Turnbull reportedly hires Henry Ergas for NBN cost/benefit analysis

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blog If you were seeking to hire independent experts to conduct a cost/benefit analysis on an important piece of national infrastructure, you would probably seek to hire, well, experts who were independent, right? Experts who hadn’t previously formed a fixed view on what would be the best way to deploy that infrastructure? Wrong, at least if you’re Communications Minister Malcolm Turnbull. According to the Financial Review this morning (we recommend you click here for the full article), Turnbull will shortly appointed outspoken NBN critic Henry Ergas to sit on a panel examining the Coalition’s NBN. The newspaper reports:

“Former competition commissioner Allan Fels, outspoken national broadband network critic Henry Ergas and former eBay Australia chief executive Alison Deans will form the panel, which will shortly be announced by the federal government.”

Your writer doesn’t have a problem with Fels, the former long-time chief of the Australian Competition and Consumer Commission, sitting on the panel, and at least Alison Deans has concrete experience in online applications in the Internet age (you can find her biography online here). However, Ergas is well-known in Australia’s technology industry as an outspoken critic of the NBN. If you want to get a feel for the flavour of the economist’s poor view of the NBN, you would be well advised to read this opinionated piece he published in The Australian newspaper just one month ago.

Or alternatively, you could read up on what Ergas thought of NBN Co’s first implementation study published in 2010. At the time, the economist wrote (we recommend you click through to Communications Day for the full article):

“… the Study, with a degree of British understatement, rightly notes that the model the government has chosen – a public monopoly, extending, at least for the first dozen years, to the active service – “departs from the collective experience in most other markets” … Given the very high costs this project involves, and the fact those costs and risks must, on the Study’s own numbers, fall largely on taxpayers, a visitor from Mars might well wonder quite what we are doing.”

Or you could read about Ergas’ submission to the NBN Senate Select Committee in October 2009, where he argued that the costs of building the NBN exceeded its benefits by somewhere between $14 billion and $20 billion.

To be clear, I am not casting any aspersions on the competency of Henry Ergas. I believe he is very competent in his field, and he is certainly very experienced and successful in his work. However, it’s also quite obvious that Ergas has a very well-established and long-held view about the NBN that would play into his reported position on a cost/benefit panel examining the Coalition’s version of the NBN. My advice to Minister Turnbull would be to consider this kind of appointment very carefully.

Image credit: Office of Malcolm Turnbull

25 COMMENTS

  1. “Destroy the NBN”

    That’s all you need to remember.

    We WILL regret the LNP managing the NBN for decades to come!

    And there is no chance that we will be able to recover it either. Once they have broken it up into little “spheres of supply” the ACCC will ensure that there can never be a ubiquitous wholesale-only access ever again!

  2. “and the fact those costs and risks must, on the Study’s own numbers, fall largely on taxpayers”

    That smart arse doesn’t even know that that statement is bullshit.

    /P

    • No, no, he’s right there.

      The other side of the story, though, is that the *benefits* also fall on to taxpayers, whereas under Ergas’ preferred model, the benefits would fall to private shareholders. Preferably with the taxpayers shouldering the cost and risk, if possible.

      • “No, no, he’s right there.”

        No. It was not being funded by taxpayers and it still isn’t although a misstep by the government could change that.

        It is an off-budget bonds funded Government Enterprise.

        • Well, I think he is actually right. The risks (that it doesn’t pay for itself, like FTTN for instance ;) ) is being born by the tax payer in that the government won’t break even and the debt has to be payed somehow.

  3. Economics as currently taught in universities is largely a fraudulent qualification. The requirements for these courses are totally inadequate.
    The banking system of fractional reserves and credit creation is a system based on the mathematics of an infinitely expanding set of exponential functions.
    There is no significant study of calculus in any of these courses sufficient to understand the mathematical basis of our economy.
    Guys like Ergas aren’t qualified, the real danger is in their belief that they are.
    It’s only a few short years and the whole field of “economics” will collapse along with their “economies” because the sets of assumptions economist have don’t have any mathematical validation.
    For example economists, politicians think an “economic growth rate of around 3% is good” (that’s unfortunately the rate of economic growth required to keep the banking system afloat as they have to pay interest on borrowed money, the interest payments are siphoned from future growth.
    In a steady state economy (non growing) the only possible interest/investment return is zero, that’s why Japan has a negative bond rate and the US and Europe have near zero bond rates, none of these countries have any economic growth.
    It’s also why the US has a massive stock market bubble and we have a housing bubble, investment yields are being slowly reduced to zero by the increase in asset prices. The whole worlds banking system is headed for failure as debts can’t be paid, depositors will all loose their money.
    An “economic growth rate of 3% is good”, that means the total size of the economy has to “DOUBLE” in 23 years.
    The output of “GOODS” and “SERVICES” has to “DOUBLE” in 23 years, that means that the amounts of energy produced , Oil, Gas, Coal have to double as does Steel, Aluminium, Copper and other resources. The costs of extracting of these resources is also rising “exponentially” easier resources are always produced first.
    Population also has to “GROW” to support this “GROWTH”.

    They call economics “The dismal science” it’s not “A SCIENCE” it’s a bunch of hypothesis thought up by literates that have no understanding at all of the mathematics of the system they espouse.

    As for Ergas the chances of him producing anything other than something fraudulent are zero.

    • “Economics as currently taught in universities is largely a fraudulent qualification. The requirements for these courses are totally inadequate.
      The banking system of fractional reserves and credit creation is a system based on the mathematics of an infinitely expanding set of exponential functions.
      There is no significant study of calculus in any of these courses sufficient to understand the mathematical basis of our economy.
      Guys like Ergas aren’t qualified, the real danger is in their belief that they are.”

      Why do you believe that a field that studies how humans interact with each other should be heavily mathematics based instead of a combination of mathematics and human behavior? Why do think that university do not stick to the simpler models in initial years so that when the complicated models are approached the underlying concepts and assumptions are thoroughly understood. The benefit gained from being more accurate mathematically would be far outweighed by inaccuracies in assumptions on human behavior. Rationality and perfect knowledge are two often used simplifications but as people know in the real world; they do not apply. Those two alone would far outweigh any benefit from using a more complicated model mathematically,

      The more complicated models mathematically are not used commonly as they are much more difficult to set up and require more data input which is more expensive to collect. These models are also not taught early on as they would only confuse the students. To gain exposure to them, most universities wait until post graduate level if not PHD. The main reason simple models are spoken about in wider media is for that reason, they are simple.

      “For example economists, politicians think an “economic growth rate of around 3% is good” (that’s unfortunately the rate of economic growth required to keep the banking system afloat as they have to pay interest on borrowed money, the interest payments are siphoned from future growth.
      In a steady state economy (non growing) the only possible interest/investment return is zero, that’s why Japan has a negative bond rate and the US and Europe have near zero bond rates, none of these countries have any economic growth.”

      A steady state is an equilibrium, it does not necessarily reflect a zero growth economy. That has to be proved, it cannot be assumed. In addition the models which do show a SS economy converging to zero growth are calculated in GDP per capita, so GDP will grow in line with population growth. They also allow for technological change which will boost GDP growth as well (hence the emphasis on productivity growth).

      “An “economic growth rate of 3% is good”, that means the total size of the economy has to “DOUBLE” in 23 years.
      The output of “GOODS” and “SERVICES” has to “DOUBLE” in 23 years, that means that the amounts of energy produced , Oil, Gas, Coal have to double as does Steel, Aluminium, Copper and other resources. The costs of extracting of these resources is also rising “exponentially” easier resources are always produced first.”

      This is complete and utter crap. If an economy doubles then all of its individual sectors do not have to double. All that it means is that the total value of goods and services in the economy have doubles, this could be through increased output equally distributed as you suggested (although highly unlikely), or it could be through new sectors developing. Not all sectors will grow at equal rates, the manufacturing sector is a great example, as Australia as grown and entered the global marketplace, it has shrunk. In conjunction with the mining boom our consulting industry has grown to take sell our experience and knowledge overseas. The composition of the economy will always be changing.

      You say the cost of extracting resources is always rising, but fail to take into account new technologies which reduce the cost of extracting them. In fact companies will only extract those resources when their marginal cost falls below the marginal benefit to the company. This is a great indicator of how far technology has changed in the past 100 years in that companies are now considering mining the tailings dams of previous mines.

      “They call economics “The dismal science” it’s not “A SCIENCE” it’s a bunch of hypothesis thought up by literates that have no understanding at all of the mathematics of the system they espouse.”

      Your comments seem to indicate that the lack of understanding is on your end. I am sure that if you showed an interest many of those professors of the “dismal science” could show you models that you would struggle to master.

      ” It’s only a few short years and the whole field of “economics” will collapse along with their “economies” because the sets of assumptions economist have don’t have any mathematical validation.”

      This is a strong claim. Although I doubt you are doing any more than ranting as you would never be confident enough to commit to any short positions based upon your views.

  4. Yes, employ the guy who was out by 300% in his calculation of the retail price of an average NBN plan.

    Also good to see a analysis that recommended a price for the infrastructure but absolutely no requirement for longevity, ease of upgrade, just dollars spent. Hey Henry, I can give you a lovely dialup network for $14B, that’ll fit with what you want.

  5. “To be clear, I am not casting any aspersions on the competency of Henry Ergas. I believe he is very competent in his field, and he is certainly very experienced and successful in his work…”

    Perhaps prudent Renai…

    But didn’t Ergas’ business go belly up?

  6. Turnbull is nothing if not obstinate.

    His continued arrogance and idealogical decision making process is not constructive, it is not getting NBNco back on track. It’s not getting the trucks back out there. It’s not informing people. It’s not ensuring a steady hand at the tiller and it’s not building business confidence.

    No. Instead the Wizard of Wentworth is continuing to push for a network build choice that is almost entirely dependant on the incumbent, and simply isn’t being done elsewhere, outside of that.

    This is the same rhetoric filled nonsense that saw the eventual creation of the hopelessly improbable OPEL solution. If you want the blueprint for Turnbull’s policy – the seeds are there.

  7. full agreement – no problem with Fels, ambivalent about Deans. But Ergas? Does not belong there, and after the bashing of Labor for jobs for the boys its sadly more proof of hypocrisy on MTs part.

    he does not have an open mind. he has a fixed, preconception of what the network is and what it can offer/achieve – both for FTTH and FTTN. why would you have any expectation he is going to be open minded and would duly consider the issues – properly? you cant. what a joke.

  8. So Basically he is a LNP donor whose consulting business went belly up because he produced biased work and no one else would hire him. Now he is being hired as a “independent” consultant. It seems that someone who is a party donator and has been doing “favors” for the LNP is being reward by the LNP don’t we a commissions of inquire happening into this type of behavior.

  9. Disappointing in the extreme. With the odd exception (eg Simon Hackett), NBN Co is almost completely stuffed full of LNP-leaning sycophants who will be paid (by us the taxpayer!) to tell Malcolm & co whatever they want to hear. When (if!) we finally finish this complete dud of a FTTN network in 2021 as some now speculate, the majority of the world will have overtaken us technologically. This once in a generation opportunity to move to FTTP is not just being ignored, it is being crapped on from a very great height by Mal and his baby boomer generation mates like Ergas. Although it may be too late to save the NBN as FTTP, thankfully Malcolm & co represent the last gasp of the boomer generation having the ability to enforce their alternate realities on Gen X, Y and other Gen’s to come.

  10. I may have posted something like this before…

    Excerpting from one of his editorials in The Australian:

    > Carbonista bushfire fallacies

    > Had they bothered to check, even a cursory examination would have taught them that October fires hardly portend the end of days. On the contrary, October saw fires causing serious loss of property and life in NSW in 1928, 1936, 1968, 1984, 2001, 2002 and 2006.

    Or his repeating of the fact that the cost of abating climate change is 50 times greater than the cost of adapting to it, borrowed straight from Lord Monckton:

    http://o.b5z.net/i/u/10152887/f/Is_CO2_mitigation_cost-effectove_Single_Page_Lord_Monckton_Foundation_Briefing_20130411.pdf

    I do, however, look forward to his work on the NBN. It will be a most delightfully produced document of deception that will surely look at the entire problem from an NPV angle, only consider what people are willing to pay for x or y and then jump off a bridge with a plastic wand, two pairs of butterfly wings and see how much we can dig on the bottom of the river after we reach it thanks to those concrete blocks and three aluminium shovels, never mind about this breathing thing.

    • But it’s OK, they’re also consulting experts:

      http://www.theaustralian.com.au/technology/dsl-pioneer-claims-nbn-fibre-plan-has-load-and-security-issues/story-fn4iyzsr-1226762786837#

      Where a medium that can do 100 Tbps is worse that can do 1 Gbps under perfect circumstances because you may have to divide the 100 Tbps by 32 or something, where ubiquitous HTTPS seems to be an impossibility, never mind any encryption on a level further down, even though it’s trivial to implement, and why tell the truth when you can just say that only one country in the world has more than 10 percent FTTP, a claim so ridiculous and so easily proven false, it’s only by virtue of being published in The Australian that it survives.

      And no, 100 Mbps over 1 km on Australia’s copper is about as unrealistic a claim as a flying pig, so sayeth the basic physics of the matter.

      And as for that $8000 figure. Let’s have a look at this:

      http://www.etisalat.com/en/system/docs/JPM-MENA-TurkeyConference_29May-30May2013.pdf

      And find that for $1.6 billion in capex between 2010 and 2012, they seem to have:

      Expanded the LTE network coverage to over 82% of the population, Completed the highest 4G LTE speed test in the world, which reached 300 Mbps, Deployed FTTH network through all UAE with 1.5 million home pass

      Sure, not all of the capex on these would have been spent between 2010 and 2012, but that claim of $8000 doesn’t even seem to be in the ballpark.

      • And, of course, Cioffi’s comments were turned into copper being able to do 10,000 Megabytes a second over 300 metres by Bolt himself on his blog.

  11. I don’t understand why people are surprised by MT’s actions. This is true to form.

    Anyone who keeps saying, at the same time, that he is technologically agnostic and that FTTN will make up most of the network, obviously thinks that most of us are morons. Hence, the contempt he is displaying.

  12. Just STOP!
    I don’t want the NBN. Not this one anyway.
    MT will prove he is right and everyone else in the world is wrong with his carefully stacked, group thinking, power-dismantling mob of cronies.
    I want ADSL to stay until the next change of government. I will put aside what is left of my 29 billion after Ziggy’s golden handshake and spend it wisely on future tech FTTP.

  13. I’m supprised Mr Hackett took the job in the current circumstances, he may give it go to see if they are operating reasonably , but i hope if he doesnt see that he jumps ship and sicloses why.

  14. Back when The unOz allowed comments and links I regularly pulled Ergas’s cherry picking biased B.S apart regularly, with supporting links and evidence, then they disallowed links, then I was unable to post. then they stopped allowing comments until they put up their paywall

    IMO Renai you are being overly generous.

    Ergas has always promoted the private sector providing the comms in the high value areas, with massive taxpayer bribes to the shareholders to provide reduced services to the lower value, rural and regional areas.
    Reading his strange ramblings over the years it is apparent he looks down on , even despises the rural and regional areas and insists that cross subsidisation is evil , even though it is standard business practice in every major company.

    It was always a joke to me that when the OECD praised Labors economic performance, the unOz called them incompetent sycophants, yet serving on the OECD is Ergas’s main claim to fame apart from the heavy promotion by News Ltd

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