The neo-liberal infestation – Australia’s broadband fiasco gets worse

I have written about Australia’s fraught venture into establishing a national broadband network (the so-called NBN) to apparently take us into the next era of communications, although it seems the lifespan of what they eventually will build will be short, in the sense, that it will need massive new investment almost immediately to make it workable. The current conservative (neo-liberal) government came into office not long after the NBN, which was commissioned by the outgoing Labor government, was in its development phase. It immediately altered the design to fibre-to-node (so optic fibre goes to boxes in suburbs and the final route relies on the dysfunctional copper wire), from fibre-to-home to apparently make it quicker to implement and require less government outlay. The changes and the ‘business model’ the government has forced on the NBN Company (the public monopoly constructor and wholesaler) have created such a mess with respect to our network availability and speed that it really serves as an ideal case study for students seeking to understand how the neo-liberal ideology stifles national interest and innovation. The latest dynamics being revealed about this disaster are simply staggering. We have moved so far away from an understanding of public infrastructure as the Government engages in its ideological crusade against innovation and government spending. Amazing really how all of us can be so stupid to tolerate it.

My previous posts on the topic include:

1. Public infrastructure does not have to earn commercial returns.

2. Australia’s crawling Internet speed signifies wider fiscal failure.

3. Free public broadband is required.

I have documented the issues relating to network speed in Australia in the above cited blogs.

In the latest – State of the Internet Q1 2017 Report – produced by the cloud service provider Akami, which generally is accepted as an authoritative source, Australia, one of the wealthiest nations in the world (per capita) lies a dismal 39th for average connectivity speed (Mbps), slipping from 29th in Q1 2015.

The following graph ranks (low to high), the 74 nations analysed by Akamai – Australia is the red bar.

The advanced world is leaving us behind despite the modest improvements in speed under the NBN as it unrolls.

We are now clustering with some of the poorer nations in the world or the oppressive nations that deliberately limit Internet access (for example, China).

There is solid evidence that real GDP growth, in the Internet age, and connectivity speed are positively related. In other words, nations with higher connection speeds to the Internet grow faster, other things being equal (including total spending in the economy).

For international readers, the NBN refers to the development of an optic fibre-based national broadband network to replace the archaic, slow network that exists now based on dated technology (copper wire).

It was touted as being able to offer high-speed broadband access to all Australians whereas at present many regional areas do not have any access.

The original NBN proposal was to offer high-speed broadband access to all Australians whereas at present many regional areas do not have any access.

The provision of fibre to the homewould have future-proofed our national network into the foreseeable future.

The current conservative government went in to the 2013 federal election as Opposition claiming that Australia faced a fiscal emergency and would have to drastically cut the fiscal deficit and debt immediately or else the bond markets would stop lending to us and the government would run out of money.

The deficit had risen largely because of the significant stimulus provided by the previous Labor government in late 2008 and 2009, which saved the economy from recession, while the GFC was devastated other advanced economies whose governments were less inclined to introduce rapid and large stimulus packages.

In historical terms, the deficit was not large and at the time I argued it should have been much larger because unemployment still rose by around 2 per cent.

The Conservative election campaign centred on the fiscal scares was preposterous but the public does not have sufficient understanding of these matters to see through the lies and fell for the Opposition’s scaremongering.

Scrapping the NBN became one of the examples of how a conservative government, if elected, would ‘save’ the nation from ‘bankruptcy’. It was inane at best.

The Conservative Prime Minister (now replaced) told the media while contesting that election that the Government had to “re-prioritise” its spending and scrap the NBN.

He said:

The National Broadband Network is a luxury that Australia cannot now afford. The one thing you don’t do is redo your bathroom when your roof has just been blown off.

Crazy stuff given that the NBN would have delivered benefits for many years to businesses, to health professionals (network diagnosis and operations); to educators; to researchers; to consumers and to just about everybody.

From the perspective of Modern Monetary Theory (MMT) it was also a ridiculous proposition to say that the Government could not “afford” to build this infrastructure.

The only real constraint that might have stopped the scheme being implemented would have been if the world had run out of fibre optic cable – highly unlikely in the foreseeable building stage of the project.

Government spending is intrinsically only constrained by real resource constraints. There are never any intrinsic financial constraints on a currency-issuing government although the political debates always focus on these aspects.

So, upon election, the government changed the previous NBN plan of Fibre-to-the-Premises (FTTP) to the current plan of Fibre-to-the-node (FTTN) and the disaster began.

The latest developments are truly staggering.

Here are the facts:

1. Both sides of politics are so infested with neo-liberalism that they think all public infrastructure must ‘pay for itself’ via user pays. In other words, they deny any social benefit element which, even in mainstream microeconomics textbooks, justify government subsidy.

2. NBNco is the monopoly wholesaler of connectivity to the broadband network it has constructed as a public company.

3. To recover the cost of the construction, NBNco has introduced what they call a Connectivity Virtual Circuit (CVC) charge by which they charge the internet service providers (ISPs) to buy capacity on the network.

4. The ISPs claim the charge is exhorbitant – being high because NBNco is forced by the Federal government to recover the construction costs.

5. So the ISPs negotiate each month with NBNco for “bandwidth” and then onsell that to the public in packages. While the NBN can run at 100 Mbps, the ISPs have created several packages (12 Mbps, up to the maximum) which they use to product differentiate and segment the market.

6. Given the high cost of purchasing bandwidth from the NBNco and their own profit aspirations, the ISPs are forced to charge very high connection rates for their higher speed packages, which means fewer people can afford them.

7. To still profit in a market that is sensitive to cost, the ISPs cheat their customers by buying less bandwidth from the NBNco than they know they will need to satisfy their customer base (contracts etc). They then ration the bandwidth by slowing down the speeds they allow their customer base to connect at relative to the stated speeds in the contracts.

So, for example, I subscribe at home to a 100 Mbps package but rarely get close to that. As I type this, my download speed is 65.7 Mbps and the upload speed is 35.3 Mbps. A long way from what is in the contract as the maximum.

8. Further, given the prices of the packages, market demand is heavily weighted to the low speed packages, which means the NBN infrastructure is being seriously underutilised relative to potential.

9. The speed and reliability is also compromised by the hybrid technologies that the Federal government adopted when it tried to do it on the ‘cheap’. FTTPs would have been much easier to implement and as it has turned out less costly.

Assessment

There is a growing and seething discontent about all this among the Australian population, who fail to connect the farce that has become the NBN with the ridiculous neo-liberalism that has created the mess.

There is no technological constraint on Australia achieving very fast and reliable connection speeds at low prices. It is all to do with the failure of the government to provide social infrastructure using its financial capacity as the currency issuer.

So not only are the connectivity speeds relatively low in this rich nation but the costs of getting those slow speeds is ridiculously high.

Data provided by Numbeo shows how much gaining access to a package providing (in the contract) 60 Mbps costs in US dollars per month for 114 nations.

Australia is the 17th most expensive – at $US56.46 per month.

Nations such as Russia provide the same service at $US 6.54 per month. Many European nations are in the low $US20 per month or lower.

Further, the obsession with the NBNco having to recover costs it at the heart of the problem.

As I explain in this blog –
Public infrastructure does not have to earn commercial returns – the cost-recovery model doesn’t make sense.

The Australian governments wants the NBNco to earn an “expected rate of return” that “should, at a minimum, be in excess of current public debt rates”.

By forcing NBN Co to deliver a near commercial rate of return, the Government is ensuring that the retail prices will be higher than is necessary for such an elemental service.

To make headway we need to take the National Broadband Plan out of the “free market rhetoric” and see it as an essential public good that is best constructed as a “natural monopoly” by the national government which faces no financing constraints.

Then you have a different perspective altogether and most of the debate that is going on at present falls away as irrelevant and its ideological basis becomes immediately obvious.

First, why should the provision of the optic fibre network be evaluated in commercial value (read: what will make profits for a private corporation)? In saying that I am not considering so-called value-adding services that might use the network. Just consider the network itself.

Why should that not be seen as essential public infrastructure?

In that context, it is immediately obvious that it becomes the legitimate responsibility of the Federal government to provide it to advance public purpose?

Clearly if we ignore the neo-liberal biases that have derailed the global economy after years of eliminating public provision of essential infrastructure the benefits of having a universal and single infrastructure based on best-practice are obvious.

Second, what does it actually cost?

The general principle is that if the real goods and services that are required to construct it are available then the Federal government will be able to purchase them using deficit spending.

No debt issuance is required.

Read the above-cited blog for much more detail on this issue as specific to the NBN context.

If the NBN was treated in this way, then the prices would fall dramatically – to the ISPs and the speeds they could provide and still profit would be up to the potential of the network.

We would also ditch the FTTN and go back to the original FTTP network model, which will have to be implemented as a ‘band-aid’ repair anyway sooner rather than later.

The other side of the neo-liberal communication policy madness

I read an article during the British Golf Open (being partial to the game myself) in the UK Guardian (July 19, 2017) – The future of the Open: can golf survive in the modern era?.

The story told how:

Participation levels and viewing figures for golf in the UK are on the slide.

Which is a common trend in advanced countries where golf is played. Clubs are going broke and being squeezed out by property developers because the patronage is falling.

There are many reasons for the decline in memberships in clubs and players taking up the game.

But a significant reason relates to the way in which terrestial TV has lost rights to cover the game in favour of paywalled TV.

The UK Guardian writes:

It is a statement of fact not prophesy that fewer people will watch the Open at Birkdale than the 4.7 million who were transfixed by Harrington’s 2008 triumph. Last year Sky got 1.1 million viewers for its Bafta-winning coverage of the shootout between Henrik Stenson and Phil Mickelson at Troon – highly impressive for a subscription TV channel but still an inevitable decline. The BBC will show the US PGA Championship this year but for golf to prosper, it needs to be shown on terrestrial television more regularly.

The consequences of the almost full retreat from terrestrial TV coverage will probably only reveal themselves slowly but it is safe to assume that no matter how polished Sky’s presentation, or deep its pockets, (they are rumoured to be paying £15m a year for the rights) fewer fly-by viewers will watch in future. And that will have knock-on effects on the numbers lured into the sport.

In Australia, the final morning of the US Masters (on a Monday before work) or staying up late to watch the British Open were highlights for golf fans who could access these events on free-to-air TV as a result of Australian government – Anti-siphoning law – that “gave free-to-air broadcasters essentially first refusal to certain sporting event broadcasting rights”.

The Minister responsible would define the list of events the rules applied to and often major sporting events would be shown exclusively on free-to-air, helping instil interest among young kids in the sports.

The Murdoch empire (and other private broadcasters) have lobbied hard to eliminate these regulations and have been chipping away around the edges to reduce the scope of the list.

One of the problems is that the free-to-air broadcasters have also not served the public well claiming ‘budget’ cuts prevent them from broadcasting the full event – for which they have rights.

There has also been instances when a free-to-air broadcaster (privately owned and for profit) has held multiple rights to important events run concurrently – like Australian Open Tennis and a V8 Supercars event – and abandons tennis coverage just at the exciting time in a game to shift to the car race.

Further, the capacity of the privately-owned, for profit free-to-air TV stations to ’round-up’ several key sporting events like this at the expense of the two national public broadcasters (ABC and SBS) has been aided by severe fiscal cuts (here the neo-liberals have done damage), which have compromised the public broadcasters’ capacity to purchase the TV rights.

The most recent changes proposed by the Federal government are disastrous for sports’ fans who cannot afford to pay the ridiculous Foxtel subscriptions.

This article (June 5, 2017) – Anti-siphoning changes a blow to sports fans who want to watch on free-to-air TV – is interesting background to the changes.

The ‘free market’ politicians pushing the changes claim:

… that abolishing the anti-siphoning list would mean Foxtel would acquire more exclusive broadcast sports rights and more subscribers. As a result, Foxtel could charge less for subscriptions and promote greater audience reliance on Sky News at the expense of the leftist ABC.

The aim is to further damage the public broadcaster and provide a government assistance to the Foxtel (Murdoch and partners) network.

But it gets worse.

There was a story today in the Fairfax press (August 2, 2017) – Pay TV? We’re all paying for Foxtel, to the tune of $30 million – which documents how the neo-liberal Conservative government in Australia, which is busily slashing its fiscal support for the public broadcaster is giving $30 million in corporate welfare to Rupert Murdoch’s Foxtel.

The news of this handout was first revealed on July 19, 2017 in this story – ‘Poorly planned’: Foxtel’s $30 million government handout questioned.

Apparently, the money is to “boost coverage of women’s and niche sports”.

FOI attempts to establish a basis for the decision to give the cash to Foxtel rather than to help the public broadcaster expand its coverage revealed no joy.

Apparently, there has been no basis for the decision other than to help out the struggling Foxtel, which is seeing declining patronage because its packages are expensive and its service reliability poor.

The arrival of cheaper and very reliable services like Netflix have changed the ‘market’ that Foxtel operates in and subscribers are shifting to the superior products (away from Foxtel).

That handout demonstrates, again, the madness of neo-liberalism.

It is not about improving the lives of citizens – what they can watch, at what price and when. It is about helping a poorly-performing private company in service terms, which has been very profitable because of a monopoly, resist competition because it is owned by a loudmouth who likes to influence political outcomes via his vast media network.

Conclusion

The cases discussed today demonstrate another dimension of the failure of neo-liberalism.

It is really a doctrine for the few not the many.

Why the many don’t just rise up is the question.

Crowdfunding Request – Economics for a progressive agenda

I received a request to promote this Crowdfunding effort. I note that I will receive a portion of the funds raised in the form of reimbursement of some travel expenses. I have waived my usual speaking fees and some other expenses to help this group out.

The Crowdfunding Site is for an – Economics for a progressive agenda.

As the site notes:

Professor Bill Mitchell, a leading proponent of Modern Monetary Theory, has agreed to be our speaker at a fringe meeting to be held during Labour Conference Week in Brighton in September 2017.

The meeting is being organised independently by a small group of Labour members whose goal is to start a conversation about reframing our understanding of economics to match a progressive political agenda. Our funds are limited and so we are seeking to raise money to cover the travel and other costs associated with the event. Your donations and support would be really appreciated.

For those interested in joining us the meeting will be held on Monday 25th September between 2 and 5pm and the venue is The Brighthelm Centre, North Road, Brighton, BN1 1YD. All are welcome and you don’t have to be a member of the Labour party to attend.

It will be great to see as many people in Brighton as possible.

Please give generously to ensure the organisers are not out of pocket.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.