Concept Economics, the consultancy that recently estimated the costs of the National Broadband Network outweighed the benefits by up to $20 billion, has gone into administration.

I have had a few debates on my blog with Commsday founder Grahame Lynch who used or supported Concept Economics in his attack on the costs and benefits of the NBN.

ASIC's listing of Concept Economics reveals it was placed into external administration on the 3rd of September, a day after it released a new cost-benefit analysis of the National Broadband Network claiming the costs outweighed the benefits by between $14 billion to $20 billion - based on the cost being $43b.

16 comments:

At 13 September, 2009 16:16 Grahame Lynch said...

Stephen before we get too carried away with this notion that I "used" Concept to "attack" the NBN, let me point out I extended an invitation to you to provide me with your own rival analysis which you declined on the rather ungracious grounds that I would just be "using" you to sell "papers". CommsDay does not support or oppose anything but a good debate. I would suggest that rather than miscasting those you disagree with you debate them and win the argument with actual facts.

 
At 13 September, 2009 17:03 Stephen Davies said...

Grahame,

I declined based on a number of reasons - most predominately being available time.

It was only a passing and throw away line about "using me to sell papers". So dont try an twist the truth for your own means.

If I was getting paid to investigate the economic and social benefits of the NBN - as Concept was - then it would be a different situation.

But as has been highlight on my blog and many others, Ergas's claims have robustly proven to be a bias and based on inaccurate information.

Take for example his use of Internode's most expensive 100Mbps service to justify his numbers - when there were 5 other 100Mbps services which we at a lower price and the lowest priced at less than $99.

Then there was the use of the $43b in the report to support his justification the "Costs outweigh benefits by $14-20b", rather than researching the cost of building the network which has been claimed by a number of experts to be around the $23-$28b.

 
At 13 September, 2009 18:14 Grahame Lynch said...

Stephen, who paid Concept to do the work? Do you know if they paid? I would like to know who you think paid them. The only "expert" I can see who has claimed $23b is you, but since you lack the time to explain how you arrive at that figure I submit we should respectfully treat that figure with what it deserves - dismissal, until it is backed up. Do you include the cost of opex, interest and reserves to cover losses in your build figure, or is it a minimalist treatment of basic capex costs? Last time I looked you run a FTTH advocacy website so can I suggest that your credentials as an "even-handed" observer might be no better than an Ergas or any other NBN critic you care to nominate. As before you seem to have a very curious method of analysis - Ergas didn't use Internode's prices to "justify" his numbers, he suggested it made them less controversial than his detractors such as you made out. That's a big difference.

 
At 13 September, 2009 19:03 Stephen Davies said...

Grahame,

"Costs outweigh benefits by $14-20b".

If you think I am suggesting you did that is not the case. Concept rarely produced anything for nothing. I think it highly likely - although I dont have anything to substainiate my theory - Concept has paid to produce the reports by the Liberal Party.

"The only "expert" I can see who has claimed $23b is you".

You are just so far wrong here, I wonder if you are even in touch with the industry! All these experts below have quoted a price in the range of $23-$28B

Paul Budde - Buddecom

Shara Evans - Market Clarity

Art Price - Axia
http://www.itwire.com/content/view/26748/1231/

Stephen Conroy - Minister
http://www.zdnet.com.au/news/communications/soa/NBN-could-cost-taxpayers-11-billion-/0,130061791,339296644,00.htm and various senate select meetings

Geoff Johnson - Gartner Group
http://www.arnnet.com.au/article/316391/nbn_survey_seven_top_ict_analysts_think_nbn_will_worth_money_spent

Colin Goodwin - Ericsson
http://www.itwire.com/content/view/27077/127/

Sameer Chopra - Deutsche Bank
http://www.theaustralian.news.com.au/business/story/0,28124,25816733-5012439,00.html

Enough supporting references for you?

"but since you lack the time to explain how you arrive at that figure"

Again out of touch Grahame. In every public presentation I have made on the NBN I have quoted my references and calculations. You have even seen many of those costings on whirlpool. You can also see some of them on this site.

"Last time I looked you run a FTTH advocacy website".

Again totally out of touch. I have being building FTTH in Australia since 2001, firstly with Bright, some work with Silk, consulting to BES and several other FTTH operators and now the GM of Operations at Opticomm.

I have designed, costed and deployed FTTN, FTTC, and FTTH in brownfield here in Australia, both underground and above round, using GPON, EPON and PtP technologies.

At Bright I worked extensively on the business case and cost models and prepared several white papers.

At Opticomm - the second largest FTTH operator in Australia - I am in charge of the whole operations department which deals with network deployment and the management of costs associated.

So I think I know a little bit about the costs of network deployment - certainly better than a journalist or an economist. -

Further more if you knew anything about me you would know that I am a highly ethical person as I would not be advocating something to someone unless it was in their best interests. I have quit jobs because of issues with ethics and advocacy.

"Ergas didn't use Internode's prices to "justify" his numbers, he suggested it made them less controversial than his detractors such as you made out."

If that was the case then he should have published the range of prices, or even considered what the majority of consumers would need. At 15Gbytes per month this represents bandwidth needs for greater than 50% of consumers so why pick the 100Gbyte/month account? He picked it to justify his numbers.

 
At 13 September, 2009 19:31 Grahame Lynch said...

On costings, the Ericsson link provides no figure, the Axia link suggests min of $25bn + financial support for losses (that's a big difference Stephen), Sameer says $28b, Gartner says $27b. You are the only one using a $23b number so how can you say "I am so far wrong" when I am actually so far right! Not one of your links shoes whether the cost of opex, losses and interests is covered. I suspect the govt's original estimates do cover those numbers, hence they are higher. Re your credentials, knowing a lot about something because you work in the industry does not make you unbiased, in fact I would suggest it makes you biased against alternative platforms of delivery you may be less familar with/sympatico too. And as we know from your debates with Bevan Slattery there is room for much disagreement between experts on fibre costings isn't there? Again on Ergas he didn't use Internode to "justify" his numbers, he used it them to downplay his critics. Very different. Your predilection for the absolute in your rhetoric - "totally out of touch" - really diminishes your case I'm afraid.

 
At 13 September, 2009 19:44 Stephen Davies said...

"You are the only one using a $23b number so how can you say "I am so far wrong" when I am actually so far right"

You like Egras takes the extreme. I quoted a range of $23 to $28B not $23b.

And if you review my presentations - one of which was made the week before the NBN decision the cost to 90% of households was $25b.

So firstly you say I am the only one claiming the NBN will cost less than the $43b, but now you are agreeing there are others who are making the same claims.

Which is it Grahame?

 
At 13 September, 2009 19:45 Grahame Lynch said...

and to cap things off you have verballed Shara

http://www.arnnet.com.au/article/316391/nbn_survey_seven_top_ict_analysts_think_nbn_will_worth_money_spent

she says it may cost less, it may cost more.

You really are unbelievable Stephen

 
At 13 September, 2009 19:48 Grahame Lynch said...

"So firstly you say I am the only one claiming the NBN will cost less than the $43b, but now you are agreeing there are others who are making the same claims"

I said you were the only one claiming $23b.

Your constant misquoting of others whether to support your cause or criticise me is truly breathtaking. Certainly puts your estimates in a lot of doubt.

First rule of debate - never misquote your critics or embellish your supporters' claims - it damages the case you claim to support.

If this is the best the NBN advocates can come up with I think the government needs to recruit some new supporters.

 
At 13 September, 2009 20:05 Stephen Davies said...

"she says it may cost less, it may cost more."

Firstly use it in the context of what was said and quote the rest of the sentence. "Australia's future economic prosperity and to social good, and such it outweighs a purely economic justification"

So the reference of "it may cost less, it may cost more" Shara was stating it does not matter what it costs, that the investment "outweighs a purely economic justification"

There was a presentation Shara made in which the cost was (from memory $27b or $28b.) I am still trying to find the reference.

As for the Axia reference, what does "at no more than $27 billion" mean? "Price says the project’s major capital cost would be in delivery the fibre to the home portion of the network, at about $20 billion"

Grahame, live with the fact you where wrong, there are a number of experts quoting between $23-$28b.

And just back to Ergas's claims of the $218/month Axia model requires the average revenue per user for simple ISP access and voice services of between $50 and $60, and little more than $100 with bundled value-adds like IP video and IPTV.

You never reported that one.

 
At 13 September, 2009 20:10 Stephen Davies said...

"I said you were the only one claiming $23b."

I was not claiming $23b. I stated a range of $23-$28b. You chose to use slect the bottom end of that range at $23b.

"Your constant misquoting of others"

Now that is a laugh. You have misquoted me in this debate, you quoted Shara Evans out of context and you misrepresented what Axia chief Art Price has said in Senate hearings.

 
At 13 September, 2009 20:18 Grahame Lynch said...

I am not wrong at all, you simply compare apples and oranges.

Your own figures of $23bn are based on the cost of building the fibre to 90% of homes, increased backhaul, and connection costs for 100% of those homes.

You make no form of provision for operational expenditure to service the network once it launches or the cost of building out mimumum 12mbps to the rest of the population (probably about 15% of the landmass - basically an investment equivalent to building a turnkey LTE/wimax network that will be the largest in the world!)

Your claims about pricing are ridiculous since you seem to assume there should be no recovery of any of those costs, only the raw fibre build.

I did find the Shara link and she said maybe less than $43b maybe more.

It would seem that every sub $28b reference you can find either refers to a RAW FIBRE build SANS the wireless component, need to pay interest and the ongoing opex costs OR does not specify what it does include.

Now re Shara, if you are talking about social justifications and that its direct economic costs/ business case don't matter then please don't try and make out that this whole thing is affordable and a great business.

It is one or the other.

 
At 13 September, 2009 20:27 Grahame Lynch said...

And I am alerting Mr Ergas to your claim he was paid off by the Liberal Party to produce his research. It will be of interest to him given that his last paper on the topic was actually requested by the Productivity Commission for its annual roundtable, which last time I looked was an agency of government, not Malcolm Turnbull.

 
At 14 September, 2009 08:46 Stephen Davies said...

"Mr Ergas to your claim he was paid off by the Liberal Party to produce his research"

Another misquote again Grahame, the words "paid off" was never used by me and I did not say Henry Egras I said Concept.

Concept is a business and as such they would typically work for a fee - which is more than reasonable and I dont hold that against them. Concept Economics has done work before on other subjects for the Liberal Party. Being paid to produce a report for a client does not constitute being "paid off" in the context as you put it.

"I did find the Shara link and she said maybe less than $43b maybe more"

That was because I sent it to you and again you are quoting out of context.

"cost of building out mimumum 12mbps to the rest of the population"

Another point you are wrong. You need to look at some of my presentations. I have included coverage for the FTTP, the FTTN and the Satellite.

"only the raw fibre build."

Another incorrect assumption on your part, the costs involve the complete outside plant build including all electronics, exchanges and other network components.

"It would seem that every sub $28b reference you can find either refers to a RAW FIBRE build SANS the wireless component"

No all of those references were for the "Network build", not the fibre build.

Live with reality Grahame, you are out of your depth on this subject, have no expertise or experience in this field of building Fibre to the Home. Your tilting at windmills over the costs and justifications are becoming as ridiculous some of the statements coming from the Opposition benches.

 
At 14 September, 2009 09:07 Stephen Davies said...

And just a little more on the financing costs etc. From Deutsche Bank:

"Chopra said the NBN should be completed for about $25 billion or $27.5 billion once finance costs were considered"

http://www.itnews.com.au/News/155202,nbn-cost-debate-picks-up-steam.aspx

 
At 14 September, 2009 10:57 Stephen Davies said...

Henry Ergas has contacted me to correct information I published above in a comment.

My opinion that the report may have been paid for by the Liberal Party was incorrect. The report was prepared for the Productivity Commission Roundtable.

I apologise to Concept Economics and Henry Egras for any misleading representation that I have made.

 
At 15 September, 2009 10:12 Stephen Davies said...

Grahame wrote...

"And as we know from your debates with Bevan Slattery there is room for much disagreement between experts on fibre costings isn't there?"

And as we have seen, Bevan was claiming last year the cost of the NBN using FTTN would be $28b plus another $20b for the backhaul.

At $48b for an FTTN network that is significantly more than the $23-$28b being quoted by people I have already referenced.

 

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