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

19 comments:

Andos said...

Seriously, Peter?

If you want to call for a CBA, why do you use so many ridiculous and hyperbolic assertions?

I really can't work you out on this. You seem to think that we shouldn't be making infrastructure investments without cost-benefit analysis. Sure, ok, that's fine.

But then you compare building the NBN to replacing every road in the country? If you want to have a serious conversation about the need for a CBA, why provoke proponents of the investment with such absurd comments?

Anonymous said...

Billions are already being spent on roads with BS for CBA. The current set of managers and bureaucrats in this country are all working to fundamentally flawed assumptions. Time to get real and challenge what passes for mainstream economics first. That's a bigger scandal than the NBN. We don't even have a way of pricing carbon.

Peter Martin said...

Andos,

Why do compare building the NBN to replacing every road in the country?

Because the NBN will replace 90 per cent of the phone connections in the country. That's the scale.

Oh, and both carry traffic.

When I talk to people in the industry roads are the analogy they naturally use.

You might be able to think of a better one.

Marek said...

How much of road spending is currently subject to a CBA?

I'm willing to bet there is more than $43bil over 8 years planned as well.

Peter Martin said...

Marek, If it is not, it should be.

And this should be too. Right?

Anonymous said...

I had to read this article three times to try and determine that this wasn't written by a teenager. Your lack of understanding in long term infrastructure spending is quite honestly breath-taking .. almost as breathtaking as your complete lack of understanding on the topic at hand.

Do you even have an idea as to what a fibre back-bone is; what the difference between fibre to the node and fibre to the door mean in terms of infrastructure? Do you even have a shred of clue as to the time it will take to enable such a system. How long it takes to blow kilometres of glass pipe through in-ground conduits?

My guess is no to all of the above.

From your article an educated reader can only take away one salient point - that the writer has absolutely no idea what he is writing about beyond what was written for him by the policy wonks in the Liberal party (and that is a case of the blind leading the blind if ever there was one). Of course someone not versed in the technology will be left shaking their heads and tut-tutting at what on the surface seems a large waste of money.

Maybe we just go with your solution (oops - sorry, Tony Abbott's - forgot who's mouthpeice you were for a moment there) and do cost benefits on everything that is ever suggested. Maybe we can instigate a few quangos and get some old mates in to crunch the numbers (I hear Rupert's son had some experience in running a Telco once upon a time).

Way to go in showing the world just how good an "economics correspondent" you really are. ;)

DaveMcRae said...

some analysis here in case one is unaware http://www.dbcde.gov.au/broadband/national_broadband_network/national_broadband_network_implementation_study

Peter Martin said...

Dear A,

I have not confused fibre to the node and fibre to the door, nor fibre to curb for that matter. Each is different.

This is a fibre to door project. I don't work for the Liberal Party. Heaven forbid!

Anonymous said...

The road comparison doesn't seem valid to me. But if we do have one I think rather than say we are ripping up a perfectly valid road infrastructure to build a better one it is more like when we ripped up old dirt tracks and replaced them with asphalt roads. These were needed and helped build the modern economy. Much like replacing an aging copper network with a new fibre network will do.

I think the NBN will have benefits way beyond what can be imagined by any CBA and if the do produce on it might come with too many current costs and not enough unseen benefits an scuttle the idea.

Peter Martin said...

You are worried about a cost-benefit analysis because it might scuttle the idea?

Mmmm..

Better not have one then.

Mmmm...

Not too sure about the dirt track analogy. A lot of people have pretty impressive broadband access.

It might make more sense to improve the service where it is actually bad.

Anonymous said...

This is a good article Peter.

The massive amount of spending on this project has not been justified. And many people on this site seem to object to your reasonable questioning of this but none of them give a rational argument. They just assert more beliefs that this project will be worth it.

I'm all for fast broadband but it has to be affordable and neccessary. Such spending does need thorough and rigorous anlaysis including a cost-benefit analysis. The case needs to be made for the project to be justified. It has not been made thus far.

Ram said...

It is not about replacing - it is about building.
Where is the CBA for our roads as they exist? Where the CBA for the phone service, the telegraph, the gas and the water supply? Where is the CBA for MEdicare? The Liberals and Nationals, including Howard never supported Medicare - would your CBA have done the job? Ridiculous argument.

Senexx said...

The PC is just another right wing mouthpiece, even if it is allegedly independent from the government.

Replacing the roads of today with the roads of today is a stupid idea but if we use some ideas from sci-fi we can have roads of the future with benefits. Putting solar panel on all the roofs in Australia is a good idea. So is handing out digital set top boxes to all the people without one.

As for air travel, the benefits still don't match the cost of a ticket. It remains unaffordable for all but the richest of Australians or stupidest. Assuming private flights not company flights that is. This is the case whether its internal or overseas travel (cheaper of the two but not enough)

As for costs, the costs are irrelevant, ask any MMT proponent, chartalists. Better to try and fail then not try at all. After all it is impossible for Australia to go bankrupt and it is unlikely we will pay higher taxes unless the economy is at full employment but it will never be because the RBA never wants it to be. Thus the RBA slackening off its Full Employment (via a proper definition not the mythical NAIRU) is the cause of depression and mental health illness in Australia. Oh and the politicians of course.

It is my belief Mr Martin's premise is directed from above by his company which is becoming more and more conservative.

This just feeds into Australia being too scared to lead the world and always a follower.

To highlight how absurd comments on the NBN are, do a cost-benefit analysis on having a child whether its your first or one down the track. A child is little more than costs under a CBA, so maybe no one should have any.

Everyone picks on the NBN because its the only policy of substance and every one opposed to it is a conservative, conservative as in they wish to preserve the status quo

Anonymous said...

Apart from the last paragraph, Senexx's comment seems a good one. However, it is my understanding that the NBN will cost users much much more than current ADSL2+ costs us. It is also my understanding that ADSL2+ will not be an option available to us under the Government's current plan. I do not need faster internet than ADSL2+ (as I'm sure many others do not). I certainly do not want to be forced to pay much more for internet speeds than I do not need. I'm sure many people would feel the same way.

Anonymous said...

Logic and facts will get you nowhere in this debate. Your primitive use of reality will convince no one!

It isn't the most useless spending ever in Australia. Defence is far worse and the 20-30Bn of public funds should result in a network something.

Unfortunately this thing is just too popular and too few journalists question it.

Is there a broadband plan that you think is better? What did you think of the original Rudd plan that was taken to the 2007 election?

Peter Martin said...

I've questioned defence a few times.

I didn't think much of the broadband plan Rudd took to the last election. This is better in some ways, worse in others and many times the price.

It wouldn't be so bad if if it ran alongside what we had to provide competition. But then it would get insufficient takers. Not enough people want it and are prepared to pay for it, or at least that's my impression.

But I'd rather have a CBA examine it than swap impressions.

Shiniami said...
This comment has been removed by the author.
Shiniami said...

the building of the NBN will fix one of the major mistakes of the initial sale of telstra; infrastructure should not be owned by private companies, they should be owned by the government. also much as for some people being close to the exchange after approximately 3km*, all internet is the same level. and the speed given in the graph is assuming perfect connections and you actually being given by your isp the full bandwith, not to mention the large parts of rural australia barely have dial up.

*http://www.internode.on.net/residential/broadband/adsl/extreme/performance/

Peter Martin said...

Shiniami, You'll be disappointed to hear that the NBN will be jointly publicly privately owned.

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