Digital entrepreneurs back NBN cost-benefits study

Digital entrepreneurs have called for the Government to implement a cost-benefit analysis of the National Broadband Network, with TPG chief executive David Teoh leading the charge in an unusual public comment regarding the infrastructure project.

But one telecommunications expert says a cost-benefit analysis of such a network would be difficult to compile due to the complicated nature of technology and how the use of the internet changes over time.

Several other entrepreneurs including Wotif founder Graeme Wood and even Fortescue Metals chief Andrew Forrest have issued warnings regarding the NBN, saying an exhaustive cost-benefits study is needed before the investment goes ahead.

Speaking to Fairfax, the usually media-shy David Teoh commented that, “We are talking about $43 billion. It has to be transparent. We have to be responsible to taxpayers.”

His comments were just some of the opposing voices speaking out against the NGN yesterday, with Wotif founder Graeme Wood telling The Australian that the fibre-to-the-home project is just a “$43 billion hi-tech babysitter”.

“If all you’re doing is speeding up the rate at which we entertain ourselves, can you justify that from a public expenditure point of view?” he said. “Which part of that $43 billion investment is going to provide hi-tech babysitting?”

“Is there any value to society in just delivering entertainment faster… to have more dots on the screens? The public debate hasn’t been had, not just in terms of the GDP impact of broadband, but on the costs (and) benefits to society.”

Meanwhile, Fortescue Metals chief Andrew Forrest told an Australia-Israel Chamber of Commerce function in Sydney that he is worrying about the NBN, “which hasn’t even got a feasibility study on it”. He noted 12% of homes are now using only wireless technology.

“We’re just beginning to understand BlackBerrys and smart phones have changed how we relate to each other super fast and it’s all wireless. We’re just getting to the outer edge of that technology and we’re putting in this kind of old technology around Australia. That kind of concerns me.”

“To build it without a study which shows plus or minus 8-9% with some major balance sheet up behind it guaranteeing it, as a mum or dad we should be scared.”

The comments come after a number of other entrepreneurs have spoken out against the NBN. Last month a group of digital entrepreneurs including Vocus founder James Spenceley created the Coalition for Affordable Broadband, saying the NBN wouldn’t deliver enough benefits for the $43 billion price tag.

The group, which also included AAPT chief Paul Broad and head of TPG-subsidiary Pipe Networks, Bevan Slattery, also said any project needs to be scrutinised in order to deliver benefits appropriate to cost.

But Telsyte research director Foad Fadaghi says although a cost-benefits analysis would certainly provide more clarity for businesses.

“There are many variables that can be measured, and we’ve submitted research to the McKinsey report in that regard. But there are also many things that can’t be measured, around social aspects, that are very difficult. If you had asked to consider the growth of Facebook 10 years ago, you couldn’t even fathom the growth from that because it didn’t exist. And it’s the same situation here.”

“I think there are a lot of unknowns, and one of the key unknowns is just how much people will be willing to pay and the adoption of the technology. We have conducted research and we know there is demand for faster services at current prices.”

Fadaghi says whatever cost-benefits research is conducted should focus on the price-consumer component and also investigate what services and applications people are willing to pay for. He notes that “preliminary research has been very good for any kind of network”.

He also echoes Teoh’s comments yesterday regarding market competition, saying several ISPs are dropping prices and adding new products to gain market share ahead of the NBN’s rollout when telcos will be forced to compete on a level playing field, infrastructure-wise.

“That is why we are seeing a price war now. More companies are essentially buying market share. They are making more investments, and that is why we are seeing quite a turbulent time right now in the telecommunications industry.”

In the last month alone, several ISPs including iiNet, TPG and Internode have created 1TB plans and have dropped prices, while market leader Telstra, traditionally the most expensive option for internet, has also dropped its BigPond prices.

Teoh noted this yesterday, saying the industry is changing quickly and companies need to keep up fast in order to grow.

“Everyone is changing their broadband prices and it’s affecting us all. If you look at the numbers, we added 100k in the last 12 months so no one is going to sit there and let us keep taking their customers,” Teoh told The Australian. “The next six months is very critical.”

And despite Teoh’s objections to the lack of a cost-benefits analysis, he also noted the company will benefit from a network rollout in regional areas.

“The outside in rollout of the NBN where regional areas will get the network first is very beneficial to us because at the moment Telstra controls all the profit and business in those areas. We are losing out,” he said.

“The NBN will provide a level playing field in those areas so it will be another growth area for TPG because we will be extremely competitive from day one.”