A stern warning from Labor's NBN wreckage

Bill Scales' audit is a damning indictment of Labor's convoluted and shambolic NBN vision, and should remind politicians of how costly bad public policy can be.

It was obvious from the day that it was announced by Kevin Rudd and Stephen Conroy that the process that led to their decision to build a taxpayer funded fibre-to-the-premises broadband network was ad hoc and shambolic. Bill Scales’ audit of that process has confirmed that conclusion.

It also confirms that the groundwork for that rushed decision to sign what became a blank cheque from taxpayers came with the failure of Labor’s request for proposals process in 2008, under which it sought tenders for a fibre-to-the-node network involving only $4.7 billion of government funds.

With the financial crisis developing and Telstra excluded from the process on a (legitimate) technicality, none of the tenderers were believed to be able to submit full-financed bids.

Moreover, the Australian Competition and Consumer Commission had provided the panel of experts over-seeing the process advice on the possible need to compensate Telstra if someone else built the FTTN and cut over its copper network. It also proffered the view that about 70 per cent of the costs of FTTN proposals would become "stranded costs" in any subsequent upgrade to fibre-to-the-premises.

Scales was scathing about the ACCC’s role in the evolution of the Rudd government’s broadband proposals, describing its advice as "unsolicited" and questioning its competence to provide "definitive advice to the panel about the technical, financial and economic suitability of one particular form of telecommunications technology over all others, during a time of significant worldwide debate on this complex issue".

"It is my view that the ACCC over-reached its authority in providing this advice," he said. He concluded that the panel "unsoundly" relied on the ACCC's views.

When the request-for-proposal process failed, the Rudd government, in the midst of the financial crisis, rushed to develop a new policy.

"The public policy process for developing a revised NBN vision, preliminary estimates of the costs, an appropriate funding structure, the feasibility of using a government-owned company to deliver the government’s vision and a practical pathway for it to do so was all done in 11 chaotic weeks in 2011," Scales said.

"The decisions made by the Rudd Labor government during this 11-week period and the means by which they were made had, and will continue to have, a profound effect for many years on the roll out of Australia’s NBN, its cost and its effectiveness," he said.

"The government had decided to establish a completely new start-up public company, something that is extremely rare at the Commonwealth level, to roll out one of Australia’s largest-ever infrastructure projects, in eight years, at a cost still to be determined but estimated at $43bn, without a business case or a cost-benefit analysis, without clear operating instructions, within a legislative and regulatory framework still undefined, with the key strategic and business relationship with Telstra ignored or unresolved and without any prior consultation with the Australian community and perfunctory involvement by Cabinet."

Scales said that Cabinet essentially just "rubber stamped" the decision to announce the FTTP roll-out, with the Strategic Priorities and Budget Committee of Cabinet -- Kevin Rudd, Julia Gillard, Wayne Swan and Lindsay Tanner -- plus Stephen Conroy heavily involved in its development.

He described the tight timeframes the government set for the roll-out as a significant challenge, even for a well-functioning, large and well-established telecommunications company. For a start-up it was "an impossible assignment".

It is not surprising NBN Co subsequently struggled to generate any momentum in the roll-out. Scales cited a comment from within the company about that initial phase: "all we had to guide us was the press release and a bunch of business cards".

He refers to an "environment of frenetic activity, lack of clear instructions from the government and ad hoc decision-making where many of the instructions to NBN Co were coming director from the minister (Conroy)".

There’s lots more, but by now you will have got the point.

This was not the way to manage a process involving $43bn of taxpayer funds. It's why the estimated cost of Labor’s NBN blew out to $73bn and the estimated date of completion went from 2020-21 to 2023-24.

From the outset, a major point of contention about the NBN process was the lack of a cost-benefit analysis ahead of the decision to build the network, and the kind of deep and stringently-tested business case that would be developed in the private sector before a project of this scale went ahead.

It wasn’t until after the event that an implementation study and a business case were finally constructed. Even then, Scales found that there was a widening gap between the implementation study and NBN Co’s own plans -- to the point where NBN Co’s Mike Quigley believed some of the study’s recommendations could substantially undermine NBN Co’s business case.

Labor’s NBN provides a range of insights into what good public policy development and implementation shouldn’t look like -- and should never look like again.

Scales’ recommendations are, in effect, obvious re-statements of good public policy. Full independent costings of fully-developed proposals for major infrastructure projects; 'taking stock' of projects that are starting to go off the rails; realistic timelines; the proper involvement of Cabinet and ensuring there are 'subject matter experts' within government departments are simple common-sense rather than radical proposals.

Which is why the Scales audit is such an indictment of Labor’s chaotic NBN processes which, after the failure of the request for proposal process, failed to resemble anything remotely approaching a good and proper process for committing to spend tens of billions of dollars of public monies.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles