NBN Analysis: The cost-benefit analysis of the national broadband network has produced the conclusions that critics of Stephen Conroy’s decision not to commission a similar analysis would have predicted. It was obvious that the costs of building a gold-plated fibre-to-the-premises network would far outweigh the benefits and that over-building perfectly useful existing HFC and ADSL2+ networks would be a large-scale waste of taxpayer funds. NBN Co’s own strategic review put the cost of Conroy’s NBN at $73 billion versus $41 billion for Malcolm Turnbull version, which uses a multi-technology approach that includes fibre-to-the-node, HFC, ADSL, satellite and fixed wireless. The Vertigan Committee’s approach is different -- it incorporates benefits as well as costs -- but essentially buttresses the conclusions of NBN Co’s strategic review. There’s never been any dispute that Australia needs higher and more ubiquitous broadband speeds. The core question is what approach delivers fast-enough speeds for the foreseeable future at a cost to taxpayers that can be justified. The nub of that question is what households might need and be prepared to pay for over the next decade or two. The Vertigan Committee commissioned modelling of household demand for bandwidth and come up with some unsurprising results. The median household -- 50 per cent of households -- would need/use 15 Mbps by 2023. The top 5 per cent of households would require 43 Mbps. The top 1 per cent would need 45 Mbps. The top 0.01 per cent would need 48 Mbps. Modelling that confirms consumers’ willingness to pay for higher speeds falls away dramatically as the bandwidth and its cost increases -- reinforces that conclusion. Thus, under Conroy we’d have ended up with an extremely expensive network capable of speeds that only a fraction of users would need or could use or would be prepared to pay for. The committee also made the point that to deliver e-health and e-education services doesn’t require 100 Mbps broadband. They are low-bandwidth applications that are being delivered today without an all-fibre NBN. The question is what type of network produces the best outcome in terms of costs and benefits. Labor held that without a government sponsored NBN, metropolitan users would have waited decades for faster speeds, due to economics, and rural areas would have never been considered. The NBN, whatever technology were used, has to have an element of subsidy/cross-subsidy in it -- at a cost of around $5 billion -- to provide reasonable broadband speeds to rural and regional Australia. In the multi-technology mix version of the NBN that NBN Co is now committed to there is a negative net benefit of $6.1 billion relative to the reference case and, if the NBN were fibre-to-the-premises, negative net benefits of $22.2 billion, with costs of $17.6 billion more than those of an unsubsidised rollout outweighing benefits that would be $4.7 billion less than the reference case. The analysis confirms a FTTP network would take significantly longer and cost substantially more than the more pragmatic Turnbull approach of using a mix of technologies and using existing infrastructure. Conroy and the FTTP zealots argued that there was no need for a cost-benefit analysis because the future demand for broadband and applications for which it would be used were unforeseeable -- the benefits would be incalculable -- and therefore any attempt to assess the costs and benefits would be meaningless. The Vertigan Committee has demolished that argument, too, and provided a template approach for analysing future “build it and they will come” proposals (whoever ‘they’ might be and however many they might or might not be) to spend billions of taxpayer dollars in the process. Another failed big idea from a government bent on spending to be remembered.
Posted on: Wed, 27 Aug 2014 07:13:48 +0000
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