NBN's opportunity costs mount for Labo: evidence mounts that the numbers don't add up

THE opportunity cost attached to policy decisions is a powerful consideration, not pondered enough by our political leaders.

Which is why the following quote was welcome reading yesterday:

"What we do today matters in the future. The decision to fund one program inevitably means another program does not proceed."

Those words sound like something you would expect to hear from Tony Abbott railing against the National Broadband Network as a $36 billion waste of money.

But the comment was in an opinion article by none other than Finance Minister Penny Wong, published in The Australian.

Her aim was to justify decisions the Labor government is taking in the long-term national interest: a price on carbon, health system reform and, of course, the NBN as the key "to revolutionise our communication infrastructure".

The first two examples are reasonable enough: certainly if you accept that climate change is a reality (or that the world will one day put a price on carbon just in case), and that the health system needs reform if it is to cope with the pressure of an ageing population. Unlike Abbott, the government appears to be playing a long-term game, not simply chasing popularity to be competitive in the polls (although I define Labor's long-term focus as much about the next election as the next decade).

However, if we are going to seriously discuss opportunity cost in policy decision-making, Wong is being generous to her side of the political divide by including the NBN as a positive.

In recent weeks, evidence continues to mount that the expenditure on the NBN is unlikely to reap the return for our national interest Labor first thought it would.

But politically, Labor can't back down: partly because voters would sigh and partly because the rural independents could withdraw their backing of the government.

First, we had the unfortunate reality whereby the government couldn't find a business partner to collaborate in the NBN, so it committed to owning the entity itself, before eventually finding a buyer, increasing the cost of the whole thing from single-digit billions to a whopping $36bn and counting.

Second, we now know that the US, as just one example, sees its future in wireless internet technology rather than fixed-line communication.

While the NBN isn't mutually exclusive to some limited forms of wireless internet use, fast-paced developments in wireless technology suggest the expenditure on the NBN may leave Australia with a very expensive infrastructure attached to a technology that ends up being mostly about downloading movies at home. Popular? Maybe. Productive? Not really.

If this is the case, the opportunity cost argument surfaces again: given the breadth of challenges modern societies face, there are any number of areas in which money pumped into the NBN could otherwise be spent, from reducing the tax burden of citizens to improving aged care, disability benefits or educational standards in our universities.

If growth in 4G technology affects the take-up rate of the NBN, the government's argument that the NBN will in time pay for itself (and perhaps even turn a profit) is further weakened.

Anyone using a mobile phone regularly, purchasing applications, or stuck sitting next to someone working on an iPad, knows mobile technology is likely to increase in the decades ahead. That's why NBN Co's own business case put together by corporate advisory group Greenhill Caliburn identifies consumer interest in mobile services as a risk to the NBN's success.

What were the original authors of the NBN implementation study, McKinsey's, doing estimating that mobile internet communication technology would only marginally increase before plateauing out in about 2020?

The level at which it was projected to plateau is less than the use of mobile internet technology in Europe now.

The government is to be congratulated for at least thinking big when it comes to the NBN.

But thinking big needs to result in quality outcomes, which require quality planning and consideration of opportunity costs.

I am not certain such checks were ensured when Kevin Rudd agreed to Stephen Conroy's expensive vision for the NBN on a VIP flight over Australia, the only chance the communications minister had to catch the then PM's ear.