[LINK] NBN to cost 24 times South Korea's faster network, says research body

Richard Chirgwin rchirgwin at ozemail.com.au
Thu Feb 10 09:34:01 AEDT 2011


Me on the EIU report:


> The headlines say all you need to know, surely? As reported 
> <http://www.smh.com.au/national/36bn-price-for-nbn-slammed-20110209-1an2x.html> [1] 
> all 
> <http://www.theaustralian.com.au/national-affairs/taxpayers-lead-the-world-in-funding-labor-broadband-bill/story-fn59niix-1226003302845> [2] 
> over 
> <http://www.telecomasia.net/content/korea-has-best-approach-broadband-eiu> [3] 
> the place 
> <http://www.businessspectator.com.au/bs.nsf/Article/Australia-lagging-world-in-broadband-plans-index-pd20110209-DW4FF?OpenDocument&src=hp1> [4], 
> Australia's NBN has been rated as too expensive and relying too much 
> on government support, according to the Economist Intelligence Unit.
> Australia cherishes a characteristic called "cultural cringe". A full 
> explanation would occupy a PhD thesis, but one symptom is this: if 
> someone overseas says "you're hopeless", our media will respond "yes, 
> we are!"
> Whether journalists tag the network's price at $36 billion, $43 
> billion or $27.5 billion (the government's commitment), having the EIU 
> slam the NBN is too tasty to resist.
> And because Australians love an appeal to authority -- we still sweat 
> and fret over the deliberations of the same credit ratings agencies 
> that gave junk mortgages the "AAA" stamp, thus sparking the GFC and 
> beggaring local governments throughout the country -- the report, 
> which rates government broadband initiatives around the world, is 
> accepted as holy writ.
> Australia is rated poorly chiefly on the basis of the NBN's cost to 
> government. According to the /Sydney Morning Herald's/ inaccurate 
> headline, the network is "one tenth the speed" of South Korea's 
> network "at 24 times the price".
> South Korea is currently implementing an upgrade to its network to 1 
> Gbps speeds, whereas the NBN currently assumes a maximum end user plan 
> speed of 100 Mbps (the network has already been tested at 1 Gbps).
> Unable to contact the EIU by telephone due to time-zones, /The 
> Register/ put three questions to the organisation's Iain Morris by 
> e-mail. We reproduce the questions and answers below.
> *El Reg:* Reports have stated that the EIU calculates the Australian 
> government NBN commitment at 7.58% of total government revenues. If 
> these reports are accurate, can you please outline the basis of this 
> analysis?
> *Iain Morris:* The 7.58% figure is based on taking the public-sector 
> commitment of the plan (A$27.1bn in Australia's case) as a percentage 
> of annual government budget revenues for 2009 -- the last year for 
> which actual data was available when the report was being produced. 
> It's simply a benchmark that allows comparison between countries. 
> There is another benchmark in the report showing total public-sector 
> spending as a percentage of annual fixed-line retail revenues in 2009, 
> which also makes Australia stand out for the size of its commitment.
> *El Reg:* Can you please identify which South Korean broadband 
> programs are included in the analysis, and their value?
> *Iain Morris:* It includes both the initial fibre network and the 
> current initiative (upgrade to 1Gbps). The current plan has US$1bn of 
> public funds versus about US$26bn of private funds; the earlier plan 
> also had similar splits between public- and private-sector funds.
> *El Reg:* As Senator Conroy pointed out (a calculation which I 
> examined as an analyst in 2006) South Korea combines both high 
> population density and small geography. Specifically, its 44 million 
> (roughly) population resides in an area less than 1/8 that of New 
> South Wales (population 7.24 million). How is such a disparity 
> resolved in the EIU analysis?
> *Iain Morris:* The Australian government is quoting population density 
> figures to defend itself, but, as its NBN implementation report points 
> out, 90% of the population occupies just 0.2% of the land mass. In 
> fact, overall pop density and land area are red herrings -- the cost 
> is all in the last mile.
> I should also point out that South Korea's costs are similar in total 
> (around US$30bn plus) but the private sector has covered more than 95% 
> of the costs -- both in the past and in the next phase of the plan -- 
> hence the 24 x factor, which is in relation to public spending, not 
> total spending.
> *7.58 percent of what, exactly?*
> The media's treatment of the EIU's "7.58% of government revenue" 
> measure is simply wrong; any journalist citing that figure without 
> context is either sloppy, or an economic illiterate.
> As Morris makes clear, the figure is only a benchmark. Long-term 
> government commitments should not be compared to government revenue 
> for a single year.
> Australia's government spend is meant to take place over eight years 
> (at which point the government intends to sell the NBN). Australia's 
> spend on an annualized basis will be less than 1 percent of total 
> government revenues.
> The EIU benchmark is useful only as a comparative measure -- it offers 
> no insight into the bottom-line budgetary impact of any country's 
> broadband program.
>       Australia vs. South Korea
> The EIU refers to "both the initial fibre network and the current 
> initiative (upgrade to 1Gbps)" in accounting for South Korea's 
> government network spend.
> This appears to overlook South Korea's very long history of government 
> intervention in telecommunications (generally following a public / 
> private model).
> That history stretches back more than fifteen years. To quote an 
> article 
> <http://money.cnn.com/2006/06/08/technology/business2_futureboy0608/index.htm> [5] 
> from 2006: "In 1995, the South Korean government made what must rank 
> as one of the most shrewd and far-sighted investments in business 
> history. It spent big on a nationwide high-capacity broadband network 
> that any telecom operator could offer service on, and offered 
> subsidies so that 45 million Koreans could buy cheap PCs".
> We do not know how much of that history - and how much South Korean 
> government investment - has been included in the EIU's analysis.
>       The question of geography
> Morris dismisses geographical considerations as "red herrings", noting 
> that 90% of Australia's population occupies 2% of its land area.
> Let's instead look at population density solely in Australia's urban 
> areas: roughly 18 million people in 152,000 square kilometers (2% of 
> Australia's 7.6 million square kilometer total).
> Even Australia's urban density of 118 people per square kilometre 
> pales against South Korea's total density -- urban and rural -- of 440 
> people per square kilometre.
> On that basis, I do not consider geography to be a "red herring".
> Ignoring household size, a South Korean telco can expect any given 
> service area to hold roughly four times as many people as a carrier 
> can expect to find in urban Australia.
>       Politics and telecommunications
> The Sydney Morning Herald described the EIU as "right leaning".
> The Unit criticizes not the total price tag of the NBN - as Morris 
> noted, South Korea's upgrade cost is close to the Australian 
> government's total NBN commitment.
> The EIU marks Australia down because that investment is coming from 
> government. The EIU is clear that it believes the NBN should be a 
> private sector project.
> This is not a neutral position: it follows a particular school of 
> economic theory, and subscription to that theory is at least partly 
> reflected in the left-right divide of Australian politics.
> Such a simplistic view (public bad, private good) also ignores whether 
> carriers are willing to co-operate in public/private projects, whether 
> a nation's industry structure encourages that co-operation, and 
> whether a government holds sufficient authority to enforce co-operation.
> *What do you get for your billions?*
> The most revealing response from the EIU still relates to the total 
> price tag.
> For a total budgeted cost (including private and public sector spend) 
> of $43 billion, Australia will update its entire network from copper 
> to fibre, for 97% of the population.
> For $US 27 billion (public plus private spend), South Korea expects to 
> upgrade an existing fibre network to gigabit speeds -- excluding the 
> initial build cost.
> Last year, when NBN Co announced that its network tests had reached 
> gigabit speeds (an announcement unfortunately made in close proximity 
> to a Federal election), the network's critics cited that speed as 
> unnecessary, wasteful or even implausible 
> <http://www.gizmodo.com.au/2010/08/abbott-thinks-1gbps-nbn-is-utterly-implausible/> [6].
> South Korea's private sector clearly believes those speeds justify a 
> network upgrade that matches the total Australian government 
> commitment to the NBN. That should, at least, put paid to the notion 
> that "no network needs to go that fast."

On 10/02/11 9:14 AM, Craig Sanders wrote:
> On Wed, Feb 09, 2011 at 04:31:00PM +1100, Bernard Robertson-Dunn wrote:
>> NBN to cost 24 times South Korea's faster network, says research body
>> UPDATED James Massola
>> From: The Australian
>> February 09, 2011 2:46PM
>> http://www.theaustralian.com.au/news/nbn-to-cost-24-times-s-koreas/story-e6frg6n6-1226002952747
>> THE National Broadband Network will cost taxpayers 24 times as much
>> as South Korea's
> wow, that's cheap. only 24 times the cost for 76 times the land area
> (and 0.005% of the population density).
> a shining example of public sector efficiency, shows what's possible
> without the inherent inefficiency of profit.
>> but deliver just one tenth the speed, according to one of
> i thought the NBN had already announced that due to equipment upgrades,
> speeds would be up to 1gbit rather than 100Mbps?
>> It also loses points due to limited private-sector involvement, high
>> government intervention and the exclusion of state and municipal
>> authorities from the plan.
> Waaaaa!  Not enough snouts at the trough!   *Our* snouts not at the trough!!!
> craig

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