Sunday, September 12, 2010

The NBN is a slowly unfolding disaster


The NBN won Gillard government, but it's still a slowly unfolding  disaster.

It's just that by the time the scale of disaster is apparent Gillard will have moved on.

We run cost-benefit studies for small expenditures, but in this case not for the biggest single investment of taxpayers’ funds in Australia’s history.

Even after the tens of billions spent to build it we are going to have to pay to use it - far more than we are paying now.

If we don't, we won't be able to get the phone on at home (the wires we have now will be disconnected).

But by then fixed lines will be less important for many of us, and we will go mobile - something the NBN planners probably haven't fully factored in, rendering redundant perhaps most of the wires going into each house.

Remember Aussat - now space junk?

Remember Sydney's shinny new Olympic stadium?

It can happen.

Malcolm Turnbull has outlined the pitfalls - and the comments thread indicates that he was not universally thanked.

Christopher Joye has done a stirling job as well.

Now Peter Cox chimes in, with 10 NBN Myths.

Wise people pay attention to Cox.

Back in the 1980s when Bond and Skase and Lowy were paying a fortune for TV networks he ran the numbers and published a paper pointing out the revenues weren't there and they would inevitably lose their shirts.

He was right, but not popular.

Here are some (edited) points. The paper itself is below.

Myth 1 - An enabling technology

Some draw comparisons to the great enabling technologies of history “that alone or in combination with others, provides the means to generate great leaps in performance and capabilities of the user” . Classic examples include the wheel, the steam engine enabling the Industrial Revolution, the printing press, electricity, the telephone, digital, computers and the internet.

Broadband, and fibre in particular, is not a new invention, it is only a means of delivering existing and well proven technologies in a faster way.

Myth 2 – We Need Speed

In the US the National Broadband availability target under the FCC National Broadband Plan is for actual download speeds of at least 4 Mbps and actual upload speeds of at least 1 Mbps with an acceptable quality of service for most common interactive applications would ensure universal access.

Myth 3 - The Cost of Speed

Despite the US and the UK expounding the same rhetoric as Australia on the importance of the digital economy and the need for universal broadband they each intend to spend only a small fraction of the $43 billion Australia is spending on the NBN alone. This does not even include the costs of educating and training the public in its use and the provision of services.

Myth 4 - Fibre is Vital

In the US the National Broadband Plan is about establishing competition policies, ensuring efficient allocation and use of Government owned assets in particular making 500 megaherz of spectrum newly available, creating universal availability and maximizing use of health, education, energy and homeland security. When the plan speaks of how broadband is transforming American life it says “broadband networks can take multiple forms: wired or wireless, fixed or mobile, terrestrial or satellite. Different types of networks have different capabilities, benefits and costs.”

Myth 5 - The Mantra of Speed for services

The problem is that surely most Universities, colleges and hospitals would already be connected by high speed fibre systems delivering gigabytes.

Myth 6 - Speed is needed for international competitiveness

A chart of the OECD countries by actual speed has a negative correlation with rate of GDP.

The advantages of international competitiveness will come from business rather than super high fibre download rates of videos and games to homes.

Myth 7 – If you build it, they will come

Broadband is now becoming a mature market with fixed broadband slowing at about 65% of homes and the growth largely coming from mobile broadband, a significant proportion of which would also have fixed broadband.

The really big issue is whether people will pay more to get 100Mbps when they can receive most of their requirements for between 12Mbps and 25Mbps. Telstra have upgraded their HFC in Melbourne to 100Mbps passed about 700,000 homes and with a retail price of $168 per month the demand is believed to have been very minimal, literally in the low thousands.

Myth 8- The estimated costs of the NBN are right

The assumed wholesale entry levels of $30 and $35 which even with all costs within budget would still only give an internal rate of return of 6-7 percent. For private shareholders to gain a commercially acceptable return reflecting risk would probably require a return of at least 12-15%. The wholesale price would need to be commensurately higher further increasing the retail price and lowering demand. Every $100 per subscriber of cost overrun would be a further $1 billion in costs.

Even with the few basic facts that we have on the NBN it is clearly obvious that it cannot achieve a commercially viable return.

Myth 9 – Social Benefits

The question is whether the same or similar benefits can be achieved with a different technology mix and a much lower cost structure.

Top Ten NBN Myths

Related Posts

. Revealed: Labor's $30 billion broadband furphy

. Why Senator Conroy should take a look at Canberra's Black Mountain Tower

. What passes as cost-benefit analysis of the NBN