[LINK] NBN white-elephant-to-be ..

stephen at melbpc.org.au stephen at melbpc.org.au
Wed Aug 25 04:10:36 AEST 2010

Robin writes,

> The NBN price-tag of $43B is based on no thorough planning and
> surely underestimates the true cost, probably by a factor of 2
> or more.
> Even if it was to cost "only $43B", I am not sure that this is
> the best thing we could do with such money.  As I mentioned,
> health, education and solar thermal power generation seem higher
> priorities to me ..

Many including myself hope for an R-R, but others agree with you Robin:

A Rolls-Royce NBN is simply not commercially viable 

Dave Stevens  The Australian  August 24, 2010 

THE national broadband network will be a revolutionary piece of 
infrastructure with enormous benefits. 
It will deliver 1GB high-speed internet to 93 per cent of Australians.

But there would also be speed and safety benefits to giving every 
Australian a Rolls-Royce, and the government doesn't do that because it 
would be ridiculously expensive, with many rarely leaving the garage.

So too the NBN.

The price we've been quoted is $43 billion, but that's only for the 
initial build.

Factor in the year-on-year running costs and the NBN rests somewhere 
between a losing investment and a financial black hole, guaranteed never 
to break even, let alone to turn a profit.

Take the best-case example. Assume a budget overrun of only 10 per cent 
of the capital cost ($47.3bn), an adoption rate for households and 
businesses of 60 per cent (more than 100 per cent of current broadband 
subscribers), a yearly running cost of $800 million, a 15-year lifespan 
and a wholesale charge of $50 a month per connection, and the NBN loses 
more than $1bn a year, costing taxpayers $64bn.

More likely, the budget overrun will be 15 per cent ($49.45bn), the 
adoption rate 45 per cent (still more than 100 per cent of current 
broadband subscribers), the running cost $900m, the wholesale price $45 
and the lifespan 12.5 years.

After interest and depreciation, that's a running cost of about $8bn a 
year, $4bn of which comes back in connection fees, creating an investment 
that loses $4bn a year, or $100bn over its life.

In a worst-case scenario, with a capital overrun of 20 per cent, an 
adoption rate of 30 per cent, a $40 a month wholesale price per customer 
and a 10-year life, the network loses $7.3bn a year, or $124bn in total.

Who does that money belong to? According to the Prime Minister, $27bn of 
it will be the taxpayers', and the remainder private funds.

She can only be wrong.

The fact is there is simply no reason for any private business to invest 
in the NBN because it is not a viable commercial proposition.

If it were, it would have been brought to you already by the private 

Any way you look at it, the costs are simply too high.

Although the fibre might be a 50-year asset, the bulk of the cost will be 
in replacing its networking equipment as it ages: a capital investment 
close to $43bn every 10 to 15 years.

That the government has come to the table doesn't change the fundamental 
economics for any business: the NBN would be commercial suicide.

The government argues it will recoup some of its costs by selling all or 
part of the NBN down the track.

It will be a tough sell. Buyers might be willing to pay the residual 
value of an NBN asset, after depreciation, but nobody buys anything 
that's unprofitable without a plan for making it profitable, and reducing 
the NBN's operating costs and increasing its revenues will be very hard.

Spending between $64bn and $124bn on the NBN would be justified if its 
technological benefits created sufficient cost savings and productivity 
increases elsewhere in the economy, but this is unlikely to be the case.

The government points to billions of dollars in savings through e-health 
initiatives, yet none of that requires an NBN: most could be implemented 
with less expensive technologies.

Nor has the productivity case been made.

There's no doubt the NBN will deliver substantial productivity benefits, 
allowing organisations to subscribe to efficiency-driving platforms and 
cloud computing services, but again, almost all this productivity 
dividend could be delivered with a much more modest investment.

The Coalition's alternative broadband plan, a $6bn investment with a 
greater focus on wireless technologies, is much more cost effective, more 
likely to attract private investment, and would still allow for the e-
health and productivity benefits that will flow from the NBN.

As the Coalition recognises, a fibre roll-out makes economic sense only 
in high-density areas.

In low-density and rural areas, the NBN's aims can be achieved using 
cheaper wireless, satellite or copper-based connections.

Despite what the government has suggested, the fact such connections 
terminate over radio matters not a jot to applications the connection can 

A road is a road. You can drive on it whatever it's made from, so why 
build roads that do the same job for 10 times the price?

Without the long wait for fibre deployment, the Coalition's plan will 
also bring greater bandwidth to the bush much faster.

That's the essential trouble with this massive plan.

The idea is to take fibre to 850,000 houses, yet we could bring the same 
speeds to 800,000 houses for a fraction of the price using an efficient 
combination of fibre, copper and wireless.

The NBN is overkill. It's parking a Rolls-Royce in the driveway of every 
home, which is going to be nice, but something we don't need.

Communication needs of consumers vary considerably.

They all have different requirements and budgets, yet the NBN will 
deliver a premium service as standard, which most of us will have no use 

That might be all right if those of us receiving the premium service 
didn't also have to pay for it in our role as taxpayers.

>From 10 hospitals apiece in five state capitals, to fast trains, to a 
second Sydney airport, $124bn could buy many things, almost all of which 
would have bigger economic and social benefits than the NBN.

If Australians want fibre to the node, so be it. But it's only fair they 
be told what it will really cost, that the cost will be a premium cost, 
and that they'll be paying that premium again and again every 10 to 15 

They might also bear in mind that on Thursday, Senator Stephen Conroy 
described the idea of preparing a business case or cost-benefit analysis 
of the NBN as a waste of time, waste of effort, waste of money.

When assessing the NBN as a national investment, it may tell them all 
they need to know.

Dave Stevens is managing director of Brennan IT. He is not a member of 
the major political parties.  www.brennanit.com.au


Cheers, Robin
Stephen Loosley

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