Economics for Business: A Report on the Australian NBN Policy

This report provides an economic analysis of the Australian National Broadband Network (NBN) policy. It begins with an introduction to the NBN project, its objectives, and the political disagreements surrounding it, including the debates on investment size and criticisms from the Economist Intelligence Unit. The report then delves into the background of the NBN, detailing the Labour Government's initial proposal and the subsequent changes by the Coalition Government, including the use of a mix of technologies like fibre to the node (FTTN), fibre to the premises (FTTP), and hybrid fibre coaxial cable (HFC). It discusses the structural separation of Telstra and the policy of charging identical wholesale prices to retail service providers. The report also examines the cost-benefit analysis (CBA) used to evaluate the NBN's various technology choices and policy decisions, including scenarios like no further rollout, unsubsidized rollout, multi-technology mix (MTM), and fiber to the premises (FTTP). The analysis assesses the benefits and costs associated with each scenario, providing a comprehensive economic perspective on the NBN policy's implications.

Running head: ECONOMICS FOR BUSINESS
Economics for business
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Author Note

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Introduction:
The national Broadband Network (NBN) is a project of Australian government, based
on the national wholesale open-access data network. This project contains components of
radio and wired communication, introduced and operated by NBN Co. Limited (Valle de
Souza, Dollery and Kortt 2018). Retail service providers (RSPs), mainly Internet service
providers, contract with NBN for accessing the network and consequently can sell fixed
internet access to their end customers. The specified project regarding national
telecommunications infrastructure has several objectives among which replacing the existing
telephony network of copper cable has become an important issue, required to overcome
rapidly due to increasing demand for internet access. Initially, it has been proposed that wired
connection has the capacity to provide up to 1000 Mbit/s. However, in 2013, this speed has
decreased to a minimum of 25 Mbit/s after the election of Abbott government (Alizadeh and
Shearer 2017). NBN has experienced significant political disagreement as it has remained the
largest infrastructural project of Australia and this in turn has become an issue in federal
elections. The NBN proposal has risen first by the Rudd Labour opposition though the
Howard government has dismissed it through considering it as unnecessary (Wilken et al.
2015). After that, various political parties have delivered their own opinion regarding this
project. Initially, the Coalition has also exposed NBN as a dangerous vision. On the other
side, senator of national party has said that NBN has represented a proposal with the help of
their think tank, where they have delivered an outcome of strategic infrastructure. Moreover,
according to the Senator, it is also essential for this project to spot failed markets of Australia.
However, the chief reason of debates regarding NBN has occurred on the size of investment
done by this Australian government. In addition to this, the Economist Intelligence Unit has
criticised this project due to its higher cost to the public sector. Hence, this report has
intended to describe NBN policy of Australian government and its issue precisely.

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Background of NBN:
In 2009, the Labour Government of Australia has proposed this NBN plan not only to
develop broadband performance of this country based on its availability and performance, but
also the plan has made a structural separation with Telstra (Freeman, Fisher, Baum and Friel
2018). This structural separation can help the government to prevent broadband services from
being retail one. The Budget Review 2013-14 of the Parliamentary Library has provided
background on NBN policy commitments of major parties prior to the election. Both plans
have stated about the using a mix of technologies for accessing all premises. The NBN plan
of Labour party has stated to connect 93% of premises with optical fibre while for remaining
7% of premises the plan has suggested to use a mixture of fixed wireless and satellite (Park et
al. 2015,). The Coalition Government has provided almost same solution regarding this
specified plan for the 7% of premises though for remaining 93% premises the government
has suggested to use a mixed of technologies and moreover these premises have required to
connect with optic fibre (Aph.gov.au. 2018). The technical mix has three chief components,
which are, fibre to the node (FTTN), fibre to the premises (FFTP) and hybrid fibre coaxial
cable (HFC).
Structural separation:
To discuss about the NBN, it is also important to mention about its structural
separation. The NBN Co., a government-owned enterprise, has built and run this NBN. This
wholesale only network has constructed not to provide direct retail services to end-users.
Instead of this, retail service providers (RSPs) are its customers and Telstra is one of them in
the market (Aph.gov.au. 2018). Hence, this policy has started with legislation. As a result,
any proposed changes are required to bring before parliament. After rolling out of fibre
network, Telstra may cease to supply retail services over the copper network, which this
specified retail service provider controls. Moreover, based on the legislative definition of

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structural separation, this network has provided a consistent service. Telstra has maintained
copper lines for many premises under an agreement with the government of Australia.
According to this agreement, payphone and standard phone services can operate in
accordance with the universal service obligation. The Coalition party has also supported this
structural separation of Telstra (Gerrand 2017). However, the party’s technical solution refers
to use copper lines of Telstra to the premises and for this; it has proposed to purchase copper
lines from this provider. This concept has supported the cost-benefit analysis. In 2013, the
Coalition won Government has implemented a policy stating that it would give sufficient
speeds for most of the users with fewer costs and fastest speeds this in turn has helped
customers to pay lower prices for internet.
Initially, copper lines of Telstra have provided internet access before NBN. Moreover,
through providing retail services to compete with other providers, it has earned the incentives
and abilities to favour its own retail arm (Coutts 2015). In this context, structural separation
has considered as the best solution of this NBN policy.
Charging identical prices:
One of the main bases of this original NBN policy is that nbnTM may charge identical
wholesale prices to retail service providers. This implies that for a service under the same
technological footprint the wholesale prices can be identical (Morris and Nicholls 2017). For
instance, within a fixed wireless area, all 25 megabit per second services may have the
identical wholesale price. Moreover, the wholesale price for at least the basic service can be
identical regarding all technology footprints.
Based on this policy, the government has identified discrepancies in availability of
broadband and price between commercially unattractive and unviable remote and regional
areas and commercially attractive metropolitan areas (Ewing, Rennie and Thomas 2015). As
a result, it has implemented the policy of charging identical prices to promote same uniform

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prices of broadband service all over the country. However, the Abbott government has started
various review of the NBN in 2013. Among those reviews, the Market and Regulation Report
has suggested that this system of charging wholesale price can be replaced with a structure of
pricing caps for all NBN-type services (Murray 2017). According to this government, it is not
essential to charge uniform caps all over the country and consequently, levy of an industry
can be used for subsiding the provision cost of services in comparatively lower profitable
areas.
According to the Australian Bureau of Statistics (ABS), in 2014-15 the number of
households for accessing internet at home has increased to 7.7 million. This in turn has
represented that almost 86% of total households have started to use internet while in 2012-13
the number has remained only 83% (Bagaric, Fischer and Hunter 2017).
However, instead of those initiatives, the government has failed to succeed this
project because of some reasons. In 2013, the Coalition government has reviewed this project
based on its expenses and has reset the timeline and costs of it. However, the government has
remained unable to notice changing behaviour of people (Park 2017). Due to slow speed
internet, the demand for NBN has decreased though the government has argued this reason.
According to the Senator, Australians have preferred to maintain an affordable monthly
internet bills while getting 100Mbps speeds of internet have remained unimportant.
Moreover, providing excellent internet services with higher prices and speeds compare to the
other countries of the world is not chief objective of the government. Rather, the government
has tried to ensure that all Australian can access a fast broadband service with affordable
prices along with least costs (Aph.gov.au. 2018). Hence, to understand the matter from
economical point of view, it is better to discuss the cost-benefit analysis (CBA). By doing so,
the government under current policy settings can involve higher expenditure of government
to meet objectives of the national broadband network. Moreover, it is essential to understand

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the extent of the benefits that occurs from the funds of taxpayers, who use this service. In
addition to this, rollout of the NBN has considered technological choices, while it is also
essential to consider relative merits of other technological choices of different types by
considering the increasing demand for broadband speeds.
Cost-benefit analysis:
In this context, this economic concept can help to understand various benefits and
costs associated with different NBN choices on a common basis and consequently this tool
helps to compare and understand among those choices. Policy makers use this CBA for
making decisions regarding technical options and alternative policy that can influence the
community. Hence, CBA helps those concerned persons to consider trade-offs and to decide
that whether the entire community can be better off or worse off under these alternative
technical scenario and alternative policy (ABC News. 2018). Thus, CBA can be considered
as powerful tools that can help policy makers from taking poor decisions. According to the
panel report of Australian government, the chief element of this CBA is to focus on the
excess benefits and costs, which can arise by giving extra speed to households while NBN
provides those businesses.
Cost-benefit analysis is a tool or process, which helps to analyse business decisions.
For conducting analysis, all benefits related to a particular business-related action are
considered. After that, all costs for taking this particular plan are subtracted from this total
benefits. Hence, from economical point of view, this plan helps a business organisation to
evaluate all probable revenues and costs that may occur after the completing this specified
project (Reniers and Van Erp 2016). With the help of this CBA outcome, the concerned
company can take decision that whether the project is financially feasible for them or whether
the company needs to select other project. Hence, for conducting this analysis, the first step is
to accumulate a comprehensive list of all the benefits and costs related with the decision or

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project. Costs include both direct and indirect one along with opportunity costs, intangible
costs and costs associated with potential risks. On the other side, benefits include intangible
one along with all direct and indirect revenues. Intangible benefits implies increasing
production after improving safety and morale of employee or increasing sell from goodwill of
customer (Svensson 2017). After doing so, the firm uses a common unit of monetary
measurement that s required to apply on all listed items. In the final step, if total value of
benefits exceeds the total value of cost then the firm can consider this project to implement
further. However, if the costs outweigh the benefits, then the firm needs to review this project
again and can do some adjustment to decrease costs or to increase benefits for making the
project viable. However, if the concerned firm remains unable to adjust this project, then it is
beneficial to reject it.
The CBA intends to compare various options. For doing so, scenarios are formed to
consider the best method of rolling out high-speed broadband from which the greatest net
benefits can be obtained. Moreover, this method allows calculating of the general net benefits
regarding high-speed broadband itself. Hence, this analysis has assessed for chief scenarios
from the period 2015 to 2040 (Argyrous 2017). The first scenario is related with no further
rollout. This specified scenario assumes the government is not going to invest further amount
for higher speed broadband infrastructure and consequently speeds of internet remains
unchanged. However, this unrealistic scenario is considered to estimate benefits for higher-
speed broadband. Second scenario describes about unsubsidised rollout, which forms the
rollout of high-speed broadband using fibre to the node (FTTN) and hybrid-fibre coaxial
(HFC) technologies to areas which private sector can undertake without any government
subsidy. Thirdly, Multi-technology mix (MTM) scenario states a combination across all
premises as proposed in the NBN Strategic review in 2013 (Aph.gov.au. 2018). Lastly, Fibre
to the premises (FTTP) scenario assumes rollout in the fixed line footprint, incremented by

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fixed wireless and satellite in high cost areas for universal coverage. This scenario is based
upon the radically redesigned option in the Strategic Review of the NBN Co. On the other
side, cost assumptions related to FTTP and MTM scenario are related with the Strategic
Review.
With the help of some fundamental assumption, the Australian government finds net
economic benefits from these four scenarios. According to this analysis, the operation of
high-speed broadband to 93% premises of Australia on a commercial and unsubsidised basis
may generate the greatest economic benefit to Australia worth $ 24 billion based on present
value terms or in other words, $ 2430 per household (DOBES 2018). On the other side,
through this CBA analysis, it is observed that consumption of high-speed broadband to
remaining 7% of premises based on fixed wireless and satellite may involve a noticeable net
cost. This is because the government costs almost $5 billion for providing satellite and fixed
wireless services while the benefits come just about 10% of this total cost. As a result, the
community bears a substantial net cost. Hence, the panel faces dilemma that whether they fix
wireless and satellite services to remote and regional areas with higher cost and limited
benefit or offer a lower level of speed in those areas for reducing costs of taxpayers. The
CBA observes that deployment of an MTM NBN including non-economic fixed wireless and
satellite rollout may obtain net positive benefit though this remains $ 6.1 billion low compare
to an unsubsidised rollout. This unsubsidised rollout has net benefit worth $17.9 billion
(Aph.gov.au. 2018). Hence, according to this CBA, the private sector can get all benefits to
deliver high-speed broadband in Australia’s 93% of premises under the fixed footprint of
NBN and manage to rollout more efficiently and effectively compare to others.
Conclusion:
In conclusion, it can be stated that NBN has remained one of the most debatable
project of the Australian government. Australia’s Labour government has proposed about this

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broadband plan in 2009 to provide fast internet service along with structural separation with
Telstra. The government has done this structural separation for preventing broadband services
to retail and control by a particular provider. Both Labor party and the Coalition government
have suggested using mixed technologies in this NBN plan. The plan of Coalition party is
based on the cost-benefit analysis under of economics. According to their policy, NBN needs
to provide sufficient speeds with comparatively lower costs and this in turn can help
customers to pay lower prices for internet. The chief criterion of this NBN policy is to charge
similar wholesale prices from its retail service providers by mentioning that wholesale price
needs to be identical for similar technological footprint. This policy helps the Australian
government to identify discrepancies regarding availability of broadband services and
corresponding prices between remote areas and developed areas. However, the Abbott
government has suggested implementing of pricing cap structure instead of charging identical
wholesale price for all NBN-type services. Though after all those initiatives and taking huge
analysis on cost and benefit regarding implementation of this project, the Australian
government has failed to succeed this project as NBN has started to provide internet with
slower speed. In this context, it needs to mention that the chief target of NBN is not to
provide internet connection with higher prices and higher speeds. Instead of this, the
government tries to provide fast broadband services with affordable prices across the country.

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