Sloshing the next-gen cash around

Robert Clark
17 Jul 2009

Now is a bad time to be an economist but a good time to be building an NBN.

Until recently, economics was easy; markets ruled, intervention was bad.

Those who weren't disabused of the illusion by the financial implosion must surely have been crushed by Alan Greenspan's mea culpa.

"I still do not fully understand why it happened," Greenspan told a congressional committee last October. "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."

The upshot of that mixup, apart from the disappearance of Bear Stearns, Lehman Brothers and a trillion bucks in shareholder value, is that it's cool for governments to play in markets.

That doesn't make much difference in Asia where, Hong Kong excepted, economies are driven by visible and well-manicured hands of civil servants.

And it doesn't necessarily impact on telecoms, which tries to have it both ways. Everyone professes a belief both the free market and in government regulation. Incumbent telcos will kvetch about too many rules, challengers will talk about the need for protection, and regulators will hold forth about a need for a "balance" between the two.

But now, just as carriers are beginning to roll out NBNs, the environment has changed. Not only are governments casting around for items to spend taxpayers' money on, but economists are encouraging them.

Smell of litigation

Australian Prime Minister Kevin Rudd is feeling especially generous. He's offering to fund half of an NBN network that could cost as much A$43 billion ($31 billion). That's a long way from his original plan to spend A$4.7 billion. By raising the stakes Rudd and his colleagues have hurdled the awkward fact that they had booted Telstra, the only company actually capable of building an NBN, out of their tender.

Supposedly, the government has offered Telstra and rival Optus the opportunity to tip their ducts and access networks into the new company in exchange for a slice of it.

The first problem with all this is that telecom regulation is complicated at the best of times. Governments, driven by their own political agenda, tend to make it even more complex. The Australian auditor, for one is concerned; it's begun a probe into the tender from which Telstra was rashly excluded. The smell of litigation hangs in the air.

With the staggering amounts of money at stake, it's not the kind of project you want to get wrong. It's a high-risk game, and though Rudd & Co are aiming to lay off some of that by selling half of the NBN carrier, they have yet to persuade anyone to join their scheme.

At least they have the right idea in mandating structural separation. Even Telstra, now that it has a new CEO, accepts it on the right terms.

But Singapore is taking structural separation to its limits, if not beyond. You'd think two layers would be enough for tiny Singapore, but no, it's hit on the idea of a three-tiered industry.

The IDA has split the wholesale level into two because, being the over-governed city it is, this enables it to throw a bone to both government-controlled carriers, SingTel and StarHub.

Or rather, it settles the argument between them. Instead of holding one tender and awarding the winner a bucket of cash, the IDA ran two tenders. SingTel (55%-owned by the state investment firm Temasek), SingPower (100%), SingPress (20% owned by DBS, which is 28% Temasek-owned), and Canadian firm Axia won the big prize, S$750 million ($516 million).

StarHub (ST Telemedia, 100% Temasek-owned, is its biggest shareholder) won the S$250 million consolation prize.

These aren't quite the lavish sums being splashed in Australia, but Singapore taxpayers can rest assured that however it is spent, they'll never know. IDA chief Rear Admiral Ronnie Tay says he doesn't know how much has already been disbursed and even when he finds out he certainly won't be telling anyone.

The times may suit the NBN builders, but taxpayers should be frightened.

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