Why is it that important debates around complex public policy are so contaminated by misinformation, so uninformed by accurate and complete information? At the charitable end of the spectrum it is because few if any have all the information, fewer understand it if they do, and even fewer are able to provide a lucid exposition if they had the inclination. At the other end of the spectrum, self interest operates so powerfully that withholding some of the information is deliberate, distorting it is a tactical objective, and presenting it in a manner favourable to the individual’s viewpoint is a strategic aim.
The debate about global warming is a classic example. Even those whose professional training requires them to be as objective and factually accurate as is humanly possible, in this case the climate change scientists, have consciously to strive to avoid bias. In a couple of notable instances they failed on this count at the University of East Anglia, and were pilloried for it in the media in what it chose to label ‘climategate’.
We are already seeing the debate about the Wild Rivers legislation distorted by self interest, and the emerging debate about Afghanistan too is headed that way.
This piece focuses on the NBN debate, not in any way to be an exposé that makes everything crystal clear. Many have tackled that in part, but has anyone done it comprehensively? Not that I’m aware of. Instead, the piece challenges the statements that have been made about the NBN, many of which are contradictory, often incomplete, too frequently inaccurate, or just plain devious. The purpose is to highlight the need to question every statement and to insist on seeing the supporting facts and the reasoning that has lead to the conclusion before accepting its veracity.
The $43 billion price tag
Let’s start with the most publicized fact, the total cost, said to be $43 billion, for rolling out the network nationwide. This is the figure the opponents of the NBN like to use as it is the highest. Yet Stephen Conroy has said repeatedly that the actual cost to the federal budget would be around $26 billion, the rest to be raised by NBN Co by selling bonds. The McKinsey KPMG report and Mike Quigley, CEO of NBN Co put the figure at between $26 and $27 billion. Whatever it is, it is around $16 billion less than the figure most used. Yet the larger figure is the figure we all know about. Labor has not done well in countering the $43 billion figure as the cost to the budget with the more probable one. And even when it has attempted to do so, the counter has always been - what happens if the bonds do not raise the money budgeted – won’t the taxpayer have to fork out? So the $43 billion figure persists, notwithstanding the fact that is almost certainly not what taxpayers will have to pay.
on 29 September Tony Jones tried to resolve this issue in Malcolm Turnbull in Conroy, Turnbull clash over NBN cost
“TONY JONES: If private investors put up $16 billion of the total cost of $43 billion, that's their risk, isn't it?
“MALCOLM TURNBULL: Well, it's actually the taxpayers' risk because their loans will be secured on the assets and undertaking of the NBN Co; the taxpayer, the Federal Government, will be the equity owner, it will have $26 billion ranking behind the debt, so that if the company gets into trouble, it will be the Federal Government, the taxpayers, that will lose money. I mean, I think everybody understands this. What Stephen is saying is that he believes the company can attract some private borrowing.”
So with a flurry of words Malcolm casts doubt on the prospect of investors stumping up the $16 billion with a wave of his imperious hand. It’s easy for him to do that and insist that the taxpayer still takes the risk!
Obfuscation reigns supreme.
The cost to the householder will be excessive
The next argument is that the cost of the rollout to the householder is too high. How is that calculated? Seemingly by dividing the number of households in Australia into the ‘$43 billion price tag’! Ashghebranious has written a nice dissection of this arithmetic in his piece: Infrastructure: the need for a NBN
. He makes an interesting comparison of the benefit of the NBN with the benefit that would have accrued from Tony Abbott’s offer of $1 billion to Andrew Wilkie for a new hospital in Hobart. I won’t repeat his reasoning here. Do read what he has to say.
The figures bandied around about the cost per household range from $4,000 to $5,000 to as high as $7,000 offered by the Mexican telecommunications billionaire Carlos Slim Helu. How are the figures so different? How are they calculated? Ask the authors. On Lateline
on 29 September Tony Jones asked this of Malcolm Turnbull in the same interview Conroy, Turnbull clash over NBN cost
. Here’s the exchange:
“TONY JONES: Well, hang on a sec! Hold on, hold on, hold on. You've raised the question of the costs per household, Malcolm Turnbull. Now, I think you've written it'll be $4,000 per household. Tony Abbott says it'll be $5,000 per household. The visiting Mexican billionaire Carlos Slim Helu says it'll be $7,000 per household. Who's right?
“MALCOLM TURNBULL: Well, I mean, you can just work it out. You can divide through the number of households by 40 - divide the number of households into $43 billion and you get the answer.
“TONY JONES: Well, no, you don't. We actually did that. Your figure, your $4,000 figure multiplied by 8.57 million households comes out at $34 billion, so I'm wondering how you came up with your figure to start with.
“MALCOLM TURNBULL: Well, I'm not sure whether that - where that figure came from, but it's $43 billion over around - over around nine million households and businesses. So ...
“STEPHEN CONROY: But that's a completely false representation. This is investing in an asset that will last up to 40 years. If you take even Malcolm's $4,000 and stretch that across 40 years, it's about 13 cents a day.
“So, you can't say that you add up the whole total cost for asset that lasts up to 40 years and suddenly try and bemuse and trick ordinary Australians that that's the actual cost. This is an asset over 40 years, Tony! 13 cents a day!”
See how easy it is for politicians to play with the facts to produce the outcome that best suits their case. But how well does that inform the public?
You may wish to read the transcript of the whole interview here
A colossal white elephant
Then there is the ‘colossal white elephant’ charge that the Coalition makes, without any shred of justification. A white elephant is ‘an idiom for a valuable possession of which its owner cannot dispose and whose cost, particularly cost of upkeep, is out of proportion to its usefulness or worth’. So the onus of proof here is that the usefulness of the NBN is not worth the cost. I have not heard any cogent case made for the NBN not being useful. Even the Coalition concedes it will be useful, but maintains that it could provide something useful enough at a much lesser cost. So the argument is that usefulness of the NBN does not warrant the cost. This argument is void since the potential of the NBN, while knowable to some extent and impressive though that is, it is not completely knowable. The Coalition seems unwilling to concede the potential of the NBN – it doesn’t suit its argument.
The clamour for a cost-benefit analysis and a business plan
Next there is the perennial argument that there has been no cost-benefit analysis or business plan. That’s what is said over and again.
According to Wikipedia
, 'Cost-benefit analysis is a term that refers both to helping to appraise, or assess, the case for a project, programme or policy proposal, and an approach to making economic decisions of any kind. Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).’
You may be interested to read more of what Wikipedia
has to say about the ‘closely related, but slightly different, formal techniques include cost-effectiveness analysis, economic impact analysis, fiscal impact analysis and Social Return on Investment (SROI) analysis.’
CBA is a very complex concept when applied to massive projects, although it’s represented as being so simple. So what analysis has been done? This is what Stephen Conroy had to say on Lateline
about the $25 million, five hundred page McKinsey KPMG report:
“STEPHEN CONROY: Well, the McKinsey's report clearly demonstrates that there is a financially viable business case, that it will start earning positive income streams after about the seventh or eighth year in a way that will allow it to issue bonds. It's quite simple, it's straightforward and it's in the McKinsey's report.”
Of course Malcolm Turnbull dismisses the report as ”…the most fanciful pieces of financial analysis you could imagine. It is a laughing stock right around the industry.”
The imperious hand at work again.
What about a ‘business plan’. Again Wikipedia
has a definition: ‘A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.’
Is that as complicated as those who demand a business plan imply? Is the five hundred-page Implementation Plan prepared by McKinsey KPMG a ‘business plan/case’? It seems to fit the definition. In any case, NBN Co says it has a plan (which is commercial-in-confidence) and on Lateline
Stephen Conroy said: “…we spent $25 million on a McKinsey's report into the business case which went through all of this information. It provided a business case that said the NBN is financially viable and affordable for Australians.”
So is there a business plan/case or not? Has a cost-benefit analysis been done? It depends on who you ask!
Let’s have a look at what our own NormanK had to say on this subject in a well-reasoned comment on a recent post:
“On the subject of the NBN, indulge me while I offer an analogy. First, let me make a semantic distinction between ‘cost’ and ‘outlay’. For the purposes of this post let us allow ‘cost’ to mean money put forward with no prospect of being directly recouped and ‘outlay’ to be an investment which might reasonably be seen to produce a monetary return.
“If I were to contemplate the purchase of a new computer because the latest model would be faster, more efficient and require less maintenance, I might do a cost-benefit analysis.
“Cost is pretty straightforward - for ease of handling let's say $2000 plus $100 interest on a loan to buy it. I might anticipate that I will get 5 years out of it before it starts to incur further costs in maintenance and upgrades. I could do some sums to calculate the benefits that I might be able to derive from my new toy such as less travel time, better security for on-line activities, faster speeds for processing work and so on. These sums would be very rubbery and any small shift in a single parameter (e.g. how often I use the computer) could alter the outcome. Let's say I reckon I can benefit to the tune of $1000 over the five year life of the computer. Now I have to decide whether a $1100 loss in cash terms (presuming the computer is worth nothing in re-sale value after five years) and an ambiguous $1000 gain in benefits is value for money.
“If however, I can find people who are willing to collectively pay $420 per year for access to my computer, by the end of five years I will have covered my outlay, including interest on my loan. What need then do I have for a cost-benefit analysis? My computer has cost me nothing to buy and I have accrued possibly $1000 in benefits.
“Seriously understated in the discussion of the NBN is the fact that although the outlay of taxpayers' money will be to the tune of $27 billion (according to NBN Co), the cost after fifteen years (according to the McKinsey Implementation Study) will be zero. On top of that will be the benefits:
“This is from the NBN Co website: ‘Access Economics states that adopting smart technologies in electricity, irrigation, health, transport and broadband could add more than 70,000 jobs to the economy in 2014 alone. It also predicts an increase in GDP by 1.5 per cent within ten years due to the same investments. Access Economics has based its research on a national Fibre-to-the-Node network and notes the benefits would be even more pronounced under the Fibre-to-the-Premises plan. Access Economics has predicted high speed broadband itself to increase the net present value of GDP by $8 - $23 billion over ten years and create 33,000 jobs (in the roll-out) by 2011.’ “
Norman goes on to quote an article from The Australian
on August 19, 2010, Report trumpets benefits of NBN: "The research firm (Access Economics) was asked to uncover the impact of a high-speed broadband network on telemedicine for remote consultations, remote home-based monitoring of chronic-disease patients and the aged, and remote training of medical professionals (using haptics). At present some institutions, including some rural public hospitals, have access to the high-speed, high-capacity data connections needed for telehealth. However, with the NBN, small hospitals and medical centres, individual doctors and private homes will all be able to participate in telehealth. While many urban locations currently have high-speed broadband, usually upload speeds are much slower than download speeds, and reliability can be patchy. Both of these are substantial impediments to telehealth, which would be remedied by the NBN.''
Norman quotes from the Access Economics Report with regard to the financial and externality impacts of ubiquitous high-speed broadband on health and aged care costs: "Using a combination of a national level United States study into one aspect of tele-health (tele-consulting) and a national level Australian study that was mostly based on electronic health records but had tele-health components, Access Economics estimates that steady state benefits to Australia from wide scale implementation of tele-health may be in the vicinity of $2 billion to $4 billion per annum."
He continues: “Private money will be attracted to NBN Co through the sale of bonds once the build has reached a particular milestone and not via direct private investment. The Implementation Study strongly recommends against direct inputs of private investment money until at least five years after the build is complete because private money and the obligations to shareholders which accompany it would compromise the government's ability to legislate laws which maintain a level playing field for wholesale customers. This level playing field will also ensure that users pay a similar price per plan regardless of deployment costs. This is something which no private enterprise could get past its board or shareholders. The idea that city folk are subsidising rural folk or that the private company is not seeking a flat rate of return on outlay costs would be anathema to them. However, the government can do it.”
He quotes from Lateline
on September 29 NBN faces litmus test in Tasmania
a comment about a user in Midway Point: "He's paying $75 a month for faster speeds, telephone and 40 gigabytes of downloads - $25 dollars less than his previous connection costs.”
And later: "HAMISH FITZSIMMONS: ...... so just how much of the NBN's potential is being harnessed at the moment?
“MARTIN GOULD, SORRELL COUNCIL: Not a great deal. We're basically running it on a trial basis. ... We've only had the connection on for about two weeks. It's certainly faster than our previous internet connection. We're paying less money at the moment, so, it's early days for us."
Norman concludes: “There may be shortcomings in the NBN scheme but cost is not one of them and the benefit of 93% of users having access to similar speeds (both up and down) for a similar price is surely a worthy one.”
Criticisms around cost-benefit and business plans seem to be wildly exaggerated.
Finally, let’s look at just one more point of contention – the technological aspect. Opponents of the NBN insist the technology will be out of date by the time it is built and they make fun of the notion of users dragging a cable around instead of using mobile wireless technology. That is just silly. Wireless technology will be used indefinitely and is actually part of the NBN plan for those areas that will not be serviced by fibre cable. Of course mobile phones, iPads and the like will be serviced by wireless – to suggest otherwise is ridiculous. What is known though is that as the load on the wireless network increases, speed slows, and it becomes increasingly incapable of handling the traffic and large uploads and downloads.
What fibre technology does so well is to enable fast upload speeds for large files, an essential feature for medical, educational and commercial applications, which is currently lacking with existing technology. Some aspects of fibre technology will not be outmoded – the speed of light will not change. But new technologies will enhance, not diminish the capacity of the fibre network. No one has ever shown how it will be outmoded – that is simply claptrap that sounds plausible enough to those who don’t understand these things.
One could go on, but this is sufficient to demonstrate how readily each side of the debate can select facts that seem to support its case, how omission of salient facts can mislead, how reports can be selectively used to argue whatever point one desires, how almost everyone contributing to the debate chooses to reveal only part of the story, either deliberately to mislead, or from sheer ignorance. There seems to be no neutral source that has given a balanced and complete appraisal of the NBN proposal. Most commentators seem to have vested interests that distort what they say. What we need is an academic organization to fill the void, if indeed it is possible to find unbiased academics to inform us.
This piece does not purport to fill the void. I have said what I believe in Would Tony Abbott really be stupid enough to trash the NBN?
This current piece simply highlights the confusion that has arisen from the misinformation, incomplete information, uniformed comment, and downright deception, politically or commercially motivated, that has characterized the NBN debate. We the people deserve better. Why can’t we get it?
So whenever someone – a journalist, a politician, an ‘expert’, a friend over coffee or a mate at the pub – makes an ‘authoritative’ statement about the NBN, insist they provide the firm evidence, not the hearsay, to back their assertion. That should stop a lot of waffle.
What do you think?
For those of you who are not yet satiated, there are many more pieces on the NBN, which you can find in LYN’S LINKS SEPTEMBER 2010
, especially in the 22 September batch and in LYN'S DAILY LINKS
today, 7 October.