Something for everyone in the NBN cost-benefit analysis

The 196-page cost-benefit analysis of the national broadband network released yesterday is a very surprising, very convoluted document, and it has something for everyone.

As expected, it allows Communications Minister Malcolm Turnbull to say his plan for a combination of fibre-to-the-premises and fibre-to-the-node is a better proposition than Labor's entirely FTTP one -- $18.1 billion better.

But it also puts the base-line net benefit of the NBN to the nation at $24bn, which is a number that will surprise many opponents of it. 

Actually, that's expressed as the negative net benefit of no further rollout, which is a whopping, confusing, double negative. Doing nothing further would be a net cost to the nation of $24bn; the "unsubsidised rollout" has a zero cost and therefore a net benefit of $24bn; the "multi-technology mix" (MTM) scenario favoured by the government has a "net benefit" of $17.9bn, and therefore a cost relative to the unsubsidised rollout of $6.1bn.

And here's something for the ALP: the full FTTP rollout has a net benefit of the nation of $1.8bn (which means it has a net cost relative to the MTM scenario of $16.1bn, which is the something for Mr Turnbull). Got all that?

The bottom line is that the cost-benefit analysis shows conclusively that the NBN is all about subsiding rural broadband. 

The unsubsidised rollout scenario involves confining the NBN to the cities. According to the panel: "The lower net benefits from the MTM scenario are primarily a result of the delivery of fixed wireless and satellite delivery." Not, mind you, FTTN.

Providing fixed wireless and satellite services costs nearly $5bn, but the benefits are only just above 10 per cent of that. "The net social cost is equivalent to $7000 per additional premises connected.” In other words the cost of connecting remote Australians to high-speed internet is $7000 a pop and the benefit about $700.

As for FTTN, or rather MTM, versus FTTP -- according to the panel that comes down to how quickly you think the demand for faster broadband will grow. If it's greater than 13 per cent per year growth in what's called "willing to pay" (WTP) for speeds, then FTTP "dominates". If the growth in WTP less than 13 per cent a year, or 250 per cent over 10 years, then FTTN is better. The panel does not believe that will happen, by the way.

And that's without upgrades. Allowing for upgrades to technologies using the MTM scenario means that it "dominates" the FTTP scenario "under any possible growth in WTP. Under any WTP growth it is better to first roll out the MTM scenario as this delivers improved speeds quickly and gives higher immediate benefits. The higher costs of FTTP can be delayed until there is sufficient demand."

Also, "with very high growth in WTP, the net benefits of the MTM scenario actually increase relative to the FTTP scenario. This is because the slow delivery of the FTTP scenario means that, given high growth in demand, many potential benefits are missed in the short term".

"Exactly!" one can hear Malcolm Turnbull bark. He might have written that himself.

And indeed the disaster of Australia's electricity system provides a salutary lesson. The infrastructure for the delivery of power was significantly upgraded for growth in demand that never arrived, and in fact demand for electricity has been falling -- shockingly (pardon the pun). The result has been huge unnecessary costs that are now being passed on to consumers in higher prices.

It's hard to imagine demand for fast broadband to decline, but it was also impossible to imagine demand for electricity declining 10 years ago, with all the air conditioning being installed.

As the Vertigan panel says of the Turnbull's MTM scenario: "It is … far more 'future proof' in economic terms; should future demand grow more slowly than expected it avoids the sunk costs of having deployed FTTP."