It looks like a questionable investment to me and one wonders how it can be priced to yield a reasonable commercial return as an excludable, rival, private good.  The cost is much more than the $4.7b Labor promised to inject into a private firm to develop such a scheme prior to the last election that would cost, in total $10b.   If it didn’t work at $10b will it at $43b? Is this a non-starter?

It doesn’t take Labor long to scale up its bets, does it? This is particularly so since the new advocated scheme uses new FTTP (fibre-to-the-premises) technology. 

Labor’s claim is that the private sector didn’t offer value-for-money proposals (Sing-Tel Optus and two other firms did make offers) because of the financial crisis. Maybe – or maybe it was just that the economics of providing a high-speed, gold-plated internet connection to the bulk of Australia’s geographically-dispersed population did not stack up.  

The scheme is claimed to boost GDP by 0.25 per cent per year and to ‘support’ 25,000 jobs over 8 years.  These are Keynesian multiplier effects that have nil to do with the benefits of the scheme itself. Moreover, even these benefits come at more than $172,000 per job which is expensive job creation – ‘more than’ since most jobs will come from elsewhere in the economy not from the ranks of the soon to be unemployed. These benefits are mostly bull.

Indeed I haven’t seen set out the benefits from the project that improve our lives and help us to do business.  Is there a cost benefit analysis showing net benefits to regional areas from this scheme? Why not only the capital cities rather than 90 per cent of the population plus high speed remote access to the rest. Joshua Gans talks about social benefits that exceed private benefits – in areas such as health and education I guess – but dollar numbers would help. If there is the opportunity of economies from offering cheaper wired phone calls and TV signals what didn’t private firms go for it? And if this whole exercise is about bringing Telstra to heel you have to wonder about the sanity of such an expensive regulatory operation.  

By the way, dropping names such as ‘Ken Henry’ is not cost-benefit analysis.

John Quiggin estimates that for the scheme to work one needs 5 million households and small businesses to subscribe $80 a month to yield a 10 per cent return.  That would be much more than half of Australia’s households many of who are using a broadband service now is cheaper than that proposed. The suggested return here is low given the substantial private involvement – a return of 14 per cent would require about $110 per month which is closer to Malcolm Turnbull’s estimate.

The danger is of course that private subscribers to broadband services may not switch to this service at prices that will ensure cost-recovery and a reasonable investment return. In that case we will all have to chip in and provide the service as a charitable contribution via Kevin Rudd.

Of course this chatter could all be pie-in-the-sky Labor talk. Maybe, this proposal won’t take off before Labor is booted out of power for wrecking the Australian economy.  Given the recent opinion polls that is wishful thinking.  Has anyone else had nightmarish dreams involving Rex Connor and Jim Cairns with that grand old blabbermouth Gough in the background dribbling on his memoirs and muttering ‘working families’ and ‘historic acts of nation-building’?  Australia would be all right if it could live on verbiage and pollie talk. But it cannot and that is the difficulty.