Explainer: Which NBN scheme is best for you?

By Peter Martin
Updated September 6 2014 - 10:08am, first published August 31 2014 - 7:35pm

It was going to be bigger than the Snowy Mountains Scheme and it was going to revolutionise our lives. Four years ago Labor began an audacious program of connecting every house and business in the country to the internet, all over again. It was to cost $43 billion and it commenced without a cost benefit analysis. This week the Coalition released the results of a cost benefit analysis into Labor's NBN, the first. It finds the benefits would never have approached the cost. Who's right, and who's offering the best plan now? Peter Martin runs the numbers.

WHAT WAS LABOR OFFERING?

Every address in every city and reasonable sized town was to be offered the chance to be wired up to an optical fibre cable. Remote locations were to be connected by satellite and wireless. As of June this year NBN Co had connected 210,000 locations and had millions to go. The promised speed for the fibre links was 100 megabits per second, with the whole system upgradable later to 1000 Mbps, each far faster anything that was available at the time.

WHAT COULD IT BE USED FOR?

The cost benefit study finds most uses don't require anything like 100 Mbps. Ultra high definition TV comes closest. The government's advertising stressed instead the unknowable nature of its uses saying the NBN would be used "in ways we only dream of".

WHY NO COST BENEFIT ANALYSIS?

Labor might have felt there was no point after it had given the go ahead. But it was big on claims. The NBN would "boost our economy", it would "open up a world of interactive health care never thought possible". It might have felt these claims couldn't be tested. After all if its uses are unknowable, how can we know what it will be used for?

WHAT IS THE COALITION'S ALTERNATIVE?

A cut-down version. Instead of costing $73 billion (the revised figure for Labor's scheme determined by the strategic review in December, 2013) the Coalition's scheme would cost $41 billion. Instead of connecting every house and business in every city to an optical fibre, it would use a mix of technologies. One quarter of city addresses would get fibre, 44 per cent would get fibre to the basement in apartment buildings, or fibre to a node (a shared connection housed in a street cabinet), with the last link to the residence or business by existing copper wire and 33 per cent would be serviced by Foxtel and Optus Vision cables re-engineered to deliver high speeds.  

The Coalition would deliver 43 per cent of the nation 25 Mbps or more by 2016 and 91 per cent 50 Mbps or more by 2019 (two thirds would get 100 Mbps). By then Labor would have wired up only 57 per cent of the nation.

CAN FIBRE TO THE NODE ACTUALLY DELIVER FAST SPEEDS?

It can certainly deliver speed more quickly than could have fibre to each home. NBN Co says fibre to the apartment test sites in Victoria have delivered download speeds in excess of 100 Mbps and upload speeds in excess of 45 Mbps. Fibre to the node test sites at Woy Woy in NSW have delivered download speeds of 95-97 Mbps and upload speeds of 28-34 Mbps.

HOW MUCH SPEED WILL WE NEED?

The cost benefit review panel headed by the former head of the Victorian Treasury Michael Vertigan finds we won't need that much.

It says by 2023 the typical household will need 15 Mbps, the top 5 per cent will need 43 Mbps, the top 1 per cent 45 Mbps and the top 0.01 per cent 48 Mbps.

It says the biggest user of bandwidth is high definition video. Even a household watching two HD video streams at once, simultaneously searching the web twice and conducting two video calls will need "just over 14 Mbps".

WHY ALL THE TALK ABOUT HIGH DEFINITION VIDEO? AREN'T THERE OTHER MORE IMPORTANT USES FOR THE NBN?

Too right. But high definition video is the biggest hogger of bandwidth. The review finds other uses including e-health need much less. Hospitals and associated institutions that need serious bandwidth for e-health can connect directly to the internet via fibre.

BUT WON'T WE BE USING THE INTERNET MORE AND MORE?

Yes, even for fridges and air conditioners. But those sort of uses don't require high speeds, and extra use of things that do require high speed doesn't necessitate even higher speed. The panel explains it this way: If a household that previously watched one hour of high definition video a day ramped up its usage to four hours a day the amount of data it needed would have quadrupled, but the speed it needed would have not.

WHAT IF THE COALITION'S NBN DOESN'T PROVIDE ENOUGH FOR ME?

You can connect directly to the internet by fibre, but it'll cost you a few thousand dollars. The review believes few households will bother. It finds that after speed reaches 90 Mbps our willingness to pay for even more flattens to zero.

BUT AREN'T EARLY ADOPTERS ALREADY SIGNING UP FOR HIGH SPEEDS?

Yes. Around 18 per cent of the NBN's first customers have signed up for the top speed. But most, three quarters, want 50 Mbps or less. One third want only 12 Mbps.

WHAT ABOUT THE FUTURE? WON'T WE NEED EVER HIGHER SPEEDS DOWN THE TRACK?

That's Labor's argument, that the future is unknowable. But it cuts both ways. One response to an unknowable future is to build something very expensive in case it will be needed, the other is to build something cheaper which can be expanded later where needed.

HOW MUCH WILL THE COALITION'S CUT DOWN MODEL SAVE?

Converted to present day dollars the panel says the Coalition scheme will cost $7.2 billion. The Labor scheme would have cost $17.6 billion. It says the Coalition scheme will deliver a (disturbingly low) benefit of $1 billion. In contrast Labor's scheme would have delivered a benefit of minus $4.7 billion. The minus sign is because it would have delivered high speed broadband slower than would the market itself. The review found that beyond a certain point we don't much value the extra speed we would get in return for the delay.

WHEN CAN I GET MY NBN?

By 2020 under the Coalition's scheme. By 2024 under Labor's.

Peter Martin is economics editor of The Age

Twitter: @1petermartin

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