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.