Update No. 113 – 17/05/13

It was ‘Budget Week’ in Australia this week as Wayne Swan handed down his sixth and – barring something deeply unexpected – final budget. I don’t intend to make any detailed political commentary here, unless a particularly economically heinous new policy is announced, I intend to float above politics on this blog.

It did bring a wry smile to my lips when I heard him declare the economy would be ‘weaker than it is’ had we not run the $19.4b deficit instead of the promised surplus. No wonder he was named the world’s greatest treasurer, he understands that deficits have a ‘stimulatory’ effect on an economy!

There was one very major positive for me in the budget, the fact that the prices used to forecast revenues from most major resources are now in the public domain. This will allow for economic commentators to see major revenue shifts coming as they will know the price Treasury has used in making its forecasts. It should avoid the charade we went through this year.

On the topic of Government expenditure, I was given to think about the NBN this week. Three years ago, Malcolm Turnbull (opposition communications spokesman) wrote a pretty good essay explaining why it was a mistake for the Government to be investing between over $40 (& some say as much as $90) billion dollars in the NBN. Most tellingly, he commented:

“an alternative technology or another way of leveraging existing technologies might come along and render this huge and supposedly ‘futureproof’ investment obsolete.”

This argument regarding the risk of obsolescence, I have been surprised has not had more coverage. I believe it was and is a very real risk.

In fact, Samsung this week announced it had conducted its first successful testing on 5G. They have successfully tested speed of 1056 MBPS, but they claim they will be able to get up to 10 times that once they finish developing the technology. The NBN will deliver 100 MBPS, so 5G appears likely to be between 10 & 100 times faster.

NBNCO are currently predicting a 2021 finish date, though their forecasts have proven wildly optimistic so far. Samsung claim they will be able to deliver 5G commercially by around 2020. So the 2010 statement by Malcolm Turnbull sounds remarkably prescient at the moment. A widely available commercial technology will be much better than the very expensive and recently completed NBN come 2020.

Clearly there are other factors the Government must consider when making infrastructure decisions such as the NBN. 5G will likely be unavailable in large (and thinly populated) tracts of Australia. A big driver in the NBN decision was obviously to have a virtual blanket coverage of a very high-standard of technology available. This is in my view a mistake. People are amazingly resourceful when it comes to finding goods and services that they desire. If high-speed internet connections are an imperative for you, and they are not provided in your current locale, you are free to relocate.

If the Government was really interested in advancing Australian technology capability, and felt the market was not mature enough that a commercial entrant would try their hand, there were alternatives. In my view a better solution would have been to create ‘technology precincts’ & selectively rolling out NBN style technology to a few of them. Pick a few regional centres (for the bigger cities will usually have the latest techonlogy because it is commercially viable there) which have an existing technology sector and roll the NBN out there. Technology types will be attracted there and the inevitable inefficiency that comes with very-large-scale infrastructure is mitigated by a more focused effort in fewer places.

How does this all affect your portfolio? It probably doesn’t.  We have very few holdings that will be strongly altered one way or the other by the NBN, but I still spend a lot of time thinking about what future Australia might look like.

After several weeks of making new record highs, EGP share-price declined a little this week along with the market, there is minimal news over the coming months, perhaps a few ‘updates’ from our holdings, so it will potentially be a quiet period, driven mostly by market-sentiment – Tony Hansen 17/05/13

EGP Fund No. 1 Pty Ltd. Up by 18.61%, leading the benchmark by 5.30% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 44.39%, leading the benchmark by 26.30% all-time (April 1^st 2011).