NBN: analysts miss the point
As you read the emerging analyses of the National Broadband Network (NBN) Implementation Study ask yourself three questions.
One, does the analyst realise that the NBN isn't an internet service provider (ISP)? Two, are they demanding that the NBN gives the government a direct financial return on investment at commercial rates? Three, are they understanding the difference between now, the year 2010, and a decade from now?
The NBN isn't just about providing your home with a faster internet connection - although certainly ISPs can use it to do just that. The NBN Company has quite rightly decided to build what network engineers call a Layer 2 network, installing what's an Ethernet port in nearly every Australian home and business. It's up to other companies, wholesale and retail, to buy capacity from the NBN and deliver Layer 3 services that plug into that port.
Open an account with an ISP and plug in a router, et viola, high-speed internet. Plug in a set-top box for pay TV or movies on demand. Plug in different black boxes for voice or video telephony - or for video conferencing, medical diagnostics, security monitoring and other private-network services.
The NBN will replace the ageing copper network (or remote analog radio telephones) with a fibre-optic cable network (or remote wireless, or even more remote satellite links). Any analysis of the NBN solely on the basis of internet connectivity and "faster downloads" is automatically wrong.
Nor is the NBN about direct profit. It's infrastructure - something we expect governments to provide so we can build our society and economy.
"Finance Minister Lindsay Tanner admitted yesterday that a 6 to 7 per cent investment return was not 'in the zone that triggers an ordinary, commercial investment' … and other scenarios in the broadband implementation report produce even lower returns," writes Fairfax's Malcolm Maiden, for example. "The worst-case return is just 3.6 per cent."
However the NBN Implementation Study only looks at direct benefits. "Explicitly, it does not … [u]ndertake a cost-benefit analysis of the macro-economic and social benefits that would result from the implementation of a superfast broadband network," it says.
When such broader analysis has been done, for example in the OECD report Network Developments in Support of Innovation and User Needs from December 2009, it shows that a fibre-to-the-home network like the NBN could pay for itself in 10 years, even if fully government-funded. It requires spill over savings of between 0.5 per cent and 1.5 per cent in just four key sectors - electricity, health, transport and education - as I've written about elsewhere.
There's plenty of things we don't expect to be profitable. Public schools. Public hospitals. Street lighting. Police. Sewers and storm water drains. Defence forces. Vaccination programmes. Symphony orchestras. Restaurant health inspectors. Search and rescue. Public libraries. Rape crisis centres. Parliament.
Demanding that the NBN turns a profit is like demanding that every highway, road and track in Australia becomes a profitable tollway.
Most people don't "need" an all-weather asphalt road capable of supporting vehicle speeds of 100 kilometres an hour by a 50-tonne B-double semi-trailer - or, for that matter, by an SUV the size of Venezuela laden with an eight-year-old child, 10kg of shopping and a soccer ball. Nevertheless we provide such roads at taxpayers' expense for those who do need them, such as freight companies, or those who imagine they do. Any analysis that looks solely at individual home usage is automatically wrong.
Nor is the NBN about providing what individuals need today. It's about building for the future.
"The reality is most people don't think they need that speed," writes Jennifer Hewett in The Australian. But most people aren't very good at imagining what might be possible and desirable a decade or more from now.
Mike Quigley, CEO of NBN Co, has noted that the demand for bandwidth has increased exponentially since we first had dial-up modems. He reckons that by 2020 people will want 1 Gigabit per second, not the NBN's initial 100 Mb/s.
A 100Mb/s link is soon filled up once Dad is watching high-definition streaming video, Mum is remotely operating a mining robot in Charters Towers, Mister 15 is working on a class presentation via a videoconference with three classmates and Miss 12 is killing animated zombies. Any analysis that doesn't factor in these future possibilities is automatically wrong.
Now all that said, there are plenty of reasons to keep a close eye on the NBN.
Even at "only" $38 billion instead of $43 billion, or "only" $26 billion of government funding over the first seven years, there are countless opportunities for pork-barrelling, nest-feathering, double-dipping, waste, incompetence and straight-up corruption.
The government has chosen to build and manage the NBN via the separate NBN Company, where all sorts of mischief can be concealed under the rubric of "commercial in confidence". The Implementation Study report explicitly did not evaluate the wisdom of this decision, either for efficiency or for accountability.
The NBN Implementation Study had one aim: to prove it's possible to build the NBN for $43 billion. It is indeed possible, it seems. But there are "many risks to manage and many challenges to overcome" and it will require "sustained, focused and accurate execution over many years by NBN Co, Government, and the ecosystem of vendors, carriers and end users involved."
The report recommends that the NBN remain wholesale only, yet the government's draft legislation leaves the door open for retail offerings. Where else will the government's actions diverge from this 500-page plan?
Stilgherrian is an opinionated and irreverent writer, broadcaster and consultant based in Sydney, Australia.
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