NBN cost-benefit analysis sides with Turnbull approach

The long-awaited cost-benefit analysis put together by a government panel including critics of the fibre-to-the-premises NBN project has concluded that a mixture of fibre-to-the-premises, fibre-to-the-node, and HFC technologies represents the better option for Australia.
Written by Josh Taylor, Contributor

Adopting the Coalition's fibre-to-the-node (FttN) and hybrid fibre-coaxial (HFC) technologies in the National Broadband Network (NBN) will leave Australia better off, according to the government-commissioned cost-benefit analysis, but will also leave the option of upgrading all the way to fibre in the future.

The long-awaited, 196-page report is the fifth of six reports commissioned by Communications Minister Malcolm Turnbull, and was compiled by a panel of four, including chair Michael Vertigan, economist and Labor critic Henry Ergas, former eBay Australia MD Alison Deans, and former Australian Communications Authority chairman Tony Shaw.

The cost-benefit analysis placed potential broadband rollouts into four scenarios:

  • No further investment in high-speed broadband, and no change in speeds available today
  • Rolling out fibre to the node and HFC to 93 percent of the population
  • The multi-technology mix (MTM) model, including fibre to the premises (FttP) to 15 percent of the population, with fibre to the node, HFC, and fixed wireless and satellite servicing the rest of the population
  • The Labor model of fibre to the premises to 93 percent of the population, with the remaining serviced by fixed wireless and satellite.

Of the four scenarios, the report said the second, unsubsidised rollout offers the highest net benefit of AU$24 billion, because it drops the subsidisation of the rollout to regional areas, but the multi-technology mix offered the best result with AU$6.1 billion in net cost due to the regional subsidisation.

Image: Screenshot by Josh Taylor/ZDNet

Fibre to the premises came out at AU$22.2 billion in net cost, largely due to the higher cost of the rollout of the NBN and the delay in getting fibre to each premises.

The study assumed that, as in the strategic review, that NBN Co would not finish rolling out FttP until 2024, but would finish the multi-technology mix rollout by 2020.

As a result, MtM offed users a chance to get faster speeds sooner, with the benefits arriving with those moderate speed upgrades, rather than waiting for very high fibre speeds, the report stated.

"Users of broadband would prefer an increase to their current speeds quickly, rather than to wait longer to gain a higher level of speed. This means consumers place a greater value on the early deployment of high speeds rather than on the slower deployment of very high speeds using FttP."

The cost of maintaining the copper network was included, though not explicitly outlined in the report, and was said to have been based on information in the strategic review, as well as local and international sources, but the panel would not confirm today whether Telstra had been asked for information on the state of its copper network.

Conversely, the report increased the strategic review's estimated cost for remedying faults in fibre to the premises, and reduced the cost of providing electricity for fibre to the node on the assumption that NBN Co would be paying a bulk, rather than retail, rate for electricity supply.

On the benefits side, all benefits of rolling out fibre to the premises were weighed against both the likelihood of customers taking up faster speeds, versus their willingness to pay for those speeds.

The report relies heavily on a study by Communications Chambers of the different applications, which states that by 2023, the median household requires a bandwidth of 15Mbps, while the top 5 percent of households require 43Mbps or more.

The analysis also looked at bandwidth demand modelled using forecasting from Communications Chambers' Robert Kenny, who had in the past criticised former Communications Minister Stephen Conroy for overstating the benefits of FttP.

Benefits on offer for fibre to the premises, including e-health, teleworking, productivity, and other such improvements, would also be covered by the speeds available on fibre to the node and HFC, Vertigan told journalists today.

Image: Screenshot by Josh Taylor/ZDNet

"When you look at those applications, certainly those applications are currently readily addressed by the speeds that are provided by MTM. We're not saying that those applications are insignificant or insubstantial. We have very large estimated benefits from access to high-speed broadband," he said.

"If you compare the net benefits of having high-speed broadband available ... we have AU$24 billion in net present value.

"The real question is whether there are applications that have very high social value, but you can only get with 120Mbps but you cannot get at 60, 70, or 80Mbps. Those applications are very few and far between, and certainly couldn't justify the very large cost differential between MTM and FttP."

However, Vertigan flagged that if the applications do eventually require higher bandwidth, the MTM approach would allow fibre to the node and HFC to be ultimately surpassed by fibre.

"It may be in 10 or 15 years' time, those applications will develop, and if they do develop, then you can upgrade from MTM to FttP. Because you can do that upgrade then, and you can do it to the areas and the types of premises where those applications would have the greatest value, then you can do it in a very cost-effective way whilst still ensuring that society catches the full benefits of those applications."

The report itself states that MTM is more "future proof" than FttP, because it leaves the options open for different potential scenarios in the future, and Vertigan said that locking Australia into FttP would mean the country would need to bear the cost of the network if those benefits never arrived, Vertigan said.

"You're stuck with those very high costs. There's no way in the world of unsinking the costs that are involved in the FttP scenario once they've been incurred. What makes sense is to have an incremental approach that allows you to catch benefits as and when they occur and as and when they have the high social value," he said.

One Alcatel-Lucent report, often cited by fibre advocates, which stated that e-health and other benefits would help pay for the New Zealand fibre-to-the-premises NBN, was dismissed by the cost-benefit analysis because most of the benefits in the report are for businesses rather than households.

Vertigan today defended the analysis, stating that it had been reviewed by a number of experts from international organisations, including the University of Texas, Brookings Institute, University of Adelaide, and Conservatoire National des Arts et Metiers.

The final of the six reports — the panel's telecommunications regulatory review — is due to be released soon.

Turnbull has previously indicated that the findings of the cost-benefit analysis will be used by NBN Co as part of its rollout plan.

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