The Abbott government’s “independent cost-benefit analysis” of the NBN has clearly failed to settle the debate about Australia’s broadband future, with politicians and industry rounding on the report for bias and questioning its conclusions.
One of the report’s obvious eyebrow-raisers is its assumption regarding low growth in consumer demand for broadband, as Stilgherrian discussed yesterday. There’s not much wiggle room in the costs of either approach, so in order to get the desired (if not preordained) finding that Labor’s fibre plan is too costly, some other assumptions had to be made. They appear to heavily discount the benefits of connectivity for Australia.
The reference case used to compare the two models was an unsubsidised roll-out of faster broadband by industry. This reference case had the best net benefit — namely zero. This implies that the benefits of the broadband to society are only worth the money spent on them by industry and don’t warrant further government investment. Another way to say this is that the full benefit is gained in the commercial return the investment brings to industry, and the value for money received by consumers. The spillover benefits to society are of limited value.
This means that the Coalition’s own multi-technology mix (MTM) model, involving continued reliance on the bottleneck of the copper network, itself brings a -$6.1 billion net benefit. This is chiefly because the cost of bringing broadband to regional Australia outweighs the benefits — by a factor of nine to one. That’s $6890 of net loss to society per household outside the cities. What does that say about the assumed value of being connected in the bush? About its power to bring services to the regions and enable people to stay in communities that might otherwise wither?
Setting the costs aside for a moment, according to the study, the benefits of a full fibre-to-the-premises rollout are $4.7 billion lower than the MTM model. In other words, even if FTTP cost the same as FTTN, the government’s model would still be the wiser choice. How can this be? Because the slower roll-out (by up to four years) of fibre reduces the benefits enjoyed in the short term.
It is certainly true that Australians need and want faster broadband sooner. But it’s hard to see how, even with a four-year delay, the benefits of ubiquitous gigabit-ready fibre and of being rid of the old copper network do not outweigh the benefits of the slower, more complex and difficult to upgrade hybrid model. Over the span of a few decades, the advantages of fibre are self-evident.
This highlights the limitations in a narrow, micro-economic view of broadband’s benefits. Using consumer willingness to pay as a measure of economic utility gained is standard in economics — but it is a less robust measure when we are talking about national infrastructure with the potential to change the economy itself. It is particularly flawed in this case, as it is combined with projections of growth in demand that are incremental at best. There is no hint of the technology revolution still to come in a statement suggesting demand is “not expected to grow at all for higher speeds (greater than 50 Mbps download or greater than 9 Mbps upload)”. I imagine that in 2030 this sentence will make for amusing reading.
But perhaps most controversial are the assumptions around the broader benefits as summarised by the report: “The majority of the benefits from higher speed broadband accrue to private uses within households and businesses … benefits accruing outside individual households or businesses such as in health and education … are a very small proportion of the total benefits.” They estimate broader benefits to society of greater broadband at about 5% of the total benefit.
This gels with the Coalition’s apparent view of the internet as an entertainment device for bored geeks. You might say it downplays the NBN’s potential slightly. I trust that this part of their modelling will receive special scrutiny in days and weeks to come.
As a thought experiment, go back 10 or 20 years and imagine what a similar analysis would have predicted in terms of the benefits of getting Australia online. It wouldn’t have captured the transformative effect that the internet has had on education, travel and government; or on the complete revolution it has brought to business. Yes, these benefits would be of an order to dwarf the costs of either proposal.
In the game of political football the NBN has become, discussion about why we need a broadband policy at all has been poorly served. The good thing about this analysis is that it might stimulate debate about the real benefits of communications technology — and what we think it can do for the society we want to be this century.
The problem seems to be that most of the Govt and its cheer squad think that fast internet is only good for downloading movies and porn. Science, health and educational uses are all a bit foreign to them, and best left to future 457 visitors.
In the early days of electrification, electric motors replaced steam motors and electric light replaced oil light.
Since then electricity has been used for intelligent control of a wide range of industrial and domestic processes.
In the early days of broadband, downloads replaced DVDs and TV.
After that the internet of things will allow intelligent coordination of large sectors of social and economic activity – but not under this government
Not sure whether the authors of this report were dolts, neanderthals, Luddites, or just deliberately obtuse.
It is a classic economists argument, measuring the cost of everything and the value of nothing.
This will be seen in future as one of the great visionary ideas of the early 2,000’s, people will line up to argue how quickly they got on board to support it, economists will be doing sums to work out how many tens of billions of dollars it cost the Australian economy by not going full-steam ahead, and how much was lost by this ridiculous hybrid model that relies on copper wires which are already at the end of their life.
It’s laughable, and yes, much of this report will be held up as a case study in stupidity and short-sightedness for decades to come.
Abbott Govt. continues to redefine future of Australian Nation’s aspirational need to access, identify, future technological opportunities.
NBN, Renewable Energy Industries but two opportunities now gone begging!
Can one call Government a Luddite or, must the term be restricted to responsible, individual Ministers??
Every day, in my job working for a start up about to turn over A$1 million per month after only 2 years of being in operation, I have video calls with at least 3 people around Australia, 3 video calls to India, and 1 video call to San Francisco.
There are 4 people in a role similar to me, all who have similar calls, all around the same time.
Then there are the sales team who are always on the phone (which is connected to the net and not landline). Our media editor uploading videos to youtube, our designers calling Eastern Europe, and our web developer on calls to Indonesia.
As well as our boss playing music through spotify.
80% of the time, we are going “What? Sorry, I didn’t get that, can you repeat that please?”
It’s an abomination that we are working with ADSL 2+ speeds. It’s an abomination we’ve waited over 3 months to get fibre installed AND we’re still waiting for it. It’s an abomination that a company with nearly $10 Million a year turnover whose bosses voted Liberal are treated with such contempt.