Costs and Benefits of the NBN

Another week, another Report on the National Broadband Network.

The federal government last week released the Vertigan Panel's much anticipated cost-benefit analysis (CBA) report on the National Broadband Network.

Several weeks ago (to quote myself), I called KordaMentha’s report into NBN Co’s corporate governance ‘the latest in a lengthy conga-line of ostensibly independent reports that cleave suspiciously to a position already laid out by the government’. Well, um, here’s another one, I guess. 

The Vertigan Panel is ‘independent’ in the sense that Two and a Half Men is ‘entertainment’: technically, and only if your standards for measuring such things are very, very low. Prior to the last federal election, Communications Minister Malcolm Turnbull promised that any CBA would be conducted by the Productivity Commission. Such promises are easy in Opposition, however. When it came down to it, it turned out he preferred to appoint a panel composed of members with close ties to the Minister and in some cases a history of vociferous opposition to the NBN itself. 

If the CBA isn’t independent, nor is it strictly necessary: you may recall that NBN Co was instructed several months ago to proceed with the MTM deployment, despite the fact that no one had seen the cost-benefit analysis. At the time this caused some outrage, but we needn’t have worried. It was almost as though the government already knew what the report’s main findings would be.

The Vertigan Panel’s main findings are that Turnbull’s MTM NBN (acronyms ahoy) is absolutely, completely the right way to go. Apparently the MTM version of the NBN will deliver about $16billion more benefits than Labor’s original fibre version. Or, to break it down another way, Turnbull’s technologically inferior NBN will cost almost as much as a full fibre network, it will take almost as long to build, and it will somehow yield nine times the benefits. Quite a win for Team Australia. Hardly worth wasting Mr Vertigan’s time with.

The panel arrived at these results via some pretty conservative assumptions regarding household and business data usage in the coming decades and some constraining frames of reference, provided by the Minister. The cost of protracted negotiations with Telstra, and of perpetual upkeep of the aged copper network, are minimalised.

There is inadequate discussion of upload speeds, and some of the figures used seem at best optimistic: i.e. FttN upload capacity is listed as being ‘mainly 20-50(Mbps)’, with even the most ‘pessimistic’ assumption being 20-30Mbps for nearly 65% of premises. (pp.46-47). Furthermore, to base projected demand for higher uploads based on the habits of a population still predominantly using ADSL (p.64) is inherently problematic.

Indeed, the CBA overall betrays a failure to grasp how advancements in technology enable innovation. Instead there’s a tendency to extrapolate future needs based on current practices. This is an accepted short-coming of CBAs, which aren’t in the business of auditing ‘vision’. It’s admittedly very hard to model all the innovation that won’t happen due to technical limitations. As Rod Tucker remarks in The Guardian: “Responses from the surveyed groups of users are surely biased by their knowledge of what the internet can provide today.”

The Vertigan Panel Report even argues that the hybrid MTM network is more future-proof, because it can be readily upgraded to fibre. Apparently this makes it more future proof than a full-fibre network, which wouldn’t need to be upgraded to be what it already is, although it could be easily upgraded to be faster in the future (since doing so requires no new fibre be laid). The Report also glosses just how much of a pain later upgrades will be, and doesn’t account for the much higher cost of having to do it on an ad hoc basis later on.

Given these glowing findings, one expects Minister Turnbull will be keen to tell all the counties around the world currently rolling out fibre networks to stop wasting their time and money. He could start with New Zealand, which is currently rolling out a national fibre network of its own. Curiously, the New Zealand government commissioned a CBA (from Bell Labs), which found that the benefits to national prosperity would be immense, especially healthcare and education, despite New Zealand’s far smaller area and population. The Vertigan panel dismissed the NBN’s impact on these areas as negligible.

Of course, one can always argue that Australia is a special case due to its size and population distribution, but the Vertigan CBA already took that into account, detailing just how expensive it is to provide high-speed broadband to the remote and regional areas (about $5 billion, for only $600 million return). It turns out it is prohibitively expensive to provide broadband for the bush whether you opt for Labor’s approach or the LNP’s. But we already knew that.

Cross-subsidising broadband rollouts into regional and rurals areas was part of the vision of the NBN from the start. Mercifully, Minister Turnbull has at least remained committed to this vision, whereby those members of Team Australia who don’t live in big cities can still get broadband access.

To even consider otherwise is to be reminded that ‘vision’ is the last thing a conservatively-framed and politically-tainted analysis such as that delivered by the Vertigan panel can hope to address. This in turn goes some way to reminding us that CBAs should only ever be one tool used in any decision-making process.

The Communications Minister subsequently took it upon himself to justify the economics of FttN (the main component of his MTM NBN) using nothing but a whiteboard and several marker pens, in a video that appeared online. This was all well and good, but was once-more undone by the same innately conservative predictions of future bandwidth as the CBA. The flaws in his whiteboard presentation have been pointed out repeatedly. One wonders if any of it will ever get through.