NBN to be built even if cost-benefit analysis shows no ROI

In opposition, the current parliamentary secretary for communications Paul Fletcher and his boss, minister for communications Malcolm Turnbull, made much of the fact Australia's national broadband network (NBN) had been commenced without a cost-benefit study that would show whether or not the network will deliver positive return on investment.

Now that they are in government, Fletcher and Turnbull have made much of the fact they are conducting just such a study, so that the government's mixed-media NBN plan will provably be worth the $37bn of public money it will require.

But Fletcher seems today to have suggested the outcome of the study might be irrelevant.

Fletcher spoke yesterday on the Gold Coast at the Tech Leaders conference and spent a lot of time decrying the slow progress made by the NBN. He also criticised the previous government for never having set clear goals for the NBN, adding that the Strategic Review found that no government department understood how they would use a 100Mbps connection or the changes to services it would enable.

“A cost-benefit study would have forced clarity of benefits,” he said.

The Reg then asked Fletcher how the government justifies investment in the NBN. The context for our question was recent government decisions not to continue industry assistance funding to car-makers in part because to do so would distort that market, but to find a to-be-determined method of supporting the airline Qantas because it is constrained by legislation that does distort its market.

No Australian telco possesses the financial muscle or ability to build a fibre-to-the-premises (FTTP) NBN, we argued, making government intervention understandable. Fiscal and regulatory conditions do not, however, preclude a telco investing in the upgrades to hybrid fibre coax cable and the copper local loop (although incentives to do so are not massive). Those upgrades will, under the government's plan, be paid for by NBN Co with public funds. Might than not be an odd decision given other recent decisions on how to best use government funds?

Fletcher's response started with a rejection that only FTTP justified government investment. “The question in policy terms is do you believe there are network effects and other benefits from a one-time broadband upgrade that you believe will not happen without government intervention,” he asked, going on to say that “the standard public policy prescription is you go ahead if there is a positive benefit to cost ratio.”

The government's cost-benefit study is not complete so your correspondent asked what would happen if it shows investment in the NBN won't produce a positive outcome.

“We have made it clear we will complete the NBN.”

Conventional wisdom suggests governments ought not to conduct inquiries if they do not know the findings they will produce. Even before one considers the many studies suggesting universal broadband produces economic benefits it therefore seems safe to assume the cost-benefit study will therefore justify the government's NBN investment. But the admission the network will be built come what may is nonetheless interesting, if only because of the long insistence a cost-benefit study should have been a prerequisite to its construction. ®