My latest on "The Conversation"

NBN cost-benefit analysis signals the end of an era

By Michael de Percy, University of Canberra

The long-awaited cost-benefit analysis of the National Broadband Network suggests the days of politicians shooting from the hip with taxpayer dollars are numbered.

As Labor’s NBN unfolds amid reviews and revelations, it’s apparent the NBN was a political move based on romantic notions of policy-making ending in Labor’s electoral defeat in 2013.

In government, the Coalition called for a strategic review of the NBN, revealing a number of problems with the project’s implementation. Malcolm Turnbull also promised to deliver an independent cost-benefit analysis of the economic and social costs and benefits of the NBN.

The cost-benefit analysis (of the NBN as it is now, not the analysis that should have been provided back in 2007) reveals the multi-technology mix (MTM) model will provide the most bang for the taxpayer’s buck. In the absence of evidence to the contrary, the analysis also shows Labor’s NBN would have been nothing short of extravagant.

But the panel of experts who conducted the cost-benefit analysis are not alone in pointing out the shortcomings of Labor’s romantic ideas about deploying infrastructure.

A recent Productivity Commission report on public infrastructure criticised the NBN for its investment in infrastructure without the use of a cost-benefit analysis. Further, NBN Co’s failure to achieve key targets suggests a lack of detailed analysis in the original proposal.

Even the authors of Labor’s implementation study were at pains to make it clear the study did not “undertake a cost benefit analysis of the macroeconomic and social benefits that would result from the implementation of a superfast broadband network”.

But what about the legacy of Kevin07 and the NBN?

Broadband since Kevin07

The promise of faster broadband played a major role in the 2007 election. The Coalition was caught on the back foot with Australia at the wrong end of the high-speed broadband stakes. Rudd’s promise to deliver ubiquitous fast broadband was clearly a political winner at the time.

An implementation study was conducted to find the best way to meet the government’s policy specifications. A “Rolls-Royce” fibre-to-the-home (FTTH) model was selected as a clear technological winner. In the absence of a cost-benefit analysis, Labor over-confidently decided the NBN should be taxpayer funded and wholly government-owned.

But by the time of the 2013 federal election, the NBN was behind schedule and the costs were mounting. And despite several years of intense policy focus, Australia had not caught up with the rest of the world in access to (Figure 1) or speed of (Figure 2) broadband services.

Figure 1: Fixed-line access per 100 people (Source: OECD, December 2013)

Figure 2: Broadband speeds >15 mbps, (Source: Akamai, Q1 2014)

The move to NBN (lite)

What emerged from Communications Minister Malcolm Turnbull’s promise of a strategic review of the NBN became known as NBN (lite). Instead of FTTH, a fibre-to-the-node (FTTN) network would utilise the multi-technology model to provide consumers with fast broadband (at speeds somewhat slower than Labor’s NBN), but sooner.

The NBN cost-benefit analysis looked at three different scenarios for government action. Each scenario was tested against the net benefits of a base scenario of no further rollout of the NBN, which would result in a net cost of A$24 billion, as follows:

1. Unsubsidised rollout of NBN. This would provide taxpayers with a net benefit of A$24 billion by avoiding the costs associated with no further rollout.
2. Adopt the MTM model. This would provide a net cost of A$6 billion relative to the first scenario.
3. Adopt a FTTP model. This would provide a net cost of A$22 billion relative to the first scenario.

A key finding of the cost-benefit analysis is that delivering broadband services sooner rather than later means benefits accrue while the rollout occurs. Assuming the network is upgraded at some later stage, the benefits continue to accrue while the network is developed. Yet the net benefits of the more expensive FTTH model are less likely to be realised and more likely to decline over time.

Countries such as Canada and the United States have MTM broadband networks and the figures indicate the approach is working. But what rarely appears in the debate about broadband in Australia is a simple fact: some broadband is better than no broadband.

The NBN cost-benefit analysis is long overdue. Although the net cost of the MTM model is some A$6 billion, most of this cost is to serve rural and remote regions with satellite and wireless services in place of fibre.

Taxpayers expect that government will support the bush, and A$6 billion in net costs is hardly a bitter pill to swallow. But taxpayers may well change their tune when ultimately they fund a net cost of A$22 billion for a FTTH model, which in most places won’t be operational for years to come.

Labor’s NBN was a big idea. But without a cost-benefit analysis, it was a reckless use of taxpayer funds made by politicians with no idea. Given the recent findings about how NBN was conceived and implemented, it would take a particularly brave (or foolhardy) politician to ever again implement infrastructure policy on the basis of romantic ideas of what can and cannot be achieved in politics.

While some may lament the end of Labor’s NBN, the cost-benefit analysis reveals the shortcomings of its romanticism. Economics may not be all that romantic, but taxpayers may well be glad the NBN romance is over.

Michael de Percy does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

Australia's Broadband Situation in Perspective

© Depositphotos.com/@reborn55

My formal research project comparing communications technology outcomes in Canada and Australia ended in September 2012. A great deal has happened since. The Coalition came to power and the NBN changed from a predominately FTTH model to a mix of technologies utilising FTTN. For several years, broadband has been firmly fixed on Australia's policy radar. But what difference has it made?

Here I broaden the comparison to include Australia, Canada, United States, United Kingdom, Germany, South Korea, Japan, New Zealand, Switzerland, Hong Kong and Singapore. I wanted to provide a mix of countries that share several characteristics. While I have always argued that you cannot make judgements about Australia's broadband when compared with countries such as Korea and Switzerland, these countries are proving to be some of the most wired jurisdictions on the planet. However, Figure 1 below demonstrates the significant differences in population density that must be taken into account when making global comparisons. These simply cannot be ignored in any comparison of the effectiveness of broadband policies.

Figure 1: Population per square km

As you can see, Australia and Canada with 3 people per square km cannot possibly achieve the same return on capital investment in broadband infrastructure as Singapore, Hong Kong and South Korea. Even New Zealand and the United States, with 17 and 32 people per square km respectively, are in a different league.

Next, we need to consider broadband penetration. Figure 2 shows the number of fixed-line broadband (classified as a minimum download speed of 256kbps - which is not really broadband anymore) connections per 100 people. A better measure is connections per household and while this figure is a more accurate measure of penetration, it is difficult to obtain and the information is not readily available for all countries.

Figure 2: Fixed-line broadband connections per 100 people

Of course, fixed-line broadband is only part of the story, although the usefulness of wireless devices for e-health and e-learning applications is somewhat limited. None of my students, for example, have ever managed to use their e-text successfully on their iPhone, but some broadband is better than no broadband. Figure 3 shows the number of wireless broadband connections per 100 people.

Figure 3: Wireless broadband connections per 100 people

Next, we need to consider broadband speeds. Measuring the highest speed or simply using advertised speeds is not enough: a friend of mine who is connected to NBN and pays for the 100mbps is lucky to get 25mbps, so relying on market information alone is insufficient. In my view, Akamai's use of servers to measure speeds across the globe seems to make a lot of sense. Two measures are useful for comparing cross-country outcomes: average speed and average highest (peak) speeds (based on highest speeds per individual IP address). Figures 4 and 5 below show these measures (respectively).

Figure 4: Average Broadband Speeds

Figure 5: Average Peak (highest) Speeds

Figures 6, 7 and 8 below show the increasingly sophisticated speed groupings based on >4mbps, >10mbps and >15mbps respectively. This tends to show a more robust picture of the speed of broadband services in a particular jurisdiction.

Figure 6: Broadband connections faster than 4mbps

Figure 7: Broadband connections faster than 10mbps

Figure 8: Broadband connections faster than 15mbps

As you can see from the above, Australia, despite some seven years of policy attention directed at broadband, is still at the wrong end of the league tables. Except in wireless broadband, which I believe is due to more competition and a lack of government interest (or perhaps less government intervention) in telecommunications where it is not hard-wired. Indeed, for many Australians who are unable to obtain fixed-line broadband services, wireless is in many cases the only alternative.

It is unfortunate that the tables above do not help to explain why Australia lags and continues to lag. In my PhD research, I compared Australia with Canada and I found that except for mobile telephony, in telegraph, telephone, radio, television, satellite, broadband - you name it - Canada was ahead of Australia in communications technology outcomes in every instance. So the problem is not just a matter of a broadband problem, it is much deeper. Look out for my book on this issue coming soon.

In the meantime, I have blogged about the comparative statistics of communications technologies in Canada and Australia before. As you can see from the comparisons above, despite NBN, Australia's broadband situation has not changed much at all.

Links to data used to develop the above graphs:
     Akamai State of the Internet Report Q1 2014
     Broadband Commission State of Broadband 2013
     OECD Broadband Portal
     World Bank Data 2013
     World Economic Forum Network Readiness Index 2014

Connecting the Nation: Co-evolution of Research & Blogging

© Depositphotos.com/@hugolacasse

Reflecting on how one develops a research profile is a worthwhile experience. It has led me to change the name of my blog. It has also become the catalyst for me to develop a research philosophy that will inform my future research priorities. This is the story of how my blog and my research have co-evolved over the last eight years.

My honours thesis was entitled National Security versus Civil Liberties: Does Australia Need a Bill of Rights? My first academic publication shared the same theme. When I commenced my PhD research in 2005, I was interested in how we might curb the power of executive government. Consequently, this blog for a few weeks back in 2007 was entitled "On the Wallaby", named after the poem Freedom on the Wallaby by Henry Lawson. The song just happens to be the theme for the radio show "The Rebel Chorus: Folk with a Political Edge" which I have co-presented (usually every third Saturday from 10am to 12pm) on Canberra's 2XX 98.3 Community FM since late 2006.

Of course, like most bloggers, after about six or seven attempts at solving the world's problems I had little else to say, but at that time nobody was paying much attention to blogs. After much consideration, I decided that there was no proper research question in my proposed thesis and that, along with my blog, it represented little more than my polemic reaction to the disappointing turn in Australian politics. Yet I believed a Dixonian approach to curbing executive powers, 'reinforced by an informed and vigilant citizenry', might be an adequate cure to the political ills of the time.

This led me to the Internet, what I then considered to be the most effective way of bypassing the information gatekeepers, and to focus on how citizens' access to the Internet might be improved. Having considered cyber-citizenship during my undergraduate degree (inspired by Dr Andrew Vandenberg at Deakin University, who also happened to be the lecturer who taught me how to write an essay, and all by distance education) and being encouraged by Professor Linda Briskman to publish my work after writing an essay "Blueprint for Telstra: Privatisation by Stealth", the lack of broadband access was an obvious impediment to a vigilant and informed citizenry and my research direction stemmed from these early influences.

I was keen to establish a blog and immerse myself in social media and new communications technologies and to experiment with technology in my teaching. Most of my colleagues warned me that there was nothing new in communications technology and that blogging was little more than a "career killer" to be avoided. However, after meeting Professor Michael Geist at the University of Ottawa while conducting fieldwork for my PhD thesis, I discovered that it was not unusual for academics to have their own blogs. Well, at least not in Canada. I have since learnt to be more discerning.

So I decided to blog about my research, and the blog itself emerged as "Broadbanding the Nation". This blog became a space for me to explore my ideas in writing and to focus specifically on my area of research interest. This was also my thesis title and the phrase appeared in the title of a book chapter I wrote in 2008. However, by the time I finished my thesis, I had compared the deployment of the major communications technologies in Canada and Australia from the time of the telegraph until developments in broadband at the time of my thesis submission in 2012. This period encompassed the introduction of the NBN but "broadbanding" was no longer an accurate description of what I had covered in my research. In the end, my thesis became "Connecting the Nation: An historical institutionalist explanation for divergent communications technology outcomes in Canada and Australia". The change to "Connecting the Nation" has some history.

My intention was not to specialise in communications technology research so much as to understand the nature of communications technology policy and how this, in turn, affected citizens' ability to be "informed and vigilant " through access to information via the Internet. In order to focus on my main interests in political science, it became clear that focusing on one industry was quite limiting in terms of theory development and the application of political science theories in general. As my teaching specialisation covers both government-business relations and leadership (both focused on institutions and how these tend to govern behaviour in the absence of an exogenous force), my reading encompasses far more than communications technologies alone.

Yet network infrastructure (not only telecommunications) fascinates me, and looking back on all those years since I completed a traineeship in warehousing (hydraulics and pneumatics spare parts and later seals and bearings and managing the Comalco account for the Cairns branch of SKF), then later as an Artillery officer and later still, as a Pay Corps officer (where I completed my Logistic Officer Intermediate Course at the Army Logistic Training Centre), I haven't been far away from the field. "Connecting the Nation", then, takes on a whole new meaning.

My latest research project will consider high-speed rail and other transport and logistics infrastructure, focusing on the Brisbane-Sydney-Canberra-Melbourne corridor. In the immediate future, I hope to investigate high-speed rail policy developments in Australia in comparison with other nations in the region such as New Zealand and Singapore. While the Rudd government had signalled an intention to develop a high-speed rail link, this quickly disappeared following their election defeat. Nonetheless, with an offer from the Japanese on the table that may result in an interesting public-private partnership to utilise a new tunnelling technology, high-speed rail appears to be back on the policy agenda.

With the Sydney-Melbourne air route ranked the fifth busiest in the world and the Sydney-Brisbane route ranked twelfth, a high-speed rail link appears to be a feasible solution to a congestion problem that can only intensify if government does not actively enable new infrastructure. Unlike telecommunications, however, the federal government does not have clear jurisdiction for rail. Indeed, this is the opposite of the situation in Canada and makes for an interesting policy problem of how federal systems address infrastructural policy development (and the related interoperability issues with various transport and logistics technologies) where it crosses different jurisdictions.

Expanding my research focus to transport and logistics is an important part of the logistic continuum to support the digital economy. Indeed, the telegraph was an important part of railway development, and telegraph infrastructure went hand-in-hand with the deployment of rail networks. It is the same today: the digital economy requires ever-increasing efficiency in physical distribution management. Like broadband, it is obvious to the international traveller that Australia is lagging the world in adopting modern transport and logistics technologies and I am hoping that some of the research approaches I have developed to explain divergent communication technology policy outcomes will be equally applicable to transport and logistics. "Connecting the Nation" represents this new research direction.

In many ways, this expansion of my research interests is leading me to consider developing a "research philosophy". Given that my teaching philosophy informs my pedagogical approach to curriculum design, it is logical that my research should be similarly informed. I hope that this blog will continue as a space for me to explore and record my research interests. Much like the development of my ideas about broadband, my wish is that "Connecting the Nation" will help me to remain focused in my area of research interest, and hopefully that others will also find it a useful resource.

It is interesting that my interest in the co-evolution of institutions and communications technologies reappears here in the form of the co-evolution of my research profile and this blog.