iiNet's fighting words

Perth-based internet services provider iiNet has already decided to stand out from the crowd by refusing to sign the NBN Co’s wholesale broadband agreement and the company’s latest statement to the Senate Select Committee on the National Broadband Network (NBN) further highlights the pitfalls of the Coalition’s stated mixed-technology approach.

The demise of Labor’s Fibre to the Premises (FTTP) was always going to hurt an operator like iiNet far more than the likes of Telstra and Optus, but the company is certainly justified in pointing out that the politics of NBN has hamstrung the development of a critical piece of national infrastructure.

iiNet’s fierce words are unlikely to sway the thinking of a Coalition government that has invested substantial effort to denigrate and dismantle the work done under the auspices of a Labor government. Nevertheless, the words have merit, especially when it comes to understanding why we need an NBN.

Of course, the Coalition is building a network, a strategic review has been carried out and a six-month cost-benefit analysis has been commissioned. However, the desired outcome of these processes is unclear.

Is the cost-benefit analysis designed to simply justify the Coalition’s methodology as a cost-effective way of building a best effort network? Or is there an intent to examine the benefits of better broadband infrastructure and how they can be delivered more effectively?

According to iiNet, the strategic review, the cost benefit analysis and the public debate are all being conducted in a “public policy vacuum.” 

“Successive governments have struggled to communicate concrete reasons for an investment in NBN. Debate has continued to focus on download speeds for domestic entertainment.

No ‘National Objectives’ are presented as the drivers for the construction of the NBN, as they might be for any other infrastructure project.

The strategic review continues the failure to address any of these missing components. The cost benefit analysis has no specific benefits to analyse, only costs.”

Fighting words from iiNet and it’s hard to argue with the sentiment. But why have successive governments failed to pay attention to these concerns?

One reason perhaps, could be that economic research on the impact of broadband is a work in progress. The real impediment according to research firm Ovum’s research director  David Kennedy, is the lack of comprehensive cross-country data sets to analyse.

Having said that, there’s growing evidence to indicate that better broadband does translate to improved economic performance.

Here’s some relevant macro-economic data to illustrate the point.

The World Bank’s research in 2009, indicated that every additional 10 per cent increase in broadband penetration yielded an additional 1.21 per cent increase in GDP in developed markets.

Work undertaken by Meijers Research in 2012, studied 162 countries from 1990 to 2008, and found that a 10 per cent increase in national internet penetration corresponded to a 3.9 per cent increase in trade as a proportion of GDP. (Have a look at more research data here)

In addition, research released by Boston Consulting Group this month has highlighted that Australia ranks behind more than a dozen countries - including the US, UK and Canada - in a new global index developed to measure barriers to the development of a digital economy.

The index measures the constraints on internet use in 65 countries and ranks them according to four types of e-friction: infrastructure-related frictions that limit basic access; industry and individual frictions that affect the ability of companies and consumers to engage in online transactions; and information frictions that involve availability of, and access to, online content.

The overarching sentiment of the BCG report is that easy access and use of the internet could dramatically affect the growth of national economies. Australia is ranked 14th out of the 65 countries in the index, with infrastructure access, speeds and pricing our main comparative weakness.

BCG partner Paul Zwillengberg said that the speed at which the digital economy is growing addressing the basic infrastructure needs become crucial. In fact, that’s the message across the board: the NBN is the necessary piece of infrastructure that our businesses need to make the digital transition. Without the physical network all the talk about e-government and cloud-first are just empty words.

There is of course a need for fiscal prudence, but an obsession with costs could prove to be counter-productive in the long run.  

As iiNet’s chief regulatory officer, Steve Dalby, was at pains to point out to the committee that the focus of NBN speeds should have always been on uploads. The value proposition of the NBN, not simply as an instrument of telco reform, but as a driver of future prosperity relies on providing every segment of our society with a reliable broadband.

Businesses, big and small, stand to benefit from the NBN and while political grandstanding has so far taken precedence over delivery of the NBN, the new-look NBN Co board must find a way to negotiate the added complexity of the multi-technology approach, ensure that the rollout footprint starts to expand and oh, lest I forget, re-negotiate that access deal with Telstra.