Merry Xmas, NBN Grinches: here's your CBA

Merry Xmas, NBN Grinches: here's your CBA

Summary: As we roll over into 2011 with Telstra separation passed and NBN-enabling legislation on the horizon, there is an inevitability in the air that seems to have drowned out the cries of the NBN Grinches. For those still convinced that better communications is a terrible idea, I offer a small Christmas present: a short cost-benefit analysis that shows just a couple of the many ways the NBN will pay for itself.

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TOPICS: NBN, Broadband
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I have no idea whether Malcolm Turnbull is good at reading children's books out loud. However, judging by his discourse in recent months I'd suspect he is in with a chance.


(Screenshot by David Braue, ZDNet Australia)

His animated shouting about white elephants and, now, big fat monsters (illustrated, interestingly enough, with cute ducks) has turned a relatively boring infrastructure project into the biggest chance for parade-raining and smug, self-satisfied curmudgeoning since "How The Grinch Stole Christmas!".

When it comes to the National Broadband Network (NBN), Turnbull's heart has certainly been a few sizes too small. Yet no matter how he tried, he couldn't stop Labor from celebrating the release of the NBN business case [read it here]: all but hand in hand, Julia Gillard, Stephen Conroy and reluctant Labor alpha-geek Mike Quigley unleashed the document for which the project's stalwart opponents had been waiting for.

I understand that natural scepticism has led many commentators to look for negative or questioning angles on the report — but if even anti-NBN stalwart News Limited can do no worse than noting that the project will take 10 years, which we already knew, then can we not but conclude that the business plan may actually have been carefully and rationally planned? There was no smoking white-elephant gun in the business plan. The NBN is coming to Whoville, whether the Grinch wants it or not.

Inevitability has not stopped Turnbull from loading aforementioned white-elephant gun with all sorts of ammunition with all the zeal of a 1900s farrier arguing for the abolition of automobiles: the NBN is too expensive, Labor too incompetent, fibre too futuristic, 100Mbps too fast, competition laws too much at risk. He's even taken as correct (and germane) suggestions that South Korea's national productivity declined during 1997 to 2008 because broader access to fibre internet turned it into a nation of online-gaming zombies.

Can we not but conclude that the business plan may actually have been carefully and rationally planned? There was no smoking white-elephant gun in the business plan. The NBN is coming to Whoville, whether the Grinch wants it or not.

That his Goldilocks-esque complaining has served the Liberals' cause better than predecessor Tony Smith is without question, yet he still has not been able to produce the knockout blow. Every time, he has been batted down by political opponents or, simply, the weight of reality; even with the business plan released, all Turnbull could do was complain that its projected cost had been nudged upwards by a couple of billion dollars (still less than the original $43 billion estimate)and that projected retail prices would be "no cheaper" than existing plans. Oh, and that the document was too short.

Yet cheaper internet was never the point of the NBN: as I and others have repeatedly argued, it's not about price or even speed. It's about availability, equitable access, reliability, fixing Howard-era Telstra shortcomings and about future-proofing — all things that Tony Abbott's Liberals have repeatedly failed to substantially address. If we can get all that at the same prices we're paying for unpredictable, unreliable, widely varying and often-unavailable ADSL2+ today, isn't that worth something?

It's Turnbull's job to oppose the NBN, but the rest of us should be able to objectively weigh up the evidence. And if you actually do that, even Turnbull's frequent call for a cost-benefit analysis (CBA) falls flat on its face.

You want a CBA? Here you go. You know, in short form.

Consider: the NBN will become a conduit for TV and movies, something that Turnbull alleges is a frivolous waste of money. Yet TV and movies are big business and a very real part of our economy — worth $4.4 billion per year, if you believe AFACT's numbers. So are video games, with the new Call of Duty: Black Ops selling over $US1 billion worth of product globally in the six weeks since its release. And Foxtel alone is a $2 billion-a-year money spinner.

As well as the social and economic benefits they deliver — jobs, entertainment, happier people and the like — these industries deliver an absolute motza into government coffers. Foxtel's revenues translate into around $200 million of GST per year, for example. And if the NBN brings Foxtel to the other three-quarters of Australian homes that currently cannot get it, Foxtel's revenues could be quadrupled — generating an additional $6 billion in revenues, untold jobs and $600 million in annual GST revenues alone. This possibility is simply not available on Turnbull's favoured wireless option.

Then there's internet access. With NBN Co set to get $24 wholesale pricing per 12Mbps connection per month, and based on penetration of 70 per cent of, say, 10 million premises, the government will reap at least $168 million per month, or $2 billion per year, in basic wholesale revenues. If that translates to, conservatively, a $39.95-per-month retail internet service, that extra $15.95 per month will translate to $111 million per month or $1.3 billion in private-sector revenue per year, which will generate for the government a GST of $118 million per year.

Turnbull has said he can't imagine how the NBN would produce more than about $10 billion in its lifetime, but he's clearly not thinking very hard. By my conservative estimate — bolstered by an extension of current Foxtel take-up rates of around 50 per cent — NBN TV and internet access services alone will produce around $2.7 billion in additional revenue for the government per year. Ignore the revenues generated as the network gets up and running over the next five years and just these numbers will have seen the NBN pay for itself by 2025.

Turnbull has said he can't imagine how the NBN would produce more than about $10 billion in its lifetime, but he's clearly not thinking very hard ... NBN TV and internet access services alone will produce around $2.7 billion in additional revenue for the government per year.

And that's on the most conservative numbers: everything above these basic services — and there will be many new services, as well as tens of millions in wholesale revenues for mobile backhaul, enterprise services and the like — is icing on the cake.

Really, this stuff isn't that complicated. The project is ambitious, complex and politically difficult and it does require more than a few legislative concessions that will keep Parliament quite busy when everyone lumbers back to Canberra in a few weeks. But there is a plan for it and it does not at face value seem patently absurd. Bolstered by the very real figures in the NBN business case, can anyone still argue that it doesn't make sense?

Well, perhaps Turnbull can: I expect that he will spend much of the Christmas holidays figuring out new arguments to hurl at the NBN if only, like the Grinch, because it's his job. After all, he's the one that, in a recent live-chat session with The Australian, said that "building infrastructure today to enable you to do things 20 years hence you have no idea about is crazy stuff."

Turnbull may, as he did, call the NBN "bonkers". Others might call it future-proofing. Still others would call it visionary. Yet, judging by the current momentum behind the NBN, there may be only one description of the NBN that matters: inevitable.

I'm fully aware that a complete CBA would include much more than these few indicative points. But it's late. And I'm hungry. Could somebody please pass the pudding?

Topics: NBN, Broadband

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Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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13 comments
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  • It all comes down to the believers vs the non believers. Each one of your points:
    TV - Foxtel would've considered this cost / benefit equation before, and clearly didnt get the business case together to extend the network. Satellite works fine for TV... I know magical future TV might be different, we will see. Foxtel is leaking revenue hard with competition from current Free to Air providers, Internet (over existing infrastructure) etc.
    Internet - The government is making the GST already. The wholesale distribution fees maybe not, but they are spending alot to obtain them.
    Games - Until the markets for games catch up to our NBN they will never be written for them. This is true for technology and bandwidth requirements in general. Being at the very front of the wave is not that amazing with such a small market. Early adopters rarely get that much value from their investment until the herd is on it.

    NBN is inevitable, the crowning change of a government that only barely scraped into power based on some backroom dealings, without primary support of the nation. I have resigned myself that we are stuck with it, so it might as well be awesome.
    gumb0r
  • Most succinct and a great read David...

    I am now awaiting all the usual suspect, Mal (FUD) cloned, intelligentsia [sic] to come along with the inevitable, desperate, stultiloquence, in response.

    Keep up the great work (apart from someone editing some of my more colourful comments, LOL) and Merry Christmas to you Suzanne and the rest of the team there at ZD...!
    RS-ef540
  • It's not about prices, it's not about speed, it's about:

    - availability; making it available to 99% of people, with only a 70% estimated uptake?

    - equitable access; Most people in the cities (and most Australians live in cities) will be paying more than they pay now... and the price isn't going to come down... it's an internet tax on all internet users. How is this equitable for low income people?

    - reliability; Who says the NBN is going to be reliable? With everything controlled by one organisation, chances are it will be less reliable. I bet all the maintenance workers will belong to some union and they'll be constantly pushing up wages or going on strike. That may or may not play out... but if you have a number of competing smaller players, it makes for a more robust network because if one falls into trouble the others can pick up the slack. The only guarantee of reliability is that the government will be pressured to throw more money at the NBN whenever there is a problem...

    - fixing Howard-era Telstra shortcomings;
    By creating a new government owned monopoly. Great plan.

    - and about future-proofing; because this will decimate private investment for several decades, you will find that standards will be comparatively worse and worse compared to countries like South Korea and Japan... actually I believe the pricing in those countries is already cheaper than what is proposed in the NBN business plan.
    coolguy4
  • @Coolguy4:

    "Making it available to 99% of people, with only a 70% estimated uptake?".
    The point is making the service AVAILABLE. Allowing for those who chose to use wireless only (13% according to CommsDay) and those who don't feel they need/want internet access, - 70% uptake is about as good as anyone could hope for, for any network.


    " equitable access; Most people in the cities will be paying more than they pay now.."
    Rubbish. The most popular ADSL2+ connections cost $70/month or more, when you include line rental. The NBN plans will include line rental in the price, and are estimated to start at $53-58. 3G wireless plans will be available for those who feel the price is too steep.

    "- reliability; Who says the NBN is going to be reliable?"
    It's a brand new network designed from the ground up, using well-established equipment & technology. It's going through a series of trials before getting rolled out on a large scale (like the current trials in Tasmania) .It's not subject to the levels of interference & degradation that our old, cobbled-together copper network is plagued by. It's likely that there will be a few teething problems, but there's no reason to think that it will be any less reliable than the current copper network.

    "...creating a new government owned monopoly. Great plan."
    It IS a good plan. It's also the only viable plan. No commercial entity would build it, because it wouldn't have enough return for the shareholders. It also means that equitable access is enshrined in law, and makes sure everyone gets access.

    "future-proofing; because this will decimate private investment for several decades.."
    Can you substantiate that at all?
    NBNCo won't prevent further investment in wireless networks which are still expanding and taking on more customers every day. There will be no further investment in cable or HFC, but nobody was investing in that anyway because it didn't make enough money.
    It's hardly surprising that S.Korea and Japan have cheaper internet pricing - their population centres are much closer to each other, they have more customers and ubiquitous access.
    Finally, there is no chance in hell that standards under the NBN will be lower than our current pathetic standards.

    Merry Christmas, grinch.
    klaw81
  • "The point is making the service AVAILABLE. Allowing for those who chose to use wireless only (13% according to CommsDay) and those who don't feel they need/want internet access, - 70% uptake is about as good as anyone could hope for, for any network."

    And what proportion of the 70% are going to be coerced into using the NBN through the decommissioning of the copper network... and what proportion will find mobile internet too expensive because of prohibitive licensing fees... and what proportion would have used a rival fibre network except that legislation prevents the existence of one... we will never know.

    "Rubbish. The most popular ADSL2+ connections cost $70/month or more, when you include line rental. The NBN plans will include line rental in the price, and are estimated to start at $53-58. 3G wireless plans will be available for those who feel the price is too steep."

    I pay $60 per month, I get ADSL2+, 100GB, free VoIP and no line rental because it is naken DSL. There are cheaper plans available, and ADSL2+ prices are always coming down.

    "but there's no reason to think that it will be any less reliable than the current copper network."
    That's right... no better than what we have currently. Its reliability will be the same as any network.

    "It IS a good plan. It's also the only viable plan. No commercial entity would build it, because it wouldn't have enough return for the shareholders. It also means that equitable access is enshrined in law, and makes sure everyone gets access."

    A number of competing private companies could build small fibre networks that would, over time, provide national coverage.

    But since you say there is no commercial return, I take it you mean that the costs will be greater than the benefits. If that's the case, then why not just give everyone a cheque for $3000 and leave it at that? Why go to all the trouble of planning and implementing the NBN, if there would be greater benefit of just handing out the money directly? ---This is why commercial profit is an incentive that protects against mal-investment.... businesses tend not to invest money unless they can profit from it... this encourages them to invest wisely... governments, on the other hand, don't have this incentive, they happily waste money since it is not theirs, it belongs to taxpayers.

    " It also means that equitable access is enshrined in law, and makes sure everyone gets access. " Again, how is it equitable that NBN pricing will be higher than current ADSL2+ plans. ADSL2+ is not perfect, clearly fibre is capable of higher speeds, but why destroy a functioning network just to eliminate the competition and ensure 'patronage' for the NBN.... this is not equitable. What it is is a tax on all internet usage.

    "NBNCo won't prevent further investment in wireless networks which are still expanding and taking on more customers every day."
    It will... fundamentally the idea of the NBN is to force people to use it so that it has enough revenue to pay for itself... but here's a couple of ways it will impair investment for wireless:
    1. The government sets prohibitive licensing costs of wireless providers.
    2. The existence of the NBN, which is a government subsidised network, takes maketshare away from networks financed by private entities which do not have the advantage of government subsidy or regulatory powers.

    "There will be no further investment in cable or HFC, but nobody was investing in that anyway because it didn't make enough money."
    Telstra upgraded its cable... you could expect both Telstra and Optus to upgrade their cables to compete with other means of access like ADSL2+.

    "It's hardly surprising that S.Korea and Japan have cheaper internet pricing - their population centres are much closer to each other, they have more customers and ubiquitous access. "
    That's right, but the point is that the NBN doesn't give us any advantage over them,

    "Finally, there is no chance in hell that standards under the NBN will be lower than our current pathetic standards."

    Why? What's going to stop falling standards over the lifetime of the NBN? There will be no competition to keep the NBN on its toes. So where is the incentive to uphold standards going to come from?

    Further to that... there will be no investment in ADSL2+ since the copper network will be dismantled. And of course, and more importantly, there will be no investment in rival fibre networks, since the NBN will be the only game in town. Not that there should be duplication, but there will be not competitive investment. And there will be a lack of investment and innovation in other areas such as backhaul... basically there will be this NBN one size fits all provided by the government and if you don't like it, tough, because there will be no market competitor that could ever hope to get an edge in and offer you the services that you want.
    coolguy4
  • To carry on from that most Informative, FUD busting comment from klaw81, kudos... and as clearly predicted - Mal/FUD clones - here they come, like…

    coolguy4 (with nothing of substance to argue over) desperately and pedantically playing with words again.

    “availability”…
    You do understand what available means don’t you? Available to, regardless of whether the take up rate is 1%, 50% or 98%! The NBN will be (already is, in some cases) “available to"! So, speaking of words and their meanings… Remember the first N (in NBN) = National!

    … “We will be paying more than now”…
    Well your FUD clone Fill, did a comparison on his new fixed, Optus plan and when using “his figures” but equalling speeds, which he sneakily neglected to do (“comparing apples/apples”) Optus @ $119p.m (incl. landline, but available only in Syd, Melb, Bris) vs. the projected NBN @ $81p.m…!

    “A new government owned monopoly”…
    Alleviating us from Telstra’s monopoly/conflicting interest, of selling to itself and competitors! This has been the crux of our comms problems since Telstra’s sale, making the NBN ultimately fairer for all! Get it through your head...!

    “Decimate private investment for decades”…
    BS…! Telcos and RSP’s will now be able to concentrate on their “core businesses of providing and investing in improved comms/technologies”, rather than involving them selves in the non-core area of construction!
    RS-ef540
  • As I have consistently posted, we need a broadband network, at the highest speeds and with filtering to take out those nasty sites. I think after the broadband has been rollouted out the government should set up a national ISP corp so that the population accesses only that information which is best for the people to see and read.
    Blank Look
  • "I pay $60 per month, I get ADSL2+, 100GB, free VoIP and no line rental because it is naken DSL. There are cheaper plans available, and ADSL2+ prices are always coming down."

    I pay that amount too for everything, but do you realise your ISP pays at least $16 wholesale a month to Telstra for use of the copper only, and the ISP has to maintain their own DSLAM equipment in exchanges. The $24 wholesale a month for NBN provides a hell of a lot more than that, a bargain for ISPs who basically get an ethernet cable with all their customers packaged up on it rather than the current situation of maintaining ADSL equipment around the place. Little wonder you don't hear any of them complaining!
    I don't see how this is going to increase prices.

    As for falling standards on NBN and no competition on fibre. Well
    1) Telstra maintained a very good copper network without competition for decades and
    2) Competition on retail infrastructure (ie the copper) has been tried and failed with the HFC rollouts in the 1990s. Little wonder the government went down this line.
    Nimos-92373
  • Good read David.
    You are right about the NBN cost/benefit analysis not being rocket science.
    What is surprising is the Government's inability to put the same points that you made across in a coherent manner.
    Probably because they are too busy creating their totalitarian regime with their propaganda filter and recording of our browsing history.
    Yoda7
  • That's because the points made by DB are not in a 'coherent manner' because they make grandiose assumptions of uptake, it is then extrapolated into grandiose assumptions about multi billion dollar revenue and bingo, a quick wave of the magic wand and there you have it a justification for the NBN based on nothing more than crystal ball gazing with special rose coloured glasses that filters out reality and history.

    A few reality checks on what was stated, first of all the main one about Foxtel and uptake, the history of the HFC rollout indicates that both Optus and Telstra bled millions on the HFC infrastructure, mainly because of lack of PayTV uptake by customers, but somehow Pay TV over the NBN will be financially viable - because umm err it just will be, because it will pass more residences.
    Hello!! - HFC PayTV passes thousands of homes today and most residences elect to put it on bypass, not because they cannot get it, it is because they don't want it!

    It is interesting DB states that the estimates are conservative, the estimates in reality are a complete fantasy, the clincher for me is relating a computer game Call of Duty - Black Ops sales as some sort of justification for a multi billion dollar taxpayer paid FTTH - that has to be satire surely?
    advocate-d95d7
  • What ISP's were involved in the 'non-core area of construction' anyway? - the majority of ISP's piggy back off Telstra infrastructure and in the main resell Telstra Wholesale, and when it isn't cheap enough complain to the ACCC.

    It will be interesting to see how ISP's do this as you state under the NBN, that is the “core businesses of providing and investing in improved comms/technologies”.

    Your little joke I assume, ISP's will sell whatever speeds and quotas the NBN Co wholesale to them, they won't have their own DSLAM's to provide anything other than the same vanilla flavoured monopoly NBN Co Plan that every other ISP, Safeway/Coles Supermarket, Foxtel, and corner Milk Bar is selling.
    advocate-d95d7
  • Merry Xmas Mr Contradiction and welcome back...

    I see (and giggle to myself) that you still haven't explained (i.e. desperately dodge from) your completely contradictory claims I have highlighted umpteen times, LOL...!!!

    Obviously water off a ducks back, as far as you are concerned - you don't feel the need to prove your absolutely contradictory claims (SIMPLY BECAUSE YOU ARE UNABLE) and now just bounce from FUD to FUD...

    YES CORE business... you know, like how many runways have QANTAS laid or planes have they built? How many roads have TNT constructed or trucks have they manufactured?

    RSP's can now do what they do best, sell comms..., like QANTAS fly passengers and TNT transports goods, OMG...! Helloooo...

    ISP's resell Telstra - yes, as they are entitled by LAW (remember your hero little Johnny - LAW?)... as the law clearly spelled out to Telstra, before they were officially gifted (vested) the PSTN golden goose in 1992... Are you still living in 2005 NWAT land (with lala and vasmas?) and ridiculing those terrible leeches [sic]? Dear oh dear...

    Because Telstra have the monopoly last mile, these competitors resell, just like they will again when NBN takes over... BUT no they won't need their own DSLAMs , nor will they need to fight tooth and nail for access to Telstra's exchanges (remember the $18m, wasn't it, fine Telstra copped - all no longer an issue, YAY) to install these DSLAMS...!

    Well done, you are finally starting to awaken from your hibernation and FUD stupor, to understand how it all works, hallelujah!
    RS-ef540
  • Here we go again... Mr Contradiction, OMG...

    The HFC issue of both the Telstra overbuild (trying to, and successfully stopping Optus from investing) and the unbelievably expensive HFC plans, have been spelled out to you many times, but you blindly and stubbornly, refuse to acknowledge...

    Then you say - "It is interesting DB states that the estimates are conservative"...LOL

    Hellooo, of course they are "estimates"... this is the best we have in relation to "any" construction and it's always best to estimate conservatively... FYI (since you can't quite grasp reality) - we even have people known as "estimators" to do this, because a construction projects that doesn't fully exist yet (the NBN has started and is available in some areas, but...) can only be estimated.

    What do you suggest?

    Crystal ball? Tea cup readings? Maybe exhumation of Nostradamus...? All accompanied by a contractual obligation...LOL!!!!!!!!

    Oh FUDster, why don't you just tell us that you, your precious Liberal party, your even more precious Telstra and your more precious than life itself TLS shares, selfishly expect the rest of Australia to miss out because of "your wallet" and just be done with it...!

    Ooh and A G A I N, tell us about those contradictions....LOL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
    RS-ef540