Wednesday, 10 April 2013

Why NBN is a bad investment

The dire understanding in NBN policy is one of economics. It's a misunderstanding of delayed gratification. When you spend later you earn interest. As such it is better to obtain something as you need it rather than building it now despite the cost. A real analysis of the economics will look at the options as they are now compared to future costings. Many aspects of the future are of course uncertain but even taking existing technologies into account it is simple to see that a forced install of fibre to all locations is a bad idea.

The choice of economic models is important. Variations in interest rates, CPI figures and even technology changes alter the outcomes in unpredictable manners. That stated all governments and all economic growth starts with the creation of models. In this case I have selected a simple model based on a few installation possibilities and a yearly 12% investment rate. This is not excessive and a decent fund manager should be able to earn more.

For the purposes of this model I have selected two bonded DSL options. The first is installation of multiple pairs in northern Sydney. This is from a distance of just under 2 km from an exchange. That is a distance that is considered too far to install ADSL2+. The other option is an installation that was completed in rural Bagnoo. This involves laying of copper cable to a property 5 km from an exchange. This involved the installation of multiple bonded pairs to gain 20mbps symmetric Internet access from a rural location where it was originally stated that only satellite would be available. Multiple pairs were of course needed to boost the signal loss to acceptable level. The cost of having this cable installed including the bulldozers and trenching was $2,350 give or take a few cents.

The side benefit of this exercise was that the flow on effect was for the Byabarra exchange to be upgraded. The end result of this upgrade was that the local school and small village could also then get ADSL2 services.

Different rural locations would have to be modelled differently, however Bagnoo is not significantly different to many small isolated properties.

In this model I have displayed the costs over time. The assumptions I made are based on a $4,000 cost to install fibre. This costs listed in this model include one that I have been quoted for an existing installation, the other being a cost of rural fibre I arranged to be installed. The reason for selecting bonded copper was for this reason an economic decision.

Current bonded Ethernet solutions allow up to 200mbps speeds although at a cost greater than his economical. If one currently needs this type of speed over a two-year period it becomes a better investment to install multiple fibre lines. That stated, where the total connectivity is between 60mpbs and 100mpbs dedicated to the Internet many areas of Sydney a better served using bonded copper cable.

A table detailing the cost calculations over time is included below.

  Fibre City BDSL Rural BDSL Rural fiber
2013 $4,000.00 $2,300.00 $1,650.00 $18,000.00
2014 $4,480.00 $2,576.00 $1,848.00 $20,160.00
2015 $5,017.60 $2,885.12 $2,069.76 $22,579.20
2016 $5,619.71 $3,231.33 $2,318.13 $25,288.70
2017 $6,294.08 $3,619.09 $2,596.31 $28,323.35
2018 $7,049.37 $4,053.39 $2,907.86 $31,722.15
2019 $7,895.29 $4,539.79 $3,256.81 $35,528.81
2020 $8,842.73 $5,084.57 $3,647.62 $39,792.27
2021 $9,903.85 $5,694.72 $4,085.34 $44,567.34
2022 $11,092.32 $6,378.08 $4,575.58 $49,915.42
2023 $12,423.39 $7,143.45 $5,124.65 $55,905.27
2024 $13,914.20 $8,000.66 $5,739.61 $62,613.90
2025 $15,583.90 $8,960.74 $6,428.36 $70,127.57
2026 $17,453.97 $10,036.03 $7,199.76 $78,542.88

 

What we can see from this model is that the arguments that we need an installation in the future are flawed. If we simply installed the solutions people need now and invest the money saved we can fund the future installation of fibre at a reduced cost. In fact this also neglects the changes in technology. In this, we've ignored that an increase in mobile technologies using wireless technologies in development that offer over 1gbps are just around the corner and will be available commercially before the completion of the NBN. Even ignoring these however we can see that the NBN does not make commercial sense.

There are always limited funds. This is the hard side of economics. Every dollar we spend is a dollar we could've spent on something else. Every dollar wasted on the NBN is a dollar taken from health, defence, education and everything else we can think about.

1 comment:

Arvid said...

I find it amazing major parties are tripping over themselves to have the public fund infrastructure telecommunications companies would have done anyway because of market demand.... and no-one even asks the question, why?

The nature of technology is todays hot item is tomorrow's landfill.
Remember it was only 15 years ago when fast was scoring a full speed line on a 56k modem and 10 years ago when 11mb/s was great out of wireless and 9.6k was good on a mobile phone via gsm.

When wireless speeds are 1gb + in a few years, what will the $25bn<-->$44bn NBN be worth?