand bandwidth, the NBN will be able to handle it.
If only Stephen Conroy had written these things 12 months ago in the same style as employed in his response (See Turnbull's dodgy NBN connection, September 27). To me there is now very little doubt that NBN is the way to go.
Seventeen out of 31 is pretty good considering logistics involved in Australia (See Turnbull's dodgy NBN connections, September 27). Nation building is supplying water to remote inland areas and we've not progressed since Kidman on this front. We won't progress if all we can think of is broadband infrastructure which in all probability will do more to push jobs offshore than bring them onshore.
OK, seriously, if NBN were economically viable investment then why haven't Telstra or its competitors been jumping over themselves to procure it.
The answer is simply that Australia is too big to dig trenches for millions of kilometres to bury cables that provide services that can easily and already are capable of being replicated wirelessly.
Let the big and densely populated western economies charter these waters and let us come up with feasible ways of solving our own water crises.
The reason both this government and the previous one have held up broadband for so long is that they have failed to encourage the incumbent (Telstra) to build it all other countries that are progressing broadband have done. (See Turnbull's dodgy NBN connections, September 27).
It is this failure that will produce the excessive and uneconomic cost.
There are possibly issues with the NBN, but I am more and more convinced that we are just seeing the beginning of related technology. It is only in the last couple of years that country hospital EDS are using computers. Wait until we have national health e-records. Are we building a goat track, or do we want a motorway that is not going to get gridlocked.
This is not a convincing intellectual argument from Conroy, it's a political speech (See Turnbull's dodgy NBN connections, September 27). But he probably does not have in him the calm discipline needed to sensibly analyse then promote an idea like this. He's an excited boy in a toy shop.
No major investment should be undertaken by any business, including government, without careful analysis. We have not seen that from Conroy on the NBN. We've seen endless political spruiking; repetition of that tiresome mantra "nation building"; weary comparisons with the Snowy Mountain Scheme. It's promotion masquerading as debate, and it's just not good enough.
I, as a taxpayer, hence one of Conroy's bankers, want more information, because what I've seen so far would not get him the loan. That's the point. Be humble, Stephen. You are planning to spend huge amounts of other people's money, and if you go ahead with the NBN and it flops, history will crucify you.
Conroy has a lot riding on this project. It effectively won the ALP government. They couldn't give up on it now even if they had truly lost faith. They're stuck with it so, and so are we. Every huge project in history that flopped began with huge confidence, so Conroy's enthusiasm and certainty of success is no comfort to me. Skip the ads. Let's calmly look at the data and be prepared to expand, modify, or delay or bucket the NBN is need be. Just like any investment proposal.
MW ('Skip the ads', Conversation contribution),
Read fact #1: KPMG have signed off on a very comprehensive, publicly available study which points to a positive cash flow after six years ((See Turnbull's dodgy NBN connections, September 27). There's your cash flows and profitability spoken for. Add to this to the benefits accruing due to reduced cost to users, greater public utility and less travel, especially during peak hours, as more and more work is done from home.
There will always be room for argument about valuation of common goods versus public and private expenditures, but the study, which has been available for a year, indicates that the NBN is more than a cash-back proposition. The nation will end in front both financially and in respect of common good. No more talk about a missing CBA! The work has been done and the results are available right now.
It is clear from his article that Stephen Conroy does not understand what the word "fact" actually means (See Turnbull's dodgy NBN connections, September 27).
Indeed, when the senator quotes Malcolm Turnbull as having uttered something that could legitimately be termed a fact -- "most people live in cities" -- he determines that this is insulting.
I'm generally in favour of the NBN proposal, but it is difficult to stay positive when a person such as Stephen Conroy is in charge of it.
Why doesn't the government tell the truth. The copper of the present system we are using for broadband/telephones etc, is at the end of its life and while the government would have in the past been responsible for renewing it now the system is privatised and belongs to Telstra, Telstra can't afford to replace all our copper wiring.
Fibre will be a better alternaltive and give relief to the present disintigrating copper network. (See Turnbull's dodgy NBN connections, September 27).
Past and present governments are anxious to sell off things to make up for their poor financial management practices and it is the public who suffers when infrastructure improvements are needed.
Consider now that some future government is going to sell the NBN. It may be the next Liberal government, or it may not happen for decades, but it will happen. Personally, I think more work needs to be done to develop the business principles and practices of government corporations so that they can resist the temptations their political masters have to sell them.
In principle, I favour the formation of the NBN for two reasons: first because my business will benefit, and second because I think that services we deem important for everyone should be government-controlled. In my view it is not essential that the NBN makes a profit, but it is essential that it provides a service for all Australians. I find the rationalisations put forward to support the NBN (mainly medicine and education) vacuous, and the lack of honesty on all sides is reminiscent of the debate before the Telstra selloff.
Senator Conroy does not explain how a monopoly wholesale supplier will drive cost efficiency (See Turnbull's dodgy NBN connections, September 27). Telstra and Optus and other players have very substantial fibre, copper and HFC networks, which could compete with the NBN and drive least cost outcomes. But the government is going to force them to shut down.
Treasury in its Red Book has already identified reduced competition as a weakness of the NBN. The monopoly NBN will relegate players to the precarious role of undifferentiated low margin re-sellers, with a fixed cost base and no opportunity to drive productivity improvements. This sounds a lot like the faux "competition" which we see in electricity retailing.
Having read what Conroy had to say (See Turnbull's dodgy NBN connections, September 27), it seems we can all 'Twitter' our way out of the drought. "Hey, I'm at the local. Come down for coldy."
Does every Australian need fibre optic to their fence line? If a private user wants it, let them pay for the service. Why should my hard earned go to some couch potato that wants to download all day.
Besides, if the NBN is built, it'll be floated just like Telstra and we'll pay for it twice.
Conroy (See Turnbull's dodgy NBN connections, September 27) ignores, or is unaware that...
-- His NBN will be obsolete years before it is completed. South Korea and Japan already have 50 per cent to 100 per cent faster, and Google is installing a gigabyte network in California – 10 times faster than our proposed 100Mbs.
-- Current speeds are more than adequate for the vast majority of domestic users who only access mail, download movies and music, use VOIP and research. Provide high speed connections to education institutions and hospitals by all means, but fibre to every home in Australia is bizarre and a total waste of money.
-- A government monopoly has never driven down prices and given Conroy's predilection for net censorship, content filtering will be easier and widespread.