[LINK] Congestion (was Re: NBN to cost 24 times South Korea's faster network, says research body)

[Richard Chirgwin]

Tom,

That particular report was picked over fairly widely at the time. 
Reviving it doesn't add much to the argument.

After all, it's also been claimed that the NBN would need far less than 
$200 - down as far as $80 per month. Do those claims get a look-in, or 
only the big scary one?

The highest figures frequently boiled the NBN down to a single-service 
network offering Internet access only. They did not factor in any 
assumed value for telephony, for example.

(Here's a point that's often overlooked - that a telephony service of 
"critical mass" in customers is valuable as a source of interconnect 
revenue. For many long years, interconnect payments to Optus for calls 
terminating to its HFC network were worth more than TV subscriptions on 
that network; I don't know if this is still the case).

When I tried to reverse-engineer the $200 per month per household claim, 
it also seemed to me that business services were ignored entirely. 
There's at least a feasible market for a couple of billion each year.

(Another aside: business value of NBN is the subject of very little 
analysis. What would its impacts be on businesses with rural offices? My 
knowledge of Telstra tariffs is probably now out-of-date, but if you 
need more than can be provided over a DSL link, my bet is that distance 
charges still apply anywhere that competition is lacking.)

So: there are good reasons for dismissing the "$200 per household per 
year" claim: the age of the study, the fact that its assumptions are not 
available for analysis, and the accuracy of those assumptions that could 
be tested.

RC

On 14/02/11 5:22 PM, Tom Koltai wrote:
>
>> -----Original Message-----
>> From: link-bounces at mailman.anu.edu.au
>> [mailto:link-bounces at mailman.anu.edu.au] On Behalf Of David Boxall
>> Sent: Monday, 14 February 2011 3:16 PM
>> To: Link at mailman.anu.edu.au
>> Subject: Re: [LINK] Congestion (was Re: NBN to cost 24 times
>> South Korea's faster network, says research body)
>>
>>
>> On 14/02/2011 12:18 PM, Tom Koltai wrote:
>>> ...it has been claimed that the NBN will require around
>> $200 per month
>>> from every Australian to break even. ...
>> Not by any credible source.
>>
> You're right David, it was Henry Ergas who claimed in his report in 2009
> that at 90% takeup by Australians, the NBN would need to charge $215.00
> per month to offer standard commercial returns on the investment.
>
> No credibility at all, after all, the day after Henry as Chairman of
> Concept Economics issued his report, Concept Economics went into
> Administration.
>
> But then for some inexplicable reason, the NBN made the guy that
> assisted him on that report the boss of it's pricing policy... go
> figure...
>
> http://m.zdnet.com.au/ergas-advisor-now-nbn-pricing-chief-339300477.htm
>
> Quote/
> Ergas advisor now NBN pricing chief
> By Liam Tung, ZDNet.com.au on January 19th, 2010
>
> The National Broadband Network Company has hired as its general manager
> of pricing an analyst who contributed to a report claiming the company
> would need to charge retail prices of $215 per month to achieve
> commercial returns.
>
> Dieter Schadt, one of the pricing architects who had contributed to a
> report commissioned by industry telecoms newsletter Communications Day
> was hired by NBN Co in November last year as its general manager of
> pricing, according to his LinkedIn profile. The report was published by
> Henry Ergas' controversial firm Concept Economics, which has since gone
> bust.
>
> The costing exercise, which Schadt had a hand in, looked at the likely
> retail prices necessary for the NBN Co to provide an acceptable return
> on its investment of up to $43 billion. Concept Economics estimated at a
> 90 per cent take up of the NBN Co, its retail prices would need to be
> $215 per month to pay standard capital returns. At 40 per cent it would
> need to charge $380 per month.
>
> Concept Economics' credibility was buttressed by its past as a provider
> of pricing analysis to Telstra. Schadt also came to Concept Economics
> with deep knowledge of likely NBN Co pricing, having been a Telstra
> director of wholesale pricing between 2002 and 2005.
>
> The Concept Economic study also estimated that the real cost of the NBN,
> if it accounted for operating costs over its eight-year construction
> phase, would rise to between $60-70 billion, a good $20 billion over the
> current estimate of $43 billion.
>
> Schadt was joined by another former Telstra pricing architect, Tony
> Nielson, in December. Nielson, now a senior pricing architect at NBN Co,
> had held a similar role with Telstra between 2006 and 2008. On LinkedIn
> he described his role as "developing pricing models for wholesale
> products to be delivered over NBN's FTTH network".
>
> /Quote
>
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>> -- 
>> David Boxall                    |  My figures are just as good
>>                                  |  as any other figures.
>> http://david.boxall.id.au       |  I make them up myself, and they
>>                                  |  always give me innocent pleasure.
>>                                  |                     --HL Mencken
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