Tuesday, November 30, 2010

NBN benefits

The SMAge led a report yesterday with;

THE federal government has been accused of misusing research to build the case for the National Broadband Network in an international study that finds the claimed benefits ''grossly overstated''.

Released in London ahead of today's vote in Canberra on legislation to support the NBN, the study finds evidence to support the claims made for fibre-to-the-home ''surprising weak'' and cites Australia as a key example.

The first three-quarters of this would have you believe the study was focussed on the NBN in Australia, it is only when you get to the end that you realise that the article was really about the case for investment in broadband networks in general.

We are told that the report was "prepared by British telecommunications consultant Robert Kenny with Charles Kenny from the US Centre for Global Development."

In his blog John Quiggin tells us that;

Five minutes with Google is enough to determine that

* the Centre for Global Development is a genuine and reputable thinktank, with no particular axe to grind

* Charles Kenny is not what you might call an Internet enthusiast, having written, in 2002, a piece entitled Should we Try to Bridge the Global Digital Divide.

What he didn't realise is that the report isn't a report of the Centre for Global Development, but merely a working paper published on Kenny's blog.

I haven't had time to review the paper in detail - and probably don't even have the inclination to do so. It makes the usual and expected criticisms, that proponents of benefits always choose the best number available to quote (this is the accusation against Rudd), that the benefits of the broadband can't be separated from the benefits of the applications, that the correlation between growth and broadband deployment isn't as would be expected.

All these points are reasons why the decision on an FTTP network can't be made purely on the basis of a calculating machine. No amount of cost benefit analysis is a substitute for judgement.

It is interesting that the paper's principle critique is over the idea of "subsidising" broadband. Ultimately the Government plan is not to subsidise broadband over the long term, it is simply to bring forward the investment using the power of Government. The business plan forecasts the Government's investment will be fully repaid by 2034 (as indeed was all the Government's investment in Telstra prior to any privatisation).

In talking of Government and investments in faster the authors note

But faster technologies don't always triumph; think of passenger hovercraft, maglev trains, and supersonic airliners. Concorde (if it hadn't retired) would still be the fastest passenger aircraft today, having first flown in 1969. It turned out that the incremental benefits of speed to most customers were not worth the extra cost.

But on ABC Radio one of the authors participated in the following exchange;

ALEXANDRA KIRK: Mr Kenny accepts governments can justify spending billions on big infrastructure projects.

ROBERT KENNY: State highways in the US would be an example and we're not against that in principle. We are just saying that if you are going to spend that kind of money you need to have a clear idea of exactly what benefits you are hoping to get when you spend it.

The use of the US Highway network is an interesting one, because that was never an economic project. It was indeed a defence project designed to facilitate the movement of assets in the depths of the Cold War. In particular nuclear missiles needed to be able to be quickly and efficiently moved to avoid ease of targeting.

However, as is detailed in the history of the cargo container The Box the presence of the highways meant the migration of the container, designed for ships, to road transport was an unexpected side benefit.

AS I outlined in my two items on CBA for itNews the problem with a CBA is that the benefits can't be accurately measured, but the utility of the studies is that they help understand how decisions about the network might affect the benefits.

The real difficulty is that the suite of technologies of which broadband is a part are general purpose technologies - like the internal combustion engine - and effect everything we do. They also have high network effects, the benefit grows geometrically* as the number of users grows.

The point of being a GPT is that the benefits and effects are widespread and individually potentially small but in aggregate large. In common with the internal combustion engine you can't also separate the benefits of the broadband from the benefits of the applications, just as you can't separate the benefits of the petrol from those of the engine, or the benefits of the left shoe from the right shoe.

The only distressing thing over the Kennys' paper is the way it has been reported as if it actually proved anything.

Mighty strange was the reliance placed on it by Sophie Mirabella in an item titled The NBN still hasn’t brought the promised sunshine which tries to make a case about the lack of transparency on benefits and uses the Kennys' paper to suggest there aren't benefits.

But scrutiny of the legislation passed this week, and the amendments to it, is interesting. A few years ago the parliamentary draftsman started drafting laws that made Government publishing information in electronic form admissable. In the Bill we see that the Minister is now obliged to publish certain things on the Department website, often formally requiring a fourteen day consultation period.

One of the benefits of ubiquitous, always on, and speed unconstrained internet access is in the Bill itself.

* The reality is that the supposed law on networks - Metcalfe's Law - is wrong. The value doesn't grow as n squared. More likely is the Odlyzko version that it grows at n*log(n).

Novae Meridianae Demetae Dexter delenda est


Vic N said...

lovely summary

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