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NBN: cost benefit analysis « Previous | |Next »
October 1, 2010

This debate on Lateline between Senator Conroy and Malcolm Turnbull over the National Broadband Network (NBN) got nowhere. It's a pity because Turnbull posed the right question:

Now if the question is: how do we ensure that everybody in Australia gets the same speed of broadband as the best broadband in our cities? If that's the question, and I think that is the fair question, then what a cost/benefit analysis would do is say: how can we most cost effectively achieve that goal? And then you would weigh up the option of improving and remediating our existing network, which would cost a fraction of $43 billion; or you could go down the route that Stephen is proposing of trashing our existing network, trashing that investment and building a new one. But that cost/benefit analysis is what any rational government would do and yet that is what he has chosen not to do, because he does not care about taxpayers' dollars.

But Turnbull remains fixated on the $43 billion, cost/benefit analysis, government waste and government debt. His is an anti-government criticism from the perspective of the market.

What he conveniently forgets is that the best broadband in our cities is not the degraded copper wires or the HFC cable for television. As Conroy points out with the current infrastructure you cannot have high-definition video conference, you can't do remote diagnosis, and you can't send big files. The best is fiber-to-the-premises.

Secondly, Turnbull does not say what kind of cost benefit analysis he thinks should be done: an exercise in measuring private net benefit for a commercial entity or one that measures the net benefit to human welfare. Most people think in terms of the former (the business case) when it is the latter that is require a and Turnbull doesn't both to enlighten them.

He won't because, as Possum Pollytics points out:

A CBA on the NBN would effectively tell us less than nothing.No amount of monte carlo simulation jiggery pokery to estimate risk distributions using the most innovative pricing mechanisms the world has ever seen, can overcome that simple fact – as it is uncertainty, not risk, that dominates the benefits. It is the unquantifiable things we don’t know, rather than the quantifiable things we can pretend to think we know, that dominates the entire benefit side of the equation.

Turnbull won't spell this out because his brief is to destroy the NBN. Those in the business community, such as Michael G. Porter the director of research and policy at the Committee for Economic Development of Australia, are little better. They introduce the opportunity cost argument:
And does it make sense to rural and regional communities to have so much public investment swallowed by hard-wired broadband, when there are compelling demands for better education, health and roads? Is it appropriate for all taxpayers, city or country, some of whom may never wish to subscribe to faster broadband speeds, to shoulder the substantial capital investment involved?

The proper answer to this rhetorical question is that we assess the benefits that could be derived from spending the NBN money on alternative investments MINUS the cost of replacing the copper network with some other functional alternative. Porter makes no attempt to do so. Nor is he interested because his brief is one of negativity, demolishing and wrecking.


| Posted by Gary Sauer-Thompson at 1:08 PM | | Comments (2)
Comments

Comments

The other thing Turnbull, and others, conveniently forget is that a considerable amount (perhaps most) of the existing copper wire is in such a poor state it needs to be replaced.

Yes you wonder sometimes if the politicians have any genuine understanding of the issues involved in the NBN. Does Turnbull think we've reached some kind of technological plateau? Presumably not, he's anything but stupid, but he still talks as if we can just sit still for a few years while everyone else catches up to the Sydney CBD. But of course by then the CBD will have moved on ... what does he suggest should happen then? How can you have a policy based on matching a benchmark that keeps moving?