This article is by Leith Campbell, Honorary Fellow, Melbourne School of Engineering and Sascha Suessspeck, Economist and Ph.D. Electronic and Electrical Engineering student, both at the University of Melbourne. It originally appeared on The Conversation.
analysis The National Broadband Network (NBN) can boost Australia’s Gross Domestic Product (GDP) by about 2% in the long term and, more importantly, add to our national welfare by improving real household consumption by 1.4%.
These results, based on our recent research on the NBN’s economic benefit, mean the NBN will produce a step-change in Australia’ economic activity. If the future that we have modelled comes to pass, Australia will be better off with the NBN than it would have been without it.
With the NBN, valuable services are potentially more widely available than they would be without the NBN. We have been careful to attribute to the NBN only the value of increased availability of online services.
The services we have considered are ones that have documented evidence of their economic benefit. The six service categories included in our study were: cloud computing for small business; electronic commerce for small business and government; a hybrid form of online higher education; several forms of telehealth practice; teleworking; and entertainment services. Of these, telehealth and teleworking stand out as the most valuable contributors to the Australian economy with the NBN.
There is much uncertainty over what network capabilities are truly required to deliver the expected benefits from these services. We have therefore modelled two scenarios: one in which the services exploit advanced broadband capabilities; and one in which only modest capabilities are needed.
The difference between modest and fast
In the first scenario, we have assumed that most services require 10-25 Mbps downstream access speeds, with higher education and telehealth requiring only 2.5-10 Mbps. (The NBN was originally planned to provide 25 Mbps downstream.) The required upstream access speeds for most services were assumed to be at least 2.5 Mbps. This scenario produces a step-change in GDP in the long term – after the NBN is deployed – of 1.8%. Real household consumption increases by 2.0%, but this is reduced to 1.4% when the necessity of paying off the cost of the NBN is taken into account.
The second scenario is based on today’s applications and considering the low end of the possible range of access speeds. We have assumed relatively modest 2.5 Mbps downstream and 256 Kbps (0.256 Mbps) upstream access speeds are needed in most cases, with 10-25 Mbps downstream required to support streaming video and entertainment services. In this case, there is a modest rise in GDP (less than 0.2%) but real household consumption falls by about 0.4%. This clearly shows that an NBN built solely for entertainment is not economically worthwhile.
For our model of the Australian economy, we have used TERM, The Enormous Regional Model, from the Centre of Policy Studies at Victoria University. TERM has been used previously for studies related to environmental economics and other matters. We have modified it to include the NBN and to take account of the cost of building the network. We have assumed that the cost of the NBN is ultimately reflected in greater foreign debt, which must be paid for through higher export volumes.
We have been careful to compare like with like when we consider Australia with and without the NBN. In particular, we have assumed that without the NBN there would still be improvement in network access speeds. The primary delivery mechanism for broadband today is DSL, Digital Subscriber Line. We have assumed that all current and currently planned DSL deployments would be upgraded to ADSL2+, the highest speed variant available today. We have not assumed any expansion in Fibre to the Premises or HFC (Hybrid Fibre Coax) footprint.
For the NBN itself, we have used the technologies described in the NBN Strategic Review in December 2013. After this review, currently planned deployments of fibre-to-the-premises will continue – we have used the published plans from nbn co.
The existing HFC networks will be used with some fill-in of blackspots – in these circumstances we have mapped the existing HFC networks and modelled the effect of adding 900,000 premises to the HFC footprint. Fixed wireless will be deployed in less densely populated areas – in these areas we have used the published plans. We have assumed that the remainder of the NBN fixed-line footprint, after these other technologies have been taken into account, will be covered with fibre-to-the-node. Actual plans for fibre-to-the-node have not yet been published.
For the NBN capabilities, we have assumed that the network will deliver what has been foreshadowed. Specifically, this means downstream and upstream speeds of 25-100 Mbps for fibre-to-the-premises and HFC; 25-100 Mbps downstream and 2.5-10 Mbps (nominally 5 Mbps) upstream for fibre-to-the-node; and 10-25 Mbps downstream and 2.5-10 Mbps (nominally 4 Mbps) upstream for fixed wireless. We have excluded the satellite footprint from our study.
Our estimated benefits to the Australian economy are clearly conservative. They show the potential of the NBN but will only be realised if Australians and Australian industry embrace the opportunities provided by the NBN.
Leith Campbell, Honorary Fellow, Melbourne School of Engineering, University of Melbourne and Sascha Suessspeck, Economist and Ph.D. Electronic and Electrical Engineering student, University of Melbourne
This article was originally published on The Conversation. Read the original article.
Image credit: Simon Cunningham (Lending Memo), Creative Commons
I can’t be the only one to immediately notice massive holes in this articles assumptions.
It’s a problem with all economic forecasts : They rely on a wide range of assumptions that are very difficult to test.
The official NBN cost-benefit analysis came the utterly absurd conclusion that the accumulated impact of telecommunications on the Australian economy over a 25 year period could be estimated to an accuracy of a few billion dollars. For comparison, Treasury is lucky if they can get tax revenue estimates to within 10 billion six months out (and they have a small army of smart people working on it every year).
Actually they’re just useful models. Where does the CBA claim accuracy? The numbers show the modelled outcome.
This study is another contribution. Firstly congratulations on the name “Centre for energy-efficient telecommunications”, in a time of inane acedemic names this deserves recognition.
Secondly as we’ve discussed before the authors agree the majority of internet economic benefits are derived through penetration and at the lower end of speed improvement. Many posters here will attack the study’s authors on this basis however it’s a well supported, accepted acedemic position.
We’d also note it’s a model, not a forecast of future economic value. This is explicit in the report.
Two points jump out; one the assumption that internet would not have improved had Conroy’s NBN policy announcement not halted competitive telecoms investment, and the majority of benefits derived from telehealth and teleworkers (later increased labour participation).
In high value markets internet service today would be far better than the failed delivery by NBN. Lets read yet another NBN realworld experience:
http://www.itnews.com.au/blogentry/when-nbn-and-tpg-are-battling-for-your-broadband-budget-410089
The study concludes the majority of economic benefits are in our major population centres, also the most valuable telecom users. The assumption ADSL2+ at best would be offered to that market is questionable, when including the revenue potention of entertainment it would seem ridiculous.
I’ve not seen evidence for increasing labour participation from internet access. Seems a big jump. If true most likely at the low value end.
Finally the telehealth chessnut. Despite significant high speed internet availability this is not happening in any market.
In summary great name, agree benefits through penetration at low-end speeds (captured by FTTN), majority benefits listed highly speculative and likely overvalue GDP increase.
And yet the article you link showing that NBN is not prioritizing poorly served area as claimed but Turnbull by onnecting to a MDU that already has 2 other providers of FTTN.
But the really funny thing for the MDU is there internet speed with be woeful with 3 different providers sharing the same copper with cross talk and interference from one another.
@jason agreed, nbnco overbuilding well serviced premises a joke. Their funding model dependent on it.
Also agree three suppliers will destroy vectoring.
NBNCo is a disaster.
But Richard it under Turnbull command that they are doing it as he has removed NBN as a provider as a last resort
@jason do you know what last resort means?
The reason it was done was clearly spelt out in the article.
So what reason other than trying to stop TPG or Openetworks taking there customer base becuase they should have had it all done by the end of next year.
“telehealth” will only ever catch on if there is a “guarantee” that vast majority of the population have access to high speed UPLOAD and download.
The technology exists but it a little expensive right now because there is no real market for it because it cant be serviced in a lot of places. (so prices have not come down through volume)
so the big reason telehealth has not gone mainstream is cost, and its costly because there isn’t a market for it, because there isn’t the infrastructure to support it.
Now if we had a great NBN (and to be honestly for the most part even MTM except sat would still be fine for telehealth type stuff) and a push from both federal and state govt to start deploying it with costs offset from not needing to expand the number of hospital beds at such a rapid clip you could really transform the health industry.
btw, look to Japan for great examples of telehealth being put into practice (small scale stuff mostly) they are by far the leader in the field and will likely to continue to be because they need to service their fast growing elderly population.
Richard, the CBA has a “sensitivity analysis”, the conclusions of which effectively claims an accuracy of a few billion dollars.
And sensitivity analysis aside, the CBA claim that there is a net benefit of about 10 billion is meaningless unless the error in the estimate is significantly less than 10 billion.
On telehealth : It is happening. Slowly. It’s not a revolution, but home monitoring is showing results now. It requires changing the way people do things, which is hard and slow, and requires a lot more than just a broadband connection.
The health budget is so large – $160 billion a year – that even very small improvements in efficiency mean savings of billions per year.
Except telehealth on scale isn’t happening anywhere despite markets with ubiquitous high speed interent.
Oh Richard you again speak of the CBA as if gospel.
Yes the same CBA you derided previously because it suggested Quigley’s FttP costs were pretty well spot on. Remember you tole nme because the NBNCo figures were used the CBA figures couldn’t be trusted…Oh FFS…
That’s funny eh, a COST benefit analysis where you can’t trust the costs and simply ignore the benefits…
So what you laud the CBA when it suits and deride it when it doesn’t…WTF?
Also you again quickly forget your own link previously which claimed GDP would be improved by (iirc) 0.3 % with a doubling of internet speeds and 0.3% for every doubling thereafter…
*sigh*
Oh, Richard’s in favour of the article; that confirms my suspicions, it *must* be bunk.
Thanks, Richard! I appreciate your brand of bizarro logic.
The same man in 2010 who said the NBN was a waste to tax payers money, worth a fraction of what it will cost?
https://web.archive.org/web/20110220104125/http://www.malcolmturnbull.com.au/media/holding-labor-to-account-on-broadband/
This man has many faces.
@soth given the company’s performance how true Turnbull’s blog was.
Costs have blown out even further, nbnco’s value even less. What a policy disaster, taxpayers to pay the ever increading bill.
There was always going to be delays and cost blowouts for Australia’s largest infrastructure program, especially starting from scratch as the private sector dragged their heels for so long.
When the hurdles were getting cleared and nbn had a clear path to what its job was.. then the election, halt, delay, further cost blowouts, nbn transparency down the toilet.
Now it is a policy disaster and taxpayers to keep the maintenance bill for old lines we have paid for many times over.
Turnbull’s mission to demolish the nbn is being accomplished.
“Costs have blown out even further, nbnco’s value even less. What a policy disaster,”
Yup close to ~9 months of legislative delays when in opposition (that was a pure waste of taxpayers $ as it had no point).
7 Month delays whilst Telstra lagged in fixing their asbestos issues.
then another complete unnecessary 2 year delay in proceedings (predicted by everyone but them … head in sand is perfectly acceptable position to govern from!).
The $15b cost blowout on the MTM which they have nearly even started gods know what it’s going to really cost us by then end. They only have $8b to go to beat there last cost of FTTP
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