The best plan for a national broadband network is to extend it to households through a variety of technologies instead of fibre-to-the-premises because it is cheaper now and can be more easily upgraded later, a major cost-benefit analysis has found.
The report by the Department of Communications’ panel of experts examined the economic and social value of alternative options for increased broadband speeds across Australia, using detailed information provided by NBN Co.
It compared four main scenarios: leaving things as they are with no further progress; an unsubsidised rollout of hybrid-fibre coaxial (HFC) and fibre to the node (FTTN); a full fibre to the premises (FTTP) rollout with wireless and satellite in high-cost areas, and a multi-technology mix (MTM) scenario using a combination of FTTN, FTTP, HFC, fixed wireless and satellite.
Compared with doing nothing, an unsubsidised – commercial – rollout to 93% of premises had a net benefit of $24bn. MTM added the cost of a $4.2bn investment into wireless and satellite services, extending the reach to the other mostly rural and regional 7% and drew a net benefit of $17.9bn. Factoring in a net cost of $16.1bn to extend a full FTTP rollout dropped the net benefit of that option to $1.8bn.
The analysis found the highest broadband speeds were offered by the FTTP scenario, although it was at the highest cost, slowest delivery, and exceeded the “willingness to pay” by users. The MTM option was cheaper, and more easy and cheap to upgrade as needed later on.
“The MTM scenario outperforms the FTTP scenario very significantly, both in terms of net economic benefits and in particular the robustness with respect to dealing with uncertainty or managing risk going forward,” said Mike Vertigan, the chair of the expert panel which conducted the analysis.
How much demand for high-speed broadband would grow in the future was a “key uncertainty” the analysis said, adding that the MTM scenario was dominant in most analysed growth rates, primarily because of easier upgrading.
The willingness to pay had to grow 250% over 10 years before the FTTP became the preferred option over an MTM without upgrades.
The communications minister, Malcolm Turnbull, told Guardian Australia increasing bandwidth was “only valuable insofar as it enables someone to do something”, and that eventually willingness to pay would flatten out.
“You’re paying a huge amount of extra money to get additional bandwidth that people won’t value,” said Turnbull.
“The critical thing in designing a broadband network is getting the balance between willingness to pay… and the cost of deploying it.”
The chief executive of the Grattan Institute, John Daley, said the report made extremely good points in regards to “futureproofing”.
“The technology in this area has been changing very fast over the last 15 years, and chances are it will continue to change for the next 15 years,” he told Guardian Australia.
He said sinking huge costs into the ground closed off options that should be kept open for successful futureproofing, and the report made a clear argument against FTTP as the primary option.
“It’s really expensive and you can do it cheaper later, and the benefits are small,” he said.
“That’s the core point. If you rely on variety of technologies ... you can always put FTTP in the ground later on.”
All benefits available from FTTP were available with the MTM scenario, said a panel expert, Henry Ergas, when asked by media about the public benefits of premises-connected high-speed broadband in sectors such as education and health.
“The real question is whether there are applications that have very high social value that you can only get at 120 megabits per second that you can not get at 60 or 70 or 80,” said Ergas.
“At the moment those applications are very few and far between and could not justify the very large cost differential between MTM and FTTP.
“Of course it may be that in 10-15 years’ time those applications may develop, then you can upgrade from MTM to FTTP … in areas and the types of premises where those applications have the greatest value, and you can do it in a cost-effective way that ensures society captures the full benefits of those applications.”
The four-person panel was revealed by Turnbull in December last year, and included Ergas, a strident critic of Labor and its NBN plan.
Opposition communications spokesman Jason Clare said the report was flawed and not the independent cost analysis from Infrastructure Australia which Turnbull promised, and said the panel was handpicked by the minister to give him the answers he wanted. “The cost to taxpayers of Labor’s NBN and the Coalition’s second-rate NBN is very similar,” said Clare in a media release.
“However the difference in benefits is significant. Last year’s budget showed that Labor would allocate $30.4bn in government equity to build the NBN. This year’s budget showed that the Liberal party will allocate $29.5bn. In other words there is less than a billion dollars’ difference in taxpayer investment between Labor’s NBN and the Coalition’s second-rate NBN.”
He said while both models would return taxpayers’ investment, “under Labor they would have the real NBN, fibre-to-the-premises, a game-changing project that would change the way we live and change the way we work. Under this government, only 24% of Australia will get fibre-to-the-premises. The rest of Australia will miss out. They will get a second-rate NBN from a third-rate government.”
“NBN Co has not yet gained access to the copper or HFC networks and the cost of operating, maintaining and enhancing this network has not been revealed,” added Clare.
The panel would not disclose the costs of upgrading FTTP compared with other options, which were redacted from the report, citing “commercial confidentiality associated with NBN Co’s proprietary data”.
