NBN: The long toll road to nowhere

Communication economics and transport economics are virtually interchangeable.

Genghis Kahn built his empire on the fast communications of pony express to the nodes of his empire. A horse provided the speed to communicate. The road or track was the equivalent of a cable. The fixed infrastructure provided by the tracks allowed movement of horses and riders which provided communication.

This system is similar to the fixed internet infrastructure and the emails we use to communicate today.

I want to use the transport analogy to explore the potential downsides of the NBN as well as to look at what it might mean to government revenue in the future.

As we are all familiar with roads and traffic, let’s treat communications as a transport substitute applying the same principles to electronic infrastructure as to transport infrastructure.

There is a service delivery appropriate to an infrastructure which can be justified by a return from operating costs.

If we look at the financing of the National Broadband Network we can see that it is like a toll road. In financing a toll road the final decision always comes down to the capital financing available, market research justifying the cash flow projections, the robustness of that research and the cash flow generated by the tolls.

Unfortunately, I believe that these items are not available for scrutiny for the NBN, but I more than suspect that they do not stack-up.

We have some recent transport examples of what happens when the assumptions do not stack-up.

Even with the best assumptions toll roads often only become profitable when they are sold on at a capital loss. Australia has had recent history of such failures.

With transport infrastructure the capital costs and operating costs of the road, or the railway, or the airport are the basis for any major investment but a business proposal is needed to raise the finance necessary to carry out the project.

Try raising finance without providing capital costs, operating costs, marketing projections and the assumptions needed to make a long term project viable. The answer would be “great idea - but we need more information”.