Wednesday, October 13, 2010

Wednesday Column: Just build the NBN and bugger the expense

I am worried about the state of our roads. But I've got an idea. Bear with me, even if it reminds you of the NBN.

Let's replace the lot - every single road - with brand new state-of-the-art roads. They will be faster, they will unleash new uses for roads not yet dreamed of, and they will boost our productivity in ways that can not yet be quantified; so there's no point in subjecting the idea to a cost-benefit analysis.

Sure it will cost tens of billions, tie up our construction workforce for years and destroy existing fully-functioning infrastructure on a never-before imagined scale, but it'll be nation-building.

And let's do it without even considering alternative uses of the money, because... well that's where I lose my way.

I've been deluged with this sort of stuff ever since I had the temerity a few weeks back to suggest we should look before we leap on Australia's biggest infrastructure project, subject the planned National Broadband Network to the same sort of cost-benefit analysis as is required for lesser projects and was required for the Snowy Mountains scheme to which it is compared.

But apparently there's no point in conducting a cost-benefit analysis because you can not "talk about the benefits of an NBN with meaningful quantification of these benefits".

Which to me, sounds like a weak selling point... I can think of all sorts of projects (replacing every road in Australia, putting solar panels on every roof in Australia) for which unquantifiable benefits would normally be regarded as a poor reason for letting the tractors roll.

I am sure that faster, more widespread broadband would be nice. But I keep being told it's essential ("physics doesn't allow faster copper") and essential now ("the problem is that most people don't understand the advantages we will have if we do this now") in an inversion of the usual injunction against being an early adopter.

The selling points are unclear, which may be why "most people don't understand" them. Much of Australia already has good access to high speed broadband, so good that when offered the opportunity to switch (Optus Vision and Foxtel have slung coaxial cables down suburb after suburb) most passed.

It would be a bold planner that ignored actual market intelligence about what consumers are prepared to pay for. The NBN's cables will be slung alongside the lightly-used Otpus Vision and Foxtel cables cables, but it is not completely stupid. It has done a deal with Telstra to disconnect our existing lines after it puts up its cables but also reportedly a deal with Optus Vision to turn off its service and a deal with Foxtel to prevent its service carrying voice and data.

Whereas normally Australia's competition tsar Graeme Samuel might be expected to raise an eyebrow at such a wanton destruction of competition, those who have spoken to the ACCC chief say he's relaxed about the idea and excited as a tech-head. In any event special legislation is planned that will exempt the literal destruction of competition from the provisions of the Trade Practices Act.

Many Australians are denied good access to broadband. For them government action along the lines proposed is a good idea and would pay social dividends. The cost-benefit studies that have been done overseas find that it's the ubiquity of broadband rather than its speed that brings the benefits. That's why neither the US nor the UK - two countries to which we normally compare ourselves, are planning to rip out their existing wires and replace them with faster ones.

If asked, Australia's Productivity Commission would most likely find the same thing. And it would explain the meaning of the term "opportunity cost".

Spending tens of billions of dollars one thing means it can't be spent on another. Some say it's the only important concept in economics. Tying up tens of thousands of construction workers ripping out and replacing what we have necessarily means they won't be available to build wind farms or desalination plants or something else we might regard as more important.

The reason the Productivity Commission isn't being asked is that promoters of the NBN are afraid of the answer.

They tell me things that make me want to weep: "I used to work in a mechanics shop. We frequently had people telephone and describe their problem then try to order the correct parts. Imagine if, instead of dialing in, the customer could 'screen in' and show us exactly the motor and their problem." Gee they could do that now, with a webcam and access to even rudimentary broadband.

How about telemedicine, which can happen and is happening now through hospitals connected directly to fibre, without the need to put a fibre into almost every house. Electronic health records don't even need the NBN, yet our government is happy to parade around reports pretending they would be one of the benefits of the NBN.

Many Australian businesses are already connected to fibre. Many more could be if they paid for it, or moved down the street. Households - quite rightly - often can't see the need, even in Tasmania where the introductory wholesale price is close to zero, making the retail price unrealistically competitive.

I am not saying that fast internet is bad, just as I would never say fast air travel is bad. But there's a museum in Britain where tourists can sit inside and touch the last Concorde. The fastest passenger plane ever was a massive government project conceived in the absence a cost-benefit study. Its benefits never approached its costs.

In a sane world we would ask questions before jumping to answers. It is what Labor promised when it said its decisions would be evidence-based. Instead our Communications Minister is behaving like a shark moving in for the kill. His eyes are clouding over.

As his Shadow Malcolm Turnbull plaintively asked yesterday, "if the NBN is the answer, what was the question?"

Published in today's SMH and Age

Peter Costello today: "You might think someone would look at whether it would work before spending $43 billion. You might even wonder what else could work with $43 billion."

Malcolm Turnbull today: "Governments deal with scarce resources – your taxes – and they owe it to us to rigorously prioritise and analyse the projects on which those taxes are spent."

Related Posts

. The NBN is a slowly unfolding disaster

. What passes as cost-benefit analysis of the NBN

. We're spending a fortune on new wires, we'll disconnect the ones you have

. Questions for the NBN cheer-squad