Friday, August 13, 2010

And now just sad

I spent a decade of my life trying to get debate about telecommunications policy to be wider than the question of Telstra privatisation. It was an incredibly frustrating time as the issue at hand wasn't really ownership. Unfortunately the discussion about contending NBN plans doesn't seem to be shaping up much better.

Stephen Bartholomeusz writes that the Government NBN wins on glitz alone. While Grahame Lynch gets a column he wrote for CommsDay recycled in the Oz in which he argues the industry is at fault for the coalition not "getting it".

In both these stories the picture is created that the Coalition plan is the economically sound one while the Labor plan is the one with vision. A lot of the distinction seems to hinge on the now over-worked line that there is no "cost-benefit analysis" for the NBN. In Lynch's words;

The subsequent refusal to submit the NBN policy to normal checks and balances such as a cost-benefit analysis or compliance with competitive neutrality rules fed this narrative and guaranteed that a Coalition that self-identified as a responsible economic manager would never support it - which was exactly what the government wanted as it provided a clear point of differentiation on vision that it could milk for political advantage.

It has been fascinating to see the number of commentators who have parroted the line about a cost-benefit analysis (CBA), usually with the presumption that a CBA is "normal" or "usual". I'll offer a bottle of good red to the first commentator who shows me the CBA that accompanied the Broadband Connect program that was awarded to OPEL. Indeed to claim the prize you can even show me the CBA for the sale of Telstra, the Australian Broadband Guarantee, the switch from analog to digital television, or Malcolm Turnbull's $10B Murray-Darling Basin project.

Part of the issue here is that people are confusing a CBA - which measures social benefits and social costs - with a business case or financial analysis of a project - which measures private benefits and costs. To do a good CBA you really need to be able to measure social benefits. The only purported CBA virtually discounted the willingness to pay on the grounds that compression techniques would remove the need for greater speed and discounted all network effects as being fully captured in the private willingness to pay (an error).

The letters page of this morning's SMH was filled with comments that suggested that because the writer had a good speed (ranging from 1 to 15 Gbps) they didn't need more. The sorry fact is that when they first got 128Kbps or 256Kbps they probably said the same thing.

The benefits of ubiquitous broadband include the potential to undertake remote health monitoring and greater use of distributed educational resource from the home. They also include the benefits of telework as outlined by Access Economics for the Government. But these are mostly social benefits - they aren't benefits that an individual consumer can evaluate. It is the kind of "externality" that you need Government to address.

Finally the methodology of CBA is embedded in a theory known as the compensation principle - we should do stuff if the gainers could compensate the losers. But we never do the compensation. It is really an actively anti-egalitatrian methodology. Commentators should be arguing that the Dept of Finance notes promoting CBA are what should be eliminated - not that CBAs should be done.

The real difference is as Peter Wotton summarized in Crikey;

The Liberals want to give away tons of money to a wide range of internet service providers in the hope that the market will cobble together some sort of high speed web access.

The Labor Party wants to invest a lot more money in a system which will provide state of the art access speed. Additionally at some stage this investment is to be recovered.

We appear to have a choice between Father Christmas or a sound investment in upgradable infra-structure.

1 comment:

Grahame Lynch said...


For a start, my column specifically calls for a CBA that models externalities so your straw man argument that I confuse it with a business case is off the mark.

But specifically what I want is a CBA that models the claimed externalities for the NBN against its actual plan.

Let's take smart grids which is a big benefit touted by the minister. Fact is that the NBN is a really bad way to do smart grids, under its own modelling, an average 1 out of every 5 households might not even be connected (the midcase 80% takeup projection). By comparison, wireless offers almost 100% coverage of the spatial environment it covers and is very cost-efficient for the modest telemetry comms it requires. VividWireless' own smart grid projects are a great example of this.

Secondly, let's look at videoconferenced health, another claimed benefit from the NBN. We are told the NBN can deliver this. But most medical facilities already have fibre now and the end customers most likely to need at home video health offers will be in the rural and remote areas that will miss out on fibre and get WiMAX or satellite. We are told though this is inadequate for video! So perhaps this claimed externality might be a little limp in real life. Under the government's own logic, the people most keen for this service won't be able to technically participate in it.

So just those two examples show the benefit of an analysis applied to an actual plan (the NBN as it stands with its gaps themselves borne of cost-benefit trade offs) versus a broad idea (the desirability of platform-agnostic broadband).

Finally, governments only rule with the consent of the governed. Cost benefit analyses are an important device for many of us in the community - if not for you David - to offer informed consent. It is everyone's lives being affected and their bank accounts here as well.