Separating NBN costs from NBN benefits

The cost benefit analysis of NBN is a crucial exercise, but an undue focus on costs could potentially derail the benefits.

The cost benefit analysis of the National Broadband Network (NBN) is a crucial exercise, but an undue focus on costs could potentially derail the benefits high speed broadband can deliver to our economy

The benefits are both economic – such as utilising the digital economy to address our disastrous level of productivity, and social – improving our lifestyle, healthcare and education.

To deal with the impact that the global financial crisis has had on things like investment, jobs and the cost of economic activities governments will have to develop policies that address digital productivity. All around the world the traditional economy is struggling with the cost savings that can be achieved in the digital economy.

However, if organisations are to realise these savings they will have to invest in digital infrastructure and other ICT systems.

Furthermore, the economic transformation to a more digital world often requires cannibalisation of traditional business models and many organisations find this very difficult to come to terms with. Having said that, several of the sectors fall directly or indirectly under government control and it is here that the government could set some good economic transformation precedents.

An ubiquitous NBN with sufficient capacity for video communication (healthcare, education, business) M2M, cloud computing and data analytics can greatly assist companies in making this transition.

Labour devaluation

Another looming disruption is the devaluation of labour that's taking place in more utilities-based environments. This applies to most clerical work, customer service, financial services, research, IT maintenance, software developments, publishing – the list goes on. Many wages are actually going down and there are no government policies in place that look at this issue, let alone address it. High labour cost economies like Australia have to rapidly innovate and move towards higher-valued jobs.

The larger corporations have already moved towards outsourcing in countries such as India, Philippines, Thailand, etc. However, new websites such as Freelancer have now also brought these outsourcing options to smaller organisations and many new websites have arrived that allow organisations to shop around for contractors to do such jobs. The cost savings here are often between 60 and 80 per cent. Contractors can frequently be deployed within 24 hours, with jobs done within a week or so.

True, this is not something that every organisation wants to use at the moment, and once again at this point it only applies to utilities-based work but the growth of these global networks offering plenty of very low-cost labour is phenomenal. It will have an increasing impact on the overall economy.

If even as little as one per cent of the educated population in the developing countries would become involved in such activities it will have a disastrous impact on jobs in the developed world.

Australia is one of the highest wage countries in the world and therefore will be hard hit once these virtual contractors become more mainstream. And that is a matter of, not if, but when.

Bearing the burden of inefficiencies

In addition to these commercial digital productivity developments the same is set to happen to healthcare, education, government service and energy services. All of these sectors are so far behind in digital productivity that it's again only a matter of time before major changes are implemented.

Societies simply can no longer bear the high costs of these grossly inefficient systems.

I have mentioned all of these developments many times before, yet successive governments have failed to come up with the policies needed to address these very disruptive economic and social developments.

Having said that, the Labor government’s Digital Economy Strategy was a good step forward, but the new government has put aside this undeniably meagre initiative and replaced it with an even more meagre policy document on digital productivity.

Getting little joy out of the government, I have on many occasions urged the telecoms industry – at a CEO level – to take a more assertive role – on these issues – especially companies such as Telstra and Optus. They could take a lead from the active role the likes of  IBM, Google, Intel, Cisco and Microsoft are playing in this policy debate.

Unfortunately, like the various political parties, the telcos have done little beyond paying lip-service to these important developments.

It was therefore good to see that iiNet recently put its weight behind the debate, when it stated:

Successive governments have struggled to communicate concrete reasons for an investment in the NBN. Debate has continued to focus on download speeds and entertainment. No ‘National Objectives’ are presented as the drivers of the NBN, as they might be for any other infrastructure project. The strategic review continues the failure to address any of these missing components. The costs benefit has no specific benefits to analyse, only costs.

Separating costs from benefits

The other frustration is that the cost benefit review the government is currently undertaking is being done in secrecy, with no opportunity for a more public debate. Rather than launching this committee on a constructive note – for example, taking a leadership role in these social and economic developments – we have no idea what sort of outcome the government is looking for. Based on the harsh comments made by the Coalition government while it was in opposition, it's hard to believe that it will now do a political backflip and suddenly start embracing all the positives that are associated with the NBN.

So the government’s agenda for the committee could well be simply to find more weapons to attack the NBN and further undermine it.

In relation to national social and economic benefits not a great deal of sympathy can be expected from one of the key people on the review committee, the economic rationalist Professor Henry Ergas. He is well-known for his hardline stand on issues like this. For example, in a submission to the NBN Senate Select Committee in 2009 he argued that the costs of building the NBN exceeded its benefits by between $14 billion and $20 billion.

It would be interesting to see what he would have made of the plans of governments 50 or 100 years ago, when they embarked on similar infrastructure projects such as sewerage, electricity, railroads, motorways, etc. There was no quantifiable economic beneficial evidence for such investments but we all know how these investments have benefited economic and social progress.

When discussing the NBN with economists I have been told more than once: ‘we are not interested in vision, we leave that to the politicians’. Indeed the potential benefits of the NBN are all to do with vision. So politicians will have to make those judgements, based on good advice from a range of experts, about issues such as digital productivity gains, and how the NBN can assist in addressing our chronically ill healthcare system and our education system that can’t cope with the changes in the labour market and help to transform a range of very inefficient industry sectors and government services. And there are certainly others in the review committee who are better qualified and better positioned to help turn such a vision into policies and strategies than Professor Ergas.

There has also been criticism that key people on the committee are Liberal supporters and personal friends of the minister, but it's also important to note that the majority of Liberal and National Party voters in Australia preferred Labor’s version of the NBN over that of the Coalition.

The trouble is that without any transparency and openness there will be ongoing questions regarding the legitimacy of the government’s review activities. The NBN isn't a magic potion to cure all of the social and economic problems our country is facing but it's a critical tool in the overall transformation that is happening worldwide.

This is an abridged, edited version of a post originally published on February 6. Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.

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