Like most people, I was surprised by the announcement that the Rudd government proposes to build its own Fibre-To-The-Home network, covering 90 per cent of the population, at an estimated cost of $43 billion. I haven’t seen enough to make an informed judgement, but since this is a blog, I’ll offer some uninformed judgements instead
* Something had to be done about Telstra, and its continuous attempts to hold the country to ransom by virtue of its monopoly ownership of the copper wire network. The plan includes a breakup of Telstra and will, if successful, imply that the new network will largely supplant Telstra’s. The obvious alternative, canvassed here by Paul Kerin, would be to renationalise Telstra, keep what was needed and sell the rest. Politically, that’s probably an even harder sell than the current proposal, but it has some significant attractions
* On the assumption that the network needs a 10 per cent return to cover capital costs and depreciation, it needs revenue of around $4 billion a year, on top of operating costs, say $1 billion a year. That would require 5 million households and small businesses to pay $1000 a year (about $80/month) each. Not beyond the bounds of possibility, given the increasing centrality of the Internet, but unlikely if all that is on offer is a faster version of the existing product
* This implies the need for a “killer app”, and the obvious one, to my mind, is video-telephony/video-conferencing. It can be done, just, with existing technology, but the possibilities would be radically transformed by the advent of near-universal fast broadband.
* The idea of eventual privatisation reflects the government’s residual attachment to the ideas of the past 30 years. But, if this is a success, and if current interventions generate an economic recovery, I doubt that any government will be in a hurry to sell. Of course, if it’s a failure, they’ll be keen to sell, but won’t get much of a price.
* This is clearly a case of ‘picking winners’, but where technology is characterized by huge scale economies, that’s more or less inevitable. Certainly we haven’t done well with the notionally hands-off approach we’ve adopted for the last fifteen years or so.
* The chance of getting this through the current Senate is just about zero. If the government’s popularity holds up, the case for a double dissolution will become steadily stronger over the course of 2009