Conroy’s digital strategy still doesn’t explain NBN’s cost/benefit question: Bartholomeusz

Stephen Conroy’s National Digital Economy Strategy is one of those wordy documents full of platitudes and high-level aspirations, which begs the fundamental question of whether it is necessary to spend $35.7 billion, if not more, to achieve the strategy’s objectives.

Some of the goals set out in the strategy are worthy. Increasing the online engagement of businesses and other organisations, using broadband to deliver healthcare and education more efficiently and more widely, improved delivery of government services, and a narrowing of the digital divide between regional and urban Australia are potentially productivity-generating and wealth-creating developments.

But the NBN is, ultimately, a consumer network that will deliver entry level speeds that are no better than those available on copper today, with potentially steep premiums for the higher speeds that are the justification for the creation of the ultra-expensive new monopoly.

The central problem with any attempt to try to understand whether the cost of the NBN is justified by the prospective benefits, of course, is that there has been no serious attempt to analyse and quantify those benefits.

The core of the spending to build the network will be in connecting individual homes to it, but apart from citing Allen Consulting estimates that a 10 percentage point increase in the number of households connected to the internet would generate $2.4 billion of gains for those households from the value of consumption they are expected to obtain, there is no justification in the strategy for the cost of connecting every home, only vague reference to ‘telecommuting’, remote work and study, price/product discovery and access to health services.

The most obvious household applications using the higher speeds the NBN will make available in the near- to medium-term, at a price, are, of course, video downloads. No doubt there’s also going to be a continuing rise in the number of households using the net to shop online. It is unclear why the costs of those kinds of services need to be subsidised and socialised.

The Government’s aspiration of achieving a top-five position by 2020 in the OECD’s ranking of the proportion of households connected to the internet can be met, given that households will be given the “choice” of either connecting to the network or having no fixed line services at all.

What’s been missing from the Government’s side of the discussion ever since Kevin Rudd and Conroy dreamt up the notion of the NBN on a plane trip has been whether the goals outlined in the strategy could be achieved more cheaply and without ripping up or shutting down existing networks – whether the copper network or the two HFC networks – that still have useful lives.

Nor has there been any attempt to catalogue the existing fibre services being accessed by governments, schools, hospitals and businesses, which will have a big bearing on how much of a net economic benefit the NBN will actually produce.

Ranking in the OECD’s top five for households connected to broadband only means something if it does generate real economic benefits of sufficient scale to justify the massive investment in the NBN – and benefits that couldn’t otherwise be achieved at a lower cost to taxpayers.

The positive aspect of the strategy is that it is being supported by several hundreds of millions of dollars of spending on what are fundamentally educational programs designed to help consumers, businesses and institutions to understand how to use the NBN and the higher speeds and ubiquitous broadband it will provide.

With tens of billions of dollars committed to rolling out the network, it is imperative that those areas where there are potential economic benefits are fully informed about how to capitalise on the opportunities the NBN might provide. In the scheme of the NBN, a few hundred million dollars is, of course, a pittance.

This article first appeared on Business Spectator.