Eight key issues in understanding Australia’s National Broadband Network


Yesterday was a busy day. I was called early to come in to the Sky TV studies to respond to the government’s announcement from its National Broadband Network tender, got stuck in traffic and arrived half way through the announcement, and was then immediately put on Sky Business live TV to give my thoughts. I was then interviewed on the separate Sky News program, a multitude of radio stations, and my comments ended up appearing in the New York Times, Forbes, and The Guardian among other global press, fitted into a busy day of work commitments.

So just now getting a chance to write a few quick thoughts.

1. Overall this is an exciting and very promising move.

If one of the bidders had won the tender it would have been a fizzer. 12mbps by 2012? That would probably not have kept Australia at its middling to poor ranking in global broadband connectivity. Fiber to the home and 100Mbps to 90% of premises is worth playing for, and could provide the connectivity that will drive Australia’s economy forward. I have long argued that for a geographically isolated country such as Australia living in what is truly becoming a global connected economy, connectivity (both the infrastructure and the attitudes) are fundamental to our future. I now have more reason to be optimistic about our country’s future than I did early yesterday.

2. It all depends on this (and the next) government’s ability to deliver.

Any massive project is liable to cost escalation, schedule blow-outs, and a multitude of unforeseeable problems. Governments don’t tend to be good at managing big projects. With 51% ownership, the Australian government will be responsible for this, and chances are fair that they don’t do a fabulous job. Moreover, we may well see governments change in the 7-8 years this is supposed to happen. The opposition has already said they won’t support the project if they take power (though the reality is they very likely would).

3. The availability of capital is a key factor.

A primary reason driving this decision was the reality of highly constrained capital markets. Whoever won the bid would have had to access a large amount of equity and debt, and not all of them indicated their ability or willingness to do so. There are no question that players such as Optus and Telstra among others will be delighted to take strategic equity stakes, and government support means a far better profile for raising debt than any other player. It may not be easy, but it will be far easier than any other possible path.

4. Pricing models need to be worked out.

Institutional investors’ initial response is very cautious. There are many unknowns in how this will work, and some calculations suggest that retail pricing will have to be very high to justify the $43 billion that this is supposed to cost. Certainly there many details yet to be set and pored over. The reality is that the government probably will take a bigger hit than their initial investment of $4.7 billion. But the positive impact on the economy will make it an extremely worthwhile opinion.

5. The company will have flexibility to change technological paths.

One of the major problems with the initial tender was that bidders would have effectively been locked in to their proposed technological approach. The government has proposed the very sound Fiber to the Home (FttH) approach., While this is very expensive to implement as it requires laying cable, it can absolutely trump the other proposals which were dependent on using Telstra’s existing copper to the home. Even better, the NBN Corporation will have the ability to change its mind en-route rather than be beholden to old plans, and for example switch part of the proposed network over to wide-range wireless technologies if they develop appropriately.

6. This is a short-term positive and long-term negative for Telstra.

I was quoted as saying that this announcement was a negative for Telstra, and that’s absolutely true in the long-term. Their monopoly on ‘final mile’ connectivity to the home will be broken, leaving them playing essentially as peers to other telcos. However Telstra’s share price rose on the day, as it will now not be playing second fiddle to whichever private company won the bid, and can not only invest in the company, but is better placed than most to provide billions of dollars of services in implementing the required infrastructure. In addition, there are easily five years of opportunities to provide better connectivity than its peers, for example through upgrading its NextG mobile network.

7. This will accelerate the shift to value-add for telcos.

If a single government-led company is providing wholesale connectivity to telcos with a clear pricing structure, connectivity is absolutely a commodity. The trend over the last decade where telcos are shifting from the business of selling connectivity to the business of adding value will accelerate. As I described in my book Living Networks, adjacent strategic positioning such as content, services, relationships, and interfaces becomes where the game is played. Connectivity is a commodity around which value-added offerings are positioned. The industry has a long way to go to play this game well, but hopefully this move will be the prod to make it

8. We need to start thinking how best to tap this extraordinary resource.

Let’s assume all goes to plan. What will it mean? This is time for potential thinking. Sure everyone will get video-on-demand – nice but hardly transforming the nation. This is about enabling a true 21st century economy based on the flow of information and ideas. Education for all ages can bring together the best of local and global teachers and interaction. Service sectors in media, entertainment, and professional services can integrate into global delivery networks. With the growth of digital health, BuddeCom estimates that healthcare could account for 25% of the capacity. Information relating to energy and emissions management can flow seamlessly. Soon limited more by our imagination than infrastructure, we can envision and create a connected economy.

  • Nice work on all the coverage, Ross, that’s a busy day in all!
    There’s some great points above too, and I’m really interested in point 2 – the Opposition’s reaction.
    As you say, and pending final approval, the next government will have to take this project on, irrespective of whether that government is labour or liberal. Malcolm Turnbull’s reaction to it is surprisingly negative, when the vast consensus on the idea itself is actually very positive. Is he reacting for reaction’s sake? I don’t think it’s going to win him many votes.

  • It’s a very interesting question.
    To a point it’s the job of the opposition to be negative about what the government does (at least that’s what they think 🙂 ) and there are genuine questions to be raised, particularly if your ideology is small government. I think it’s fair enough for Turnbull to take that stance – I don’t agree with what he’s saying here but if some pushback helps the government do this project better than that’s good…