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Why is the NBN a Failure?  A View from an IT Professional.

October 29, 2017

Why is the NBN a Failure?  A View from an IT Professional.

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Background

First a bit of a declaration: For many years I was a network engineer building and deploying major networks.  Much of my career was spent in these main areas, diagnostics, security and the Internet.  So I am not coming at this issue from a novice’s point of view, but from decades of education, knowledge and experience in the real world.  What I have learn about the IT industry comes from the very early days of when the Internet was being invented to all the leaps of technology since then.

The NBN

The first I hear about the NBN was when Prime Minister Kevin Rudd announced that he was going to upgrade every home in Australia to have an optic fibre connection.  The speeds that his government was predicting were astronomical when compared to the standard ADSL connection that had been deployed just a few years earlier.  The initiative was designed to lift Australia’s broadband Internet speed into the 21st century.  We were given the sales pitch that this would create a whole new digital data economy.  We were being told that the medical profession would one day be able to perform remote surgery on patients.  We were being told that it embarrassing that our Internet speeds were slower than South Korea.  We were being sold a utopian dream of how the government was going to give everyone the best high-speed Internet in the world that would pay for itself in no time.

Yes, that is how the whole concept went from an initial estimate of $4 billion to over $50 billion and more in just a short period of time.  How did it get to this point?  Not only did we get to this giant waste of taxpayers’ money, the trend of waste has continued even when the government changed.  Ten years on and there is no end in sight to completing the NBN project.  Messages and information that I have received from people inside the NBN project paint a messy picture at every stage of its rollout.  This includes undertrained staff, shortages of optic fibre specialists and private installers who engaging in dodgy practices that will inevitably lead to ongoing faults in the network.  However, none of these rumors are unique to NBN.  What is unique to the NBN is the scale of how the government set it up and pushes its agenda.

NBN was created as monopoly where every other telecommunication and Internet Service was moving to abolish monopolies. Instead of letting the open market decide what technologies were best suited for each customer, the government bet everything on an ‘optic fibre to the premises’ mantra.  No other technical solution was given serious consideration, meaning the NBN not only monopolized the market but the technology to be used in that market.

The second, and far more crucial, failure of the NBN is its business model is driven on ‘market push’ rather than ‘market pull’.  This may seem like a banal point to people who are outside the IT industry but is the fundamental driver to making a profit.  If people do not want something, they will not purchase it.  If they do, then they will go out of their way they get it.  This is how the entire first generation of the Internet was built – Market Pull.  The idea of the having access to the Internet started a massive industry that had customers lining up for simple dial-up services.  The entire Network was paying for itself before it was even built.  The second wave of Internet expansion came with the introduction of the ADSL backbone. Again, no one needed the government to force people to buy this service.  The customers chose ADSL because the product was the best available at the time and they consumed it greedily.  There was no major multi-billion dollar government program to pay for the ADSL network because it was not required.  The consumers were paying for what they wanted in a competitive market.

The fundamental problem with NBN was not in its choice of technology but in the fact that it was being driven by political masters for political reasons.  The NBN was a major infrastructure build driven by the policies created by people who wanted to win an election.  It was primarily designed to inspire votes, not free market consumers.  There is a difference.

The NBN also has a third burden that is forcing it to become unprofitable.  That is the obligation to provide the network to all Australians regardless of cost.  This is similar to ‘first phone obligation’ that Telstra had to somehow provide a phone service to every Australian.  This obligation meant that the installation of a phone service could cost the company hundreds of thousands of dollars to install in a remote area.  The service had to be installed by Telstra under its legal obligations despite the fact that it would never be able to recover to losses.  Some NBN services in remote areas have cost nearly half a million dollars to install.  The government does not care about the cost because it can point how rural voters are being looked after.  However, NBN co will have to absorb the costs and pass them onto the consumers as higher charges all around.

Finally, we have the absurd situation where this monopoly actually restricts innovation.  NBNco is complaining about what they see as rogue operators moving into their market space to provide alternative services at lower costs.  Imagine that, competition and cheaper prices are now the enemies.  The NBN is no longer about getting the best service to the consumer but ensuring a monopoly os protected.

The whole NBN project was doomed from the start because it was an idea dreamed up by politicians, not IT companies; nor was it something that market forces were driving.  The NBN was, at its heart, a pork barrel thrown out in an election year to buy s few extra votes.  Now that barrel of pork is starting to smell bad.

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