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Sep 16, 2011

National Broadband Network, a typical government monopoly.

The Rudd government was elected into office partly on the back of promise to provide high-speed broadband services to all of Australia. As occurs with political promises little detail was given, but the public expectation was that a Rolls Royce service would magically appear, and top of the line Internet services would be the next great free lunch.

No cost/benefit analysis was necessary as it was an election promise. Now we are starting to see how inefficient it is going to be, with anti-competitive rules being stuffed down the necks of potential rivals.

The ACCC is examining the deal between NBN and Telstra under which the latter will shut down its network and hand customers over to NBN, including an agreement not to promote its wireless network at the expense of NBN for twenty years:

Now one of Rudd’s key advisers has rung alarm bells:

KEY planks of the National Broadband Network business case are anti-competitive and will send Australia backwards, one of Kevin Rudd's "best and brightest" economic brains has warned.

In a blistering critique, economist Joshua Gans, who in 2008 was hand-picked to attend the then prime minister's 2020 summit to discuss productivity, has criticised plans to subsidise the rural NBN rollout through the prices that urban consumers pay. …

While the ACCC has already sounded an alarm over Telstra's agreement as part of the deal that it would not promote its wireless internet services as a substitute for fibre for the next 20 years, the submission by Professor Gans and Professor Hausman goes much further.

"We can conceive of no greater anti-competitive action than the largest mobile service provider agreeing not to compete against the monopoly fixed line provider," they write. "The results will be less innovation, higher prices, and less choice for Australian consumers.”

Instead of future-proofing Australia, the restrictions would just "future-proof NBN Co against competition."
Now the second major carrier, Optus has signed up to a similar deal:
OPTUS has promised not to criticise the National Broadband Network in key regions for 15 years under a deal that raises new warnings the $36 billion project will stifle competition.

Just a week after the competition regulator warned that parts of an $11bn deal with Telstra could prove detrimental to competition and consumers, official documents reveal that an $800 million deal with Optus includes an "anti-disparagement" provision.
It is quite disturbing that while the 4G mobile network appears to be able to deliver speeds over twice the most optimistic assessments of NBN, the major providers are prevented from competing effectively. Given that wireless technology is moving ahead by leaps and bounds, by the time the NBN fiber optic network is finally rolled out, it will be redundant.

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