The NBN as Nation Building

I went to a lunch with some former colleagues a few weeks ago and the subject of the NBN inevitably came up in conversation. As expected with an IT crowd there was a lot of support for the NBN, which is understandable as most of them have worked in Singapore and the U.S. and have a good understanding of how poor internet services are in Australia. The concept of Fibre to the Premise is something we techies have all been dreaming about for almost two decades.

I don’t have a problem with the idea of an NBN. What I do have a problem with is the cost. When I raised the issue of cost I was hammered down. How can you put a price on nation building infrastructure? It is like the US Apollo space program or the Sydney Opera house. How can you talk about business cases and Return On Investment when you stand to reap the intangible benefits for decades?

Well far be it for me to try and do the business case for the NBN when the Federal Government feels no such compulsion, but at least I can try and give some perspective of the costs in context as a nation building infrastructure project.

The entire US space program including both Gemini and Apollo programs cost about $US24B by the time it ended in 1973. The U.S. population in 1973 was 212 million, so the per capita cost of the space program was about $113.20. Adjusted for inflation in today’s dollars that would equal US$592 per person.

The Snowy River scheme was completed in 1974 and cost AUS$820M. The population of Australia at the time was 13.5 million, so the per capita cost of the Snowy River scheme was $60.74. Adjusted for inflation in today’s dollars that would equal AU$443 per person.

The Sydney Harbour Bridge cost $13.5M (6.25M pounds) and was completed in 1932. The population at the time was 6.6 million, so per capita cost of $2.04. Adjusted for inflation that would equal AUS $82.23 per person.

The Sydney Opera House cost AU$102M and was completed in 1973. The population at the time was $13.5M, so the per capita cost was $7.55. Adjusted for inflation in today’s dollars that would equal $63.56 per person.

Westmead Hospital is probably the largest hospital in Australia. It cost around $175M to build and was completed in 1978. Australian population was 14.2 million, per capita $12.32, inflation adjusted $56.77.

No-one knows how much the NBN will actually cost, but the current estimate from the government is AUS$37.4B. This is likely to be an underestimate, with the federal opposition claiming that $100B is possible. However for the sake of argument let’s take the government’s current estimate. At current Australian population of 22.6 million people this equates to $1654.87 per person.

So for the per capita cost of the NBN you would have built the Snowy Mountains Scheme, the Opera House, the Harbour Bridge, eight Westmead Hospitals and flown to the moon and back.

Just to give another perspective. Think about the NBN as a private company and the estimated cost as an equity investment. Then think about the fictitious future ROI as a comparison.

For $37.4B you could have bought back the whole of Telstra (well, you could have before the NBN gave them $11B!). For $37.4B you could buy the next 99 of the top 100 listed telecommunications companies on the ASX including Computershare, Optus, TPG, Telecom New Zealand, Vodafone, Macquarie Telecom and practically every other telco in the country, and still have enough spare change left over to buy Coca Cola and Myer. You could buy Woolworths or Westfarmers. You could buy both Westfields and Suncorp. You could buy Woodside. You could buy both Newcrest and Fortescue.

I hope this post has provided some perspective on exactly how much money we are talking about to deploy the NBN. Far from enabling fast internet access for all Australians what we are getting is the world’s most expensive network infrastructure that will be frozen in time as the government attempts to recover implementation costs. Or an equally terrible option is that the NBN will be privatised for a fraction of the implementation costs and tens of billions of dollars of public investment will evaporate. There is no scenario I can think of where the NBN will provide a positive return on investment, or not damage the long term private investment in network infrastructure. Far from pushing us into the top rankings for internet bandwidth and access speed in the medium to long term we will be locked into today’s technology for decades.