Monday, August 16, 2010

As consumers increasingly move to wireless internet, does a fibre network make sense? #NBN

Very interesting article from Christopher Joye. Interesting and very worrying because, as it seems likely, the current government will be returned on Saturday and will press ahead with spending tens of billions of dollars on a national braodband network.

Joye sets out just how suspect are the assumptions underpinning the financial viability of the project, (such as the ones that assume that the NBN will earn significantly more than what Telstra currently does and that it will be able to increase its prices every year indefinitely):
There is probably a good reason why proper cost-benefit analysis has not been undertaken on the NBN: the benefits are so uncertain and difficult to quantify, and the opportunity costs of spending this money so great, that once you discount the potential returns you would find that its awfully hard to justify spending $43 billion. This is precisely why the government’s own advisors slashed the expected private sector contribution by more than half from the initial estimate of $38.3 billion to just $17 billion employing what are rubbery assumptions that seem unlikely to pass muster with conservative third-parties.

To get a feel for the economic risks, ponder a few of the flaws identified by technology expert Grahame Lynch in the NBN financial modeling carried out by KPMG and McKinsey (note, this was not cost-benefit analysis).

The assumptions relating to take up of the service by consumers appear to be equally heroic.

And then, perhaps the most heroic assumption of all!
Possibly the biggest disruptive threat to the NBN’s business is wireless. Around 30 per cent of all internet connections are now wireless and growing at a double-digit rate. Consumers are increasingly shifting towards mobile devices, such as iPads, Blackberries, and laptops. And this trend will only strengthen through time as smart-phone penetration increases and wireless speeds improve. Yet the NBN’s business plan would have us believe that wireless broadband growth will slow, not accelerate.

Posted via email from Garth's posterous

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