Vital Signs: NBN’s new price plans are too little, too late


Lack of speed kills: finally NBN Co is thinking about a genuinely 21st century offering for customers.
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Richard Holden, UNSW

This week NBN Co announced pricing changes for the National Broadband Network.

It includes a new plan boasting a download speed of 1 gigabit per second and an upload speed of 50 megabits per second for $80 a month.

These are 20-fold improvements on the maximum NBN speeds now. Almost a decade since the first customers were connected, NBN Co is thinking about a genuinely 21st century offering in terms of speed and price.

The NBN is late, over budget and slow. Australia places 58th globally for fixed-line broadband speed. Not only do the NBN’s advertised speeds lag international standards but the actual speeds often don’t come close to what is promised.




Read more:
Logged out: farmers in Far North Queensland are being left behind by the digital economy


Customer interest as a result has been unenthusiastic. NBN Co may well need to take a massive write-down on its assets because they don’t look like they’re worth A$50 billion.

All of this was entirely predictable, based on politicians failing to remember three basic lessons from Economics 101.

1: Technology often outstrips imagination

The history of innovation is littered with examples of remarkably important things being invented with no clear purpose in mind, or by accident, and then exceeding our wildest expectations.

Penicillin and vulcanised rubber (which led to the tyre for automobiles) were both invented by accident. The world wide web was developed as a means of communication among particle physicists. Most of us carry around in our pocket a computer (mobile phone) roughly as powerful than the world’s faster supercomputer circa 1985. Those have turned out to be pretty useful.

When the Coalition decided to scuttle Labor’s NBN plan for fibre-optic cable to every premises, on the basis that “fibre-to-the-node” and using existing copper telephone wires to the premises would be much cheaper, this is what the chief spruiker of the Coalition’s NBN plan, Malcolm Turnbull, said about broadband needs in 2010:

There isn’t much or anything you can do with 100 Mbps that you can’t do with 12 Mbps for residential customers.

The breathtaking lack of insight and imagination in this comment is responsible in no small part for the Flintstonian broadband infrastructure Australia now has.

Prioritising speed of roll-out (which hasn’t even happened) over speed of internet (which sure has happened) was a massive mistake.

2: Positives justify subsidies

You having fast internet is good for me when we connect. When consumers can connect quickly to a business’s website that’s good for the business. It makes it more profitable for businesses to invest in their internet operations. This has benefits for other consumers and even other businesses.

A great illustration of this is in Dunedin, New Zealand, where there have been all sorts of business-to-business spillovers from the city having the fastest internet speeds in Australasia. The ABC’s Four Corners program has highlighted how this has revolutionised New Zealand’s video-game development industry, among other things.

Economists call spillover effects to third parties externalities. Pollution is a negative externality, while the benefit of fast internet is a positive externality.




Read more:
Digital inclusion in Tasmania has improved in line with NBN rollout – will the other states follow?


A sound business model for the NBN ought to recognise the positive externalities and ensure they are incorporated into the price mechanism, by offering a partial subsidy to encourage people to sign up. Like the reverse of a carbon price.

One of the NBN’s key problems is the way successive governments structured national investment in it. Setting up NBN Co as a quasi-corporate entity needing to make a commercial rate of return on the roughly A$50 billion investment in the network was a huge mistake. It was the opposite of providing a subsidy.

The telecommunications companies who retail the NBN have complained that NBN Co’s wholesale price points mean it is hard for resellers to make a profit. It’s a kind of quality death spiral: an unattractive product means fewer people buy it, leading to the product getting worse, leading to even fewer people buying it.

3: Uniform pricing doesn’t work

Finally, it’s never a good idea to charge everyone the same price when there are different costs to serve different people.

The idea was that higher returns from easy-to-service city homes would subsidise the higher costs of service homes in regional and remote areas. But city homes, precisely because they are cheaper to service, have other options. If not enough city customers signed up to the NBN, prices would be driven up, making the network even less attractive to city customers. It’s textbook adverse selection, just like in health-insurance markets.

The government tried to get around this by banning competition. But that’s never really possible, especially from technologies not yet invented. Like 5G. The 2010 business case assumed no more than 16% of households would go wireless. Oops.

As economic journalist Peter Martin wrote in 2011:

NBN will never make a return on the cost of its capital or meet its customer targets if it faces competition. Its corporate plan says so, at point 1: “The plan assumes effective regulatory protection to prevent opportunistic cherry picking […] the viability of the project is dependent upon this protection.”

What to do from here

Multiple governments have bungled the NBN. But there is a way to salvage things – a bit.

Holding constant the technology (fibre-to-the-node), the best thing the government could do is write down its investment massively – ideally so low that it can flog NBN Co off to someone who can be subject to access regulation – ensuring, like other utilities, ownership of infrastructure doesn’t stymie competition – and make a modest rate of return.




Read more:
What should be done with the NBN in the long run?


Our super funds are always sticking up their hands for infrastructure investment. This would be a good one.

Ideally, though, the technology should be fixed. Fibre-to-the-premises was always going to be expensive, but it was also going to be fast, and as future-proof as we could get.

Lack of imagination and inability to think past 12 Mbps less than ten years ago should not hold the nation back now.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Who are the wealthy retirees targeted in Labor’s plans?


Roger Wilkins, University of Melbourne

In Labor’s budget reply speech, Bill Shorten reaffirmed the plan to remove refundability of dividend imputation credits. His pitch was to Australian voters on lower and middle incomes, in which he pledged to look after the country’s ageing population:

We know that giving older Australians the security and dignity they deserve matters more than an $80 billion corporate tax cut.

The issue of whether or not retirees should be able to get a refund in dividend imputation has sparked considerable discussion of retirees’ income and wealth.

The Household, Income and Labour Dynamics in Australia (HILDA) Survey shows that, overall, retired people tend to have lower incomes than the population as a whole, but higher wealth. This is because retirement typically involves ceasing employment and reducing income, while wealth tends to accumulate with age, at least up to the point of retirement, mainly due to paying off the mortgage and accumulating superannuation.

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The different mix of income and wealth for retired and non-retired households means it’s not straightforward to compare their economic well-being. For example, the HILDA Survey data show that only 23% of retirees aged 60 and over have above-median incomes (compared with 50% of the population as a whole); but 62% have above-median household wealth.

That said, retirees are generally wealthy if they have both above-median household income and above-median household wealth. With this definition, 20% of retirees aged 60 and over are wealthy. This compares with approximately 28% of the Australian population as a whole.

What does retirement wealth look like?

Among retirees aged 60 and over, wealthy retirees are on average about two years younger than other retirees, having an average age of 71.8. Nearly 97% of wealthy retirees own their home, compared with 76% of other retirees.

These retirees have net wealth in 2014 (when wealth was last measured by the HILDA survey) averaging over A$2.4 million at today’s prices.

While wealthy retirees have high average holdings of superannuation, investment property and other investments, the home is still the most important component of their wealth. The home is also the most important asset for other retirees, but in 2014 it was worth an average of only A$400,000 (at today’s prices) for these retirees, compared with A$800,000 for wealthy retirees.

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Wealthy retirees get most of their income from superannuation and other investments, although government benefits (mostly the Age Pension) nonetheless average over A$11,000 per wealthy retired household. For other retirees, the Age Pension is the dominant income source, averaging A$24,000 per household.

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The HILDA survey data indicates that both wealthy and other retirees on average pay little income tax – A$4,256 for wealthy retirees and only A$94 for other retirees. Indeed, less than 30% of wealthy retiree households, and only 5% of other retiree households, are estimated to actually pay any income tax.

Moreover, the data show that 42% of wealthy retirees, and 22% of other retirees, have negative income tax because of dividend imputation credits received on their holdings of Australian shares. This does not take into account taxes and imputation credits on dividends received by superannuation funds.

Given the tax-free status of superannuation in people’s “retirement phase” (albeit now only on the first A$1.6 million), it’s likely that more than 42% of wealthy retirees, and more than 22% of other retirees, effectively have negative income taxes.

The ConversationWhether you consider Labor’s plan good or bad policy, given its exemption of pensioners, it is clear that its impact will be most acutely felt by wealthy retirees.

Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Australia: Defence – The F-35


The F-35 Joint Strike Fighter is central to Australia’s air defence plans for the years ahead, however, the continuing delays are causing major issues for Australia’s current defence needs. The link below is to an article that examines the F-35 development program in some detail.

For more visit:
http://www.latimes.com/business/la-fi-0612-fighter-jet-testing-20130612-dto,0,4701367.htmlstory

Malaysian Sharia Law Outrage as Man Plans to Marry Young Girl He Raped


The link below is to an article that reports on a crime that is being pushed aside under Sharia Law in Malaysia.

For more visit:
http://www.guardian.co.uk/world/2013/may/22/malaysian-rapist-marries-victim-girl

Nigeria: Boko Haram and Amnesty


The link below is to an article that reports on plans to offer amnesty to Boko Haram in Nigeria, despite their terrorist acts.

For more visit:
http://www.persecution.org/2013/04/07/should-nigeria-provide-amnesty-to-anti-christian-boko-haram/

Nigeria: Plan to Grant Boko Haram Amnesty


The link below is to an article that reports on plans in Nigeria to grant Boko Haram amnesty, which I have to say I find difficult to accept.

For more visit:
http://allafrica.com/stories/201304050714.html

Syria: Plans to Arm Rebels Meeting Resistance


The link below is to an article reporting on the latest developments in the plan to arm Syria’s rebels.

For more visit:
http://www.guardian.co.uk/world/2013/mar/15/plan-arm-syrian-rebels-eu

Latest Persecution News – 27 April 2012


China Plans to Eradicate House Churches

The following article reports on the latest news of persecution in China, where China is seeking to eradicate Protestant house churches throughout the country, according to China Aid Association (CAA).

http://www.compassdirect.org/english/country/china/article_1517450.html

 

The articles linked to above are by Compass Direct News and  relate to persecution of Christians around the world. Please keep in mind that the definition of ‘Christian’ used by Compass Direct News is inclusive of some that would not be included in a definition of Christian that I would use or would be used by other Reformed Christians. The articles do however present an indication of persecution being faced by Christians around the world.

Persecution News: What was Missed While on My Break – Part 4


The following are articles from Compass Direct News from the period I was on my break: