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Future Fund: building a broadband network « Previous | |Next »
March 22, 2007

I thought that the Rudd/Tanner proposal to use a bit ($2.7 billion) of the Future Fund (estimated to be $120 billion by 2020) to develop national high speed (12 megabits per second) broadband was an excellent policy initiative. Clearly Telstra is not going to do that, nor the G-9 who will only concentrate on the capital cities. Rudd has dumped the ALP's opposition to selling the rest of Telstra and come up the plan for an ALP government to join with private enterprise to develop an old Beazley telecommunications policy under a 1:1 funding arrangement.

I watched Question Time yesterday and the Liberals were all over the place with their rhetoric of irresponsible economic announcement, economic vandalism, smash and grab raids on the fund, raiding the honeypot, robbing future generations (threatening the superannuation payments to public servants, judges and politicians) etc etc. The burglary and stealing rhetoric was over the top.

All that Rudd+ Co are doing is selling down 30% the Government's Telstra's shares to invest in building national infrastructure that is needed for an information economy. Australia is falling behind other developed countries in terms of availability of high-speed broadband. Costello's performance in Question Time was ham fisted and shrill, with more than a touch of desperation, as he tried to to get an economic scare campaign working against Labor using the slippery slope argument.

The AFR has continually warned that the Future Fund, which was established in 2005, would be viewed by politicians as a piggy bank to be raided for political purposes. Todays editorial comments:
.

.regardless of whether fast broadband infrastructure is needed any faster than private industry players are prepared to invest in it, the fundamental question here is one of governance.The Future Fund was established in the 2005-6 budget to build an income stream to pay the unfunded liabilities of federal public servants for which successive federal governments had dodged responsibility. Almost two years ago that liability stood at $91 billion. By 2020 it will be closer to $140 billion. The find has received funding of $40.3 billion to date, plus the 17per cent stake in Telstra remaining after the partial sell-down last year, known as T3...The Telstra shares are worth about $9.2 billion today.

Rudd's proposal is is envisaged as a capital investment with any dividends going back to the Future Fund and so leave it no worse off.

So what's the problem with Rudd's carrier-neutral proposal, given that the Future Fund is not being used as a piggy bank that is raided for political purposes? The AFR's response is that 'major investments in new technology fall into the speculative camp and glib promises to make returns out of future budget surpluses and little comfort.'. The ALP needs to be careful not to use the Future Fund as a piggy bank, given its public commitments to keeping the Future Fund locked up, independent and its decisions based on expert advice.

| Posted by Gary Sauer-Thompson at 11:10 AM | | Comments (15)
Comments

Comments

It's crazy stuff. Again, the Government looks like it is overplaying it's hand.

For such supposedly savvy political operators, the desperation with which they are grabbing at anything that looks like it may claw some support back is almost embarassing.

Costello has been caught out here, if they truly wanted to lock away this money for the future, they should have done so. But he left it sitting there, to be used potentially.

I would think that Rudd has pre-empted Costello using it in a similar way - and now has Costello backed into a corner, where he can't possibly touch the Future Fund to fund any promises without major political ramifications for himself.

Policy aside, I think that it has been quite clever politics. And carefully timed again to take away Howard's momentum - after all the big story for the week was meant to be Howard's Iraq speech - which has had little oxygen, while the debate over Rudd's broadband plan has blossomed.

BigBob,
I watched Question Time again--same theme as yesterday ---"smash and grab" raids on the "cookie jar" with every word. The Coaltiion is definitely trying to run a scare campaign on economic management. Steven Cibo Member from Moncrieff (QLD) laid the strategy bare in an obnoxious vitiolic speech during a Matter of Public Importance.

I reckon your interpretation of ALP tactics is right--the Coalition is on the back foot and they are unconvincing in their defence of how wonderful they have been in delivering highspeed broadband. for the nation. As Michael Sainsbury points out in an op-ed in The Australian the current state of internet access in Australia is one with half the nation's population stranded with inadequate broadband infrastructure:

Without action, this situation is unlikely to change soon, with Telstra and the communications regulator stuck in an unproductive round of squabbling, court cases and standoffs that are holding up the rollout of a fast internet network.

The PM introduced a new issue: the government has no role in creating an information highway as it is the job of private enterprise alone. That neo-liberalism won't go down well in the bush and it wil not provide cover for the the wanton neglect of the Government, where selling Telstra overshadowed national infrastructure priorities.


Hi Gary:

Just a note on the 12MB/sec network the ALP want to establish. Someone should be pushing them to make it much, MUCH faster.

Here in France I have the cheapest net and TV package I could find. €30 (less than $50) a month for 130-odd channels and a 30MB/sec internet connection. This is the slowest connection the company offers. If I wanted to pony up another €10 a month I could upgrade to the 100MB/sec network.

Unlimited downloads, by the way - very sweet!

I am informed by friends that even these speeds are nothing compared to East Asia even though at 30MB/sec I have no problem watching streaming TV and such things. Australia, a country that demands world class communications, should be aiming for a lot faster than 12MB/sec, IMHO.

Cheers.

Dylan,
I agree. I have faster broadband than 12MB/sec in the townhouse in central Adelaide. I have ADSL 2+ and pay around $60 a month with a 16 gig. limit on downloads.

What the ALP is proposing is very modest---it is a step in the right direction. Labor's proposal is to take fibre to the suburban street corner--its basically picking up the old Telstra proposal originally offered to the Howard Government in 2005 but with the modification of an open tender process for the building and ownership of the network, rather than an exclusive agreement with Telstra.

I agree with you: it is worth Australia taking a longer-term view on an even more substantial project worth $20 billion or more. Fast, always-on internet connections are essential for business and at some point in the near future will become the way that consumers access all their home entertainment services.

However, Telstra remains the real problem. It owns the copper wires which will have to be used to carry broadband from the "nodes" on street corners to individual premises. The ALP should bite the bullet of an obstructionist Telstra and introduce wireless competition between the nodes of street corners and individual premises.

I dont think that the ALP is thinking this way yet.


I think Australia should go one better and introduce free metropolitan broadband, beginning in cities over 50,000 people and working down from there.

I have absolutely no idea how such a thing would be funded, but hell, a man can dream!

PS Sorry for submitting twice, I meant "wireless broadband".

Flashman,
We have a large number of free wireless hotspots around Adelaide courtesy of Internode.

Free wireless broadband would put many internet providers out of business.

On the other hand, the price we currently pay to access broadband is far too high.

I recognise the need for faster broadband right across the nation.
But I think the author is seeking comment on how we finance the rollout.
So.....
Rudd said on the 7.30 report that the money to fund part of the broadband rollout taken from the future fund is not being spent on ‘consumption’ but infrastructure.
This is incorrect.
By taking the money from the future fund allows the Government to maintain its current expenditure pattern, most of which is not on infrastructure but on ‘consumption’, that is recurrent expenditure for the present generation.

BigBob,
you are right that the financing of nation building a telecommunications infrastructure for the 21st century is a crucial policy concern.

Nation building used to be done by borrowing--the railways in the 20th century, or Snowy Hydro scheme in the 20th century. Now it is being done by selling off the old family jewels to buy new ones.

I guess I'm with Rudd on this one--it's about capital investment.

I do agree with you that the big government conservatism of Howard and Costello has used budget surpluses to spend on consumption after paying off government debt.

Gary, The PM introduced a new issue: the government has no role in creating an information highway as it is the job of private enterprise alone.

I think this is designed to politically back the government into a corner. They can either come up with a policy to spend more, or claim the market should supply it. In the former it wrecks the economic management campaign against labor; in the latter case it draws attention to their policy for the last 11 years toward Telstra and broadband which has not produced a solution.

For this to resonate in the public mind as an electoral issue it suggests that there is a public perception of government policy failure and market failure in this area.

I wonder what if the Media buys Coles.

I was pulled up briefly though, on the suggestion off hand from somewhere, that the thing could be an excuse to introduce ppp's to federal politics. Given the repulsive nd corrupt debacles at state level one hopes this was only a cynics reading and we all know how corrupt and secretive Canberra has been, any way.
Reference the AUSFTA, I thought Sen Fielding actually trumped the senate with an elegant question about the country being denied a billion a year in tax because of Qantas' takeover by "sharks", as Fielding called the offshore interests.
This right in the midst from a melodramatic antic from Coonan, carrying like a porkchop about broadband and the future fund, as if some drunk in the park had hopped out and opening his raincoat to personally "flash" her.

Cam,
re your commentFor this to resonate in the public mind as an electoral issue it suggests that there is a public perception of government policy failure and market failure in this area.

Telstra, telecommunications and broadband in regional Australia is the classic example of a public perception of government policy failure and market failure in this area. It has been for a decade or more.

The Coalition Ministers in Question Time were falling over themselves in their desperation to show that they had great policies in this area and that all is well with telecommunications.

As The Age editorial points out:

The ideology of nation-building can be curiously inconsistent: it is apparently acceptable for the Government to spend billions on the water networks and highways built up over the past century, but not to invest public money in the 21st-century information highways on which prosperity increasingly depends.

Australia is sliding into a broadband backwater.

Paul,
you've been watching Question Time in the Senate. Coonan has a rough job trying to bring Telstra to heel and more or less has left it to the ACCC. The structural separation of Telstra is the elephant in the room. They've been more concerned with selling Telstra, and the rest has been policy on the run.

I'm suprised that the Coalition repeats the free market mantra on the Telstra issue when it is clear that Telstra is using its monopoly power to tell everyone to go get lost, trying to roll back the regulatory regime, and squashing the competition. The upshot is that broadband is not being established in a systematic way beyond the capital cities.

If it is a PPP, then the government is an owner alongside private enterprise. In The Age Alan Kohler says that:

a national broadband PPP with a company that isn't Telstra would effectively produce the "structural separation" of Telstra that the ALP has long been seeking.That's because a new, national public-private FTTN network would replace all but the last mile of Telstra's existing public switched telephone network. And the last mile of copper would be covered by existing ACCC processes so Telstra would effectively have no control over it.

So if the G9, or perhaps a group such as the Macquarie Bank-Leighton Holdings consortium, won a Labor government tender for a PPP on fibre broadband, Telstra would cease to be the monopoly wholesaler of communications access and become a pure retailer. Which would be a disaster for the company.

I suspect that the ALP will roll back the regulatory regime in the Trade Practices Act. But it is unclear how.

Gary, Telstra, telecommunications and broadband in regional Australia is the classic example of a public perception of government policy failure and market failure in this area. It has been for a decade or more.

I agree. Telstra should have been donkey konged ages ago. I can recall back when a couple of thousand baud for a modem was cool that the US had free local phone calls while we were pinged 20c a call. There really is no reason for Au to be behind the times as 50% of our population lives in three cities.