Land down underAussie government in $43 billion fast Internet scheme

Investing in infrastructure is a major part of the Obama administration’s stimulus package. Other countries are interested to invest in their own infrastructure, and if the private sector shies away from large outlays during this uncertain period, then the government will step in. Here is an example from Australia. The world’s economic slowdown forced the Australian government to scrap plans for a high-speed national broadband network funded by the private sector, and instead wager at least $21.9 billion of taxpayers’ money to fund his election pledge to bring Internet speeds into the twenty-first century.

The Australian’s Matthew Franklin and Nicola Berkovic write that Prime Minister Kevin Rudd has flagged a fundamental regulatory shake-up to prevent Telstra from standing in the way of the plan, even if it means forcing the telecommunications giant to hand over its existing cable networks.

Rudd announced the other day a $43 billion plan to link 90 percent of Australian houses and businesses to a “super-fast” fiber-optic network delivering Internet speeds up to 100 times faster than the slowest present services. Describing the project as the biggest infrastructure venture in Australia’s history — “an historic act of nation-building” — Rudd also said a further 8 percent of Australians, those living in towns of fewer than 1,000 people, would have access to high-speed services via wireless technology.

The government will implement the plan by setting up a company in which it will hold a 51 percent stake and will invite the private sector to invest in the remainder. It will also fund its initial $4.7 billion holding in the National Broadband Network Corporation from existing reserves and the sale of “Aussie infrastructure bonds.” It will use subsequent bond issues, targeting individual buyers as well as institutions, to raise the rest of the cost of at least $17 billion and potentially more depending on the level of private sector interest. The government will sell its entire holdings five years after the completion of the eight-year project.

Franklin and Berkovic write that last year the government asked telecommunications companies to tender for the right to build the network. Telstra, Australia’s biggest telecommunications company, was rejected after lodging a non-compliant bid. Rudd said the government had concluded none of the tenders provided value for money.

Rudd said that slow broadband speeds continues to constrain economic development, and that he was confident the private sector would become involved when the economy improved. He added:

This is an historic act of nation-building…. Plainly, at present, we are in a capital-constrained world. We understand that.

That’s why the government’s putting its best step forward, because we don’t want the Australian economy to suffer a comparative disadvantage relative to other economies in the world. Absent the taxpayer investing in this corporation, this technology would not be provided. It would not be laid out.

Rudd said the project would create 25,000 jobs on average during each of its eight years, with a peak of 37,000 jobs.

The government also sees the new initiative as what Rudd described as a “once and for all” solution to the problem created when Telstra was privatized a decade ago — while still holding a monopoly on network infrastructure and dominating the retail market. It is thus not surprising that Optus, Primus, Internode, and other Internet and telecommunications providers responded enthusiastically to what they saw as the government’s moves to remove Telstra’s stranglehold on the industry.

The opposition Conservative Party leader Malcolm Turnbull criticized the government’s plan, saying it was akin to renationalizing Telstra. “With one Telstra having been sold to the public, Labor is now proposing to build a second Telstra to compete with the first,” he said. He said industry analysts believed the new services would cost households up to $200 a month — as much as three times the cost of existing services. “No evidence has been provided that there will be a sufficient demand for this service at prices that will deliver a commercial return,” he said.

HS Daily Wire will publish Australian Technology and Innovation Special Report in June 2009; for more information on contact Cindy Whitman at cwhitman@hsdailywire.com