Ricardo’s recent post on Government debt led into a very interesting debate about the merits of the NBN project. I could spend all day debating the costs and benefits of the world’s largest government-funded broadband project, but I was particularly interested to see a comment claiming that NBN Co (the GBE tasked with building and running the NBN) has not demonstrated any systemic mismanagement in its implementation of the project.
Let’s test out that hypothesis against publicly available facts:
- In 2010, NBN Co originally forecasted that 1.3m premises would be passed by fibre at the end of June 2013. This was revised down to 341,000 premises in the 2012 Corporate Plan update (a write down of 74%). This forecast was confirmed as late as January 2013 by NBN Co.[i] But less than two months later the forecast was downgraded to 190,000 (a further write down of 55%).[ii] Even this forecast seems fanciful, given that as at March 2013, only 96,000 premises were passed by fibre.[iii]
- The failure to execute the fibre deployment is seemingly being matched by a failure to execute the deployment of NBN Co’s fixed wireless product. In 2011 NBN Co signed a $1.1b deal with Ericsson to roll-out its fixed-wireless network, with an expected completion by 2015. NBN Co expects fixed wireless to cover 4% of premises, equating to around 500,000 premises at end of the build phase. NBN Co forecasted that its wireless network would cover 70,000 premises at June 2013. However, latest figures show that the fixed wireless network covered only 17,000 premises in April 2013. Adding in planned coverage in May and June, the network will cover only 32,000 premises by June 2013 – missing the forecasts by 45%, a forecast reconfirmed in January 2013.[iv]
Irrespective of what your views are on the merits of the NBN policy, the objective of NBN Co is to build the NBN. Ideally, the build should be as per cost and timeframes outlined. However, NBN Co has drastically missed its roll-out forecasts time and time again – it is either mismanagement of the business forecasting process, or it is failure to execute on reasonable forecasts. Either way, it represents a failure of management to implement the NBN project.
The failure to deploy a wireless network is particularly telling. Telstra was able to deploy its 850MHz 3G network, covering 98% of the Australian population within 2 years. This deployment was also done by Ericsson. The NBN wireless network is to cover 4% of the population and after two years has only covered 17,000 premises. By any definition of managerial competence, this is a failure.
The only aspect of the NBN project that is on time and on budget is the interim satellite component. This, by the way, is the only aspect of the network which is not actually being built by NBN Co. NBN Co is re-selling Optus’ wholesale satellite service, and the vast majority of its satellite subscribers were transferred from existing Government programmes (like the Australian Broadband Guarantee).
There are a range of other indicators that suggest the management of NBN Co is not without flaw:
- Failure to get its regulatory undertaking accepted: NBN Co originally submitted an access undertaking (proposal to outline how NBN Co would be regulated) in December 2011. And yet the process still continues. The first undertaking was withdrawn, and the latest undertaking is unlikely to be accepted anytime soon.
- Failure to reach commercial agreement with its customers: NBN Co has been in negotiation with its customers over its Wholesale Broadband Agreement (WBA) since early 2011. Currently, no major service provider has signed a long-term WBA[v] and negotiations still continue.
- Board and management troubles: As at February 2013, NBN Co employed 194 executive level employees. Since October 2009, 55 executives have left the company, and 12 senior executives have left the company.[vi] Such a high turn-over of senior staff in a growing company (i.e. not redundancies) indicates that there is something not right. It has further been reported that the Chairperson has canvassed other board members to replace the CEO with an aim to become an Executive Chairperson. She also sought to reduce the level of managerial intervention by the current Minister.[vii] And it is well known that the Shareholder Minister-elect does not have faith in the CEO, and will likely replace him soon after the September election.[viii]
In summary, we have what is essentially a building company that: is constantly having to revise grossly inaccurate forecasts; unable to deliver on any of its revised deployment forecasts; unable to get approval from the regulator for its proposed regulatory framework; failing to reach commercial agreement with its customers; with significant turnover of senior executive staff; and a claimed lack of confidence in the CEO by the Chair of the Board and the soon-to-be major shareholder.
If NBN Co was a private company, and I was an investor, I would not be of the view that these facts represented a company without any systemic mismanagement in the implementation of the NBN project. The NBN is bad policy but even worse, the NBN Co is a badly run organisation that again demonstrates Government cannot run corporations. NBN Co is making the NBN an even worse policy.
[v] Service providers are signing interim agreements so as to get services while the long-term agreement is finalised.
[vi] NBN Co, QoN 284, February Senate Estimates.
[vii] http://www.afr.com/p/mckenna_in_push_to_replace_nbn_chief_3XKzAbKOgffIS3IajLYB2M & http://www.businessspectator.com.au/article/2013/5/30/technology/mckennas-nbn-power-play
gosh some-one had a bad memory.
Until Telstra was privatised it was what?
Are you actually saying you can get a commerical wholesaler in Australia that is not a monopoly?.
You might wish to understand why they are behind time as well.
Bad name as well!
i don’t know as much about telcos as my mate Mises Jnr, but i don’t see why this has to be a monopoly. 4G on my ipad is faster than my cable+wireless solution at home. further improvements in wireless technology seems likely to make the market more open to multiple solutions over time.
Isn’t there some risk that the NBN is future-proofing with yesterday’s technology?
” 4G on my ipad is faster than my cable+wireless solution at home ”
That shows how bad is your cable connection! You probably have dodgy copper servicing your house or you are far from the exchange.
Cable is physical and it is always going to be faster, more secure (let’s not forget that), more stable and with fewer gaps compared to wireless. Did you ever try using the internet over fiber cable?
It’s not a technology issue, it’s a physics issue. They said the same about copper cabling when they invented the wireless telegraph. The reason why wired is better, and will always be better, is down to physics. Wireless degrades massively as more people use it, and it’s a finite resource.
Agree! Its easy to underestimate the complexity of the task at hand. I’m not surprised they are so far behind. There was no way of really understanding the complexity until they started. Just stop and think about the enormity of the task, laying cable to 90+% of households of the country using mostly existing infrastructure…that is they are not digging trenches to install cable to the majority of households. Think about that. How do you plan that. Just think about the quality of mapping data they have to use in the planning phase (or lack there of).
It is very easy to dismiss the complexity and put it down to mismanagement, but that doesn’t mean your right. It just means you probably don’t know what your talking about.
In Australia we do not even have electricity or copper underground, with all the danger associated with that, when are we going to improve that situation ?!?! Shall we wait for the private sector?
I hope not! the private sector in Australia have shown time and time again they would prefer to invest only at the 11th hour. Wait until the taxpayer invests 99% then pitch in the remaining 1% and offshore all the profits. At least with the NBN they wont be able to hijack all the benefits!
Nice to have another blogger to provide interesting (and free!) content for us.
One of my many concerns is that the NBN is being built too soon from an economic efficiency perspective. Do all these delays translate into postponement of the cash outlays of the project? If so, then they may not be a bad thing per se – although I take your point that they reflect mismanagement that is likely to only grow over time.
Yeah, good to have more quality voices. Thanks for your support.
RA wireless is a complement but not a substitute fr reasons an engineer will tell you.
you cannot compare wirelss with fibreoptic!
Japan’s NTT breaks fibre optic data speed record:
“1 Petabit-per-second – a million gigabits – over a distance of 50 kilometers, using a single fibre.”
Yeah, that’s why NBN Co tried to prevent Telstra and Optus from offering wireless-only options to customers.
I do not think cable will ever replace wireless completely, just like ADSL does not replace 4G today. But cable can carry a lot more connections , unlike your wireless 4G. Try having your wireless broadband supporting a Playstation with online gaming, a couple of computers, an IPad, an IPhone, a Kindle, while you’re streaming two online movies on TV (one per room) and someone else is streaming music or a radio channel on the stereo.
that’s flat earth stuff — moore’s law applies here as well. there’s no reason to think that spectrum cannot be re-allocated to support extremely fast wireless.
OK, let’s wait for that very fast wireless to become reality then. Our economy outside mining is so strong anyway, we can afford to wait. No car manufacturing, dodgy copper internet. Oh well. Surely it is going to be cheaper later. You know, all roads in Rome CBD are too small for cars nowadays, because they were built before cars were invented. They should have waited, horses were not obviously not optimal yet.
So we never build anything because it will become redundant…thats just silly!
This debate has an odd character: we both agree that tech is a key part of the future, but disagree about the value of the option to wait. in my view, the more bullish you are the more value you place on the option not to build.
I emphasise Moore’s law, and so want to be careful about how we spend a very large amount of money. I also dislike the regressive way it’s being structured.
The proponents of the plan have no cost benefits analysis, and no answer to the equity / welfare arguments, but assert that it’s so important / that the benefits are so huge that we should just push on regardless of the cost.
What if it were 100bn, or 200bn?
and what if we double the pace of technical progress in this area?
Will anyone want to plug into anything in their home in 10yrs time?
Is fibre to the home a risk for this reason alone? I think so …
If you believe in human ingenuity, there’s a huge case for waiting … the more bulled up you are about tech, the more value you place on the option NOT to build.
Moore’s law also applies to the spin offs technologies that would be enabled by having the infrastructure in place. So to properly value the NBN you would somehow need to predict the the future…something nigh on impossible. I think the NBN represents a good piece of infrastructure because over its life time in will provide enough benefit, through productivity growth and new opportunities to develop wealth, that the costs being incurred now will seem small. Yes there will be waste and mistakes but this piece of infrastructure will be around for a very long time.
Vladimir and Estragon are waiting for Godot !
This is a great summary of the NBN Co’s many failures.
On the broader question, some of the posts here completely miss the point. The question is not whether fibre is faster or better than wireless, of course it is. The question is whether those benefits are worth the additional costs. Costs which will be much higher than first forecast given these delays.
“The question is whether those benefits are worth the additional costs”
Easily. Think 5 to 10 years time, not now. When your TV will be Internet only. And your PC and all applications will be 100% “in the cloud” and all your devices will be able to access your data also from the cloud. Google began in March 1996 as a research project by Larry Page and Sergey Brin, Ph.D …… That’s not even 20 years ago. In 10 years just thing how different the world will be.
I think your wasting your time ssec. Some people just can’t see it. Its sort of funny though that most of the time these same people who demand measurement and accountability work in the world of macro economics. The field that can’t accurately predict anything. Yet they demand the unknown be known before something is invested in.
It makes sense to me and you but some people will never be convinced until their working with it. Even then they wont admit it was a good idea.
I thought everybody agreed it was a good idea for govt to invest in infrastructure, but it looks like investing on new roads and bridges to move people is OK (are you doing a costs / benefits analysis for that?), but investing in cable to move data is not. There is an obsession on NBN waste, but, as I repeated in other comments, other areas like negative gearing waste, that’s just considered OK. Where’s the costs/benefits analysis on negative gearing?
Good point! There is so much waste that is accepted as ok but for some reason ppl ignore that waste and focus on a project that has amazing benefit for the whole country. I’m thinking maybe because its easy to criticise something that is complex. Its easy to over simplify criticism and not represent the true complexity. Its also easy to overlook the benefits and simplify the argument down to one of subsiding consumption.
Time will be the judge though.
Is your argument now: “okay, there’s waste, but there are other types of waste as well”?
that’s totally bogus — all types of waste are bad. It’s no defence that there are other sins or greater sins.
There’s waste in every human activity, even in the private sector, so let’s not do anything new. You think roads, bridges, hospitals are built without waste. How about that, why not focusing on that waste instead of this NBN obsession.
pfft … private capital pays for the luxury of private waste. i mind my own waste — and i care about public waste.
Yep, until the private sector has to be bailed out with public money for their dodgy investments. Your faith in private as the holy grail over public is too dogmatic.
not sure what you’re talking about.
the cross city tunnel?
– i love that project, it was a massive win for sydney commuters, and the losses were all taken by the private sector. It’s an advertisement for PPPs
i was referring to your overall view that private is good while public is bad by definition. then we found out that when private screws up (remember the gfc and that fantastic housing investment), we all pay for it anyway. where’s the costs / benefits analysis for all the other infrastructure investments that are in the budget, probably deserves a new post with analisys of the waste
i love the NBN — what i most love about it is that everyone else is going to subsidise my demanding requirements.
what i doubt very strongly is that it’s the best possible policy implemented in the best possible way.
If folks were willing to admit some faults, they would be much more credible — a fair minded person changes their view about what’s worth it when the price changes.
Why do you not say something like: yeah, it’s going to be less value than i expected, but it’s still going to be worthwhile because the benefits (which are xyz) exceed the costs.
I don’t see how you can be so personal about valuations of ‘intangible’ benefits — as this seems to be your key point.
Have you considered that some of those who question the expense of the project object on welfare grounds? i am one of those. i object on the grounds that it is extremely regressive policy.
It’s about high speed movies (probably mostly porn) on demand for rich people — which is made possible by tax, transfer, and tariff. Those who bear the cost are those that will be deprived of low cost internet access — due to the various regulatory manipulations required to improve the accounting performance of the NBN.
The equity implications are interesting. The history of public infrastructure in Australia is that taxpayers usually pay the price for inefficient investment rather than customers. In other words, prices are kept low and hence high consumption is subsidised. At the moment, anyone can pay $50-60 pm and get unlimited downloads. Under the NBN, that won’t be possible. So high consumers will get relatively cheap super fast internet while poorer low consumers will get very limited super fast access at reasonable prices but will have to pay more for increased limits. The taxpayer burden will probably ultimately be borne by poorer people through higher debt interest payments displacing social spending.
The vast majority of roads are free in Australia, but I hardly drive. So what’s the equity implication there? You build a new motorway at A instead of B. What’s the equity implication there?
including wireless technology … will we look back on the spaghetti of fibre and blush? will the expense of going to the home seem like waste?
We are talking about what? 40 bn, 80 bn? Over 10 years? hardly a disaster even if revolutionary wireless will be available then. What’s the budget over the same 10 years for other infrastructure?
it would be a disaster to waste 40bn to 80bn on anything. that’s 3% to 6% of GDP, or one to two years of real growth.
the waste, if any, would be a fraction of it
It seems that belief in the NBN has replaced belief in (more-or-less) unilateral carbon pricing as our society’s savior. As in, ignore reason, ignore evidence, just do it because it makes you feel good. It’s a moral vanity I’m not willing to pay for.
ignore reason? evidence? you have proven nothing. This post just points out initial NBN difficulties. Hardly unexpected. It’ just the start and will be getting better. To assume such an ambitious project will always be running smooth is naive. But that does not make it a bad project. i would start with more populated areas first however
wireless always gets slower the more people use it. fibre optic does not and its speeds can increase.
moreover RA is ignoring the benefits for small to medium businesses not to mention health and education once it is up and running.
Oh and the RETAIL market is much more competitive as well.
Yeah, I am sure no one commenting on this forum is actually backing up data online, as upload speeds are shocking on current infrastructure. Also sharing large datasets is basically impossible right now for small to medium businesses. Oh, think how much we’ll save on USB hard drives that we will not have to import. And on PCs that will finally be “thin”.
I use github every day. I have cable broadband for faster upload speeds, and think it okay that i pay more for that.
Ha, now I am confused! So you know exactly what are the benefits of a fast internet connection! They do not have cable where I live and distances from the exchanges are large so even with copper and ADSL2 we do not get much. Why we do not have cable I do not know, probably not profitable enough. What upload speed do you get? How much data do you upload?
And how is it you dismiss the benefits as simply consumer subsidies?
Well i can see that i am going to be the big winner — my consumption will be subsidised. that’s a fact. a fact i like, in a way — but i don’t pretend that it’s fair or equitable.
I am very happy to pay for the better access i obtain, and i think it would be wrong to ban lower speed but high use connections to give people like me faster access in a more locations. That is what’s going to happen with the NBN. It’s like the city building an underground and then banning busses.
If you live regionally, you get loads of other benefits, including a cheaper home — so i don’t think there’s an overwhelming equity case for everyone to have super-fast and cheap broadband. It’s simply too expensive. that’s why the NBN should have started in the city.
“that’s why the NBN should have started in the city”
100% agree. To start where’s there’s no people, what kind of plan is that? Start wehre you can sell your product!
Also agree that the decision to roll out to regional australia first was slightly boneheaded…but given the political circumstances somewhat unavoidable.
RA you are mixing up the wholesale and retail sectors!!
Mises: Chris Berg linked to your post in his article on the gillard government that’s been posted on the abc news page.
That isn’t a compliment
Howdy just wanted to give you a brief heads up and let you know a
few of the pictures aren’t loading properly. I’m not sure why but I think its a linking issue.
I’ve tried it in two different internet browsers and both show the same results.
thanks — which ones are broken?
Comments are closed.