Vertigan’s NBN endorsement will leave Australia a broadband backwater | Rod Tucker

As expected, the Vertigan panel’s cost-benefit analysis of the NBN supports the Coalition’s multi-technology mix (MTM), concluding that over the 15 years from 2025 to 2040, each Australian household will be better off by a total of $1,600 compared to Labor’s proposed fibre to the premises (FTTP) system.

On the surface, this looks like a big a nail in the FTTP coffin, but a closer look at the Vertigan report reveals that its analysis and methodology have resulted in a conservative view of future bandwidth demands and internet usage, rather than a forward-looking assessment of what capacity will be needed for the future.

To estimate the benefit of the NBN to households and small businesses, Vertigan surveyed two groups of internet users on how much they would be willing to pay for higher-speed broadband.

This “willingness to pay” survey approach is a well-established analysis technique but fails to account for the possibility of new broadband applications that have not yet been identified. Responses from the surveyed groups of users are surely biased by their knowledge of what the internet can provide today.

What if a similar study of internet users’ opinions had been carried out 20 years ago, in 1994 when the world-wide web was in its infancy and dial-up modems were high tech? Then, the internet’s uses were very limited: e-mail and small file sharing. Would those users have been able to predict their willingness to pay for future broadband, and would their responses have any relevance out to the year 2020? Of course not. How could they be expected to predict Google, Facebook, YouTube, online gaming, IPTV, Skype, Amazon and the like, or the online applications that have transformed many small businesses.

Since 1994 the Internet has become an essential item for most households and small businesses. It is difficult to imagine how we could survive in a world without the things that our surveyed users back in 1994 could not have foreseen.

The Vertigan Panel backs up its user surveys with a bottom-up calculation of future bandwidth and data usage. Again, there are problems with the methodology. The applications used in this analysis are today’s known applications, like YouTube, web browsing, streaming HDTV and the emerging super high-definition (4k) TV.

Questionable assumptions are made about how many people in a single residence would simultaneously watch different TV programs and run other applications. And it assumes that no new high-bandwidth applications will emerge in the next 10 to 25 years.

What’s more, it appears to ignore broader societal benefits of broadband, including health benefits, educational benefits, and environmental benefits, including reduced traffic congestion and accidents. A more comprehensive analysis would no doubt have found a much larger benefit to the nation.

In short, the Vertigan Report supports the image of Australia as a quiet little broadband backwater, comfortably conservative and not particularly interested in grabbing the opportunities provided by the ongoing digital revolution. It conveniently ignores or understates key international developments in broadband technology and deployment.

FTTP rollouts around the world are gaining momentum. For example, Google now has 1 Gb/s FTTP networks in many cities across the USA, and AT&T is about to start a similar large rollout. Other companies that already have large FTTP networks in place are working to upgrade their FTTP networks to 1 Gb/s and eventually to 10 Gb/s as needed – 200 times faster than the Coalition’s 50 Mb/s MTM solution. Because these companies’ fibre infrastructure is already in place, the cost of the upgrade will be small.

What happens if the Vertigan Panel’s bandwidth assumptions are incorrect, and demand grows faster than they have predicted? They cover themselves by arguing that the day can be saved by upgrading from the MTM, back to Labor’s FTTP. But this will be very expensive. And what motivation will there be for a future network-wide upgrade of the MTM? With a sunk investment and strained finances, NBN Co will have no incentive or appetite to invest for many decades to come. Fibre will be stuck at the node.

The Coalition has indicated that it will eventually sell NBN Co. Privatisation is likely to reinforce this reluctance to upgrade to FTTP, especially in less profitable regions. Australia will be back to square one with a private monopoly network owner, as it was with Telstra in 2008 when the NBN was first mooted. There will be little or no incentive for this owner to invest in network-wide upgrades of their network, and the concept of a universal service will be lost.

It has been very frustrating to see the Labor’s bold vision of an FTTP network comprehensively dismantled and replaced with a backward-looking plan. As telecommunications industry analyst Paul Budde points out in a recent blog post, with the Coalition’s MTM “we can now be certain that Australia will continue to linger on at the bottom [of the OECD ratings for broadband quality] for decades to come”. The Coalition is well and truly locked into a lowest-common-denominator view of Australia’s future needs for advanced digital infrastructure.

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