Sunday, September 21, 2014

The Future is not a consequence-free zone for Modelling Consultants

Will Abbott be a one-term PM, will the Coalition gain a second term under a new leader? The satisfaction polls have never looked good for Abbott and on-line betting odds aren't too flash, either.

If Labor is elected in 2016 or 2019, will they follow the Coalition and initiate a round of Royal Commissions? Game Theory, especially "the iterated Prisoner's Dilemma", suggests that "Tit for Tat" is close to an optimum strategy for a co-operation/trust game like Politics. It should be odds-on that Bill Shorten will initiate an NBN Royal Commission in his first 90 days, it's "just good business" for them.

Will the various Ministers, especially Turnbull, face especial treatment, as misleading the Parliament is taken seriously by them? Almost certainly.

But what about the various consultants, like Communications Chambers (UK) and Henry Ergas? Would an NBN Royal Commission find them guilty of any criminal offences?

Saturday, September 20, 2014

Ergas: Using "Economics" to Lie to the Australian public

How do you turn a profitable high-growth, high gross-margin business at the centre of the current rapid transformation of the global economy into an overall negative investment? If you're Henry Ergas, you concoct a deeply flawed Economic Cost Benefit Analysis.

Henry Ergas calculated in 2009 that retail prices for NBN subscribers would be $170/mth, with $133 in the metro areas and $380/mth in non-metro areas. The costs & pricing were modelled for him by an experienced ex-Telstra employee who became the General Manager, Pricing, of NBN Co from Nov-2009 to June-2014, while actual retail prices today are one-third his 5 years old prediction.
Thus, for the most likely estimate of $170 per month, unit costs in metropolitan areas are of $133 per month, while those in non-metropolitan areas are just under $380.
Ergas quotes his own study, now proven to be wildly incorrect, in the NBN Cost Benefit Analysis, as "fact". That's the start of his falsehoods and misrepresentations.

Friday, September 19, 2014

Sanity Checking Ergas NBN Benefits: Turnbull says "very large benefits", Ergas/Vertigan find under 0.05%

Publicly, Minister for Communications, Turnbull, says of the NBN:
Fast broadband provides very large benefits for the economy and society, ... [emphasis added]
Under Turnbull, government funding for NBN Co is "strictly limited" to $29.4 billion, which over 25 years is under 0.05% of Australian GDP at current trends. Not by any definition "large".

Wednesday, September 17, 2014

Exposing the 'mysteries' at the heart of the Ergas "Cost Benefit Analysis".

The mystery at the heart of the Vertigan/Ergas "Cost Benefit Analysis", how you assess the highest-growth, highest gross margin Industry in the country and decide it's not profitable, won't be dealt with in this piece.

This piece is on the mysteries at the heart of the UK's Communications Chambers report, referred to in the Ergas CBA as a "Demand Forecast": Domestic bandwidth requirements in AustraliaA forecast for the period 2013-2023.

The CBA is for the 25-year period, 2015 to 2040, yet the bandwidth requirement is only calculated for a single decade. Are we to believe that somehow the final seventeen years of exponential demand growth "fell behind the couch"? No, this was a very considered and deliberate decision.

Sunday, September 7, 2014

Ask the Wrong Question, Get the Wrong Answer

The latest "review" of the NBN,a "Cost Benefit Analysis" is finally out and is predictably anti-FTTP, strongly at odds with reality.

Last year, the Financial Review was very clear that NBN Co was "on track" re-enforced by Mike Quigley, in accepting the highest award in his industry, laying out NBN Co achievements and their good financial performance and only a couple of days ago a story broke that new internal reports show that the FTTP rollout was cheaper than the retrograde FTTN.

Peter Martin, Economics Editor for Fairfax in this piece, falls prey to the dual Occupational Hazards of Journalists and Economics: skimming over complex topics and believing their economics knowledge uncovers all answers, even for subtle technical areas they've not sought specialist advice on.  Martin is wrong, massively so, in this piece.
NBN cost benefit analysis finds there's such a thing as too much speed

Thursday, August 28, 2014

Confirmed: Govt Intercepts can't identify source from large Telcos mobile internet

From long-running posts on problems with Carrrier-Grade NAT (CGNAT) by Geoff Huston of APNIC, I'd previously posited that the current call for "metadata retention" is driven by Intelligence Agencies needing to identify sources. This SMH article points to a recent 9-page PDF Consultation Draft, extracts below. Stilgerihan in ZDnet points to both the SMH piece and a 16-pg 2010 Draft, heavily redacted when first released under FOI.
Links: Brandis' follies, and metadata catches downloaders not serious crims.

CGNAT is only used by the largest Telcos. Twenty years ago, Optus used NAT for its Cable (HFC) internet and Huston writes about mobile Internet now using private 10-Network addresses internally.

Wednesday, August 27, 2014

What a real Cost Benefit Analysis does.

Contrast the noise from the Vertigan/Ergas report with a real report from Industry.
Note the description of what a CBA is intended to do.

I'm at a loss as to how a profitable business executing a detailed Business Plan, on-time and on-budget, and running substantially ahead of revenue financial projections, requires an Economic Benefits Assessment to the community. It's already profitable, there is no "Cost" component.

Friday, August 22, 2014

The Numbers are in. Now we know why Rupert is anti-NBN, pro mobile.

Murdoch famously tweeted that "NBN is ridiculous". His mouthpiece, The Australian, explained that away as:
"In fact, NBN would be great for Foxtel because it would take all those programs into every home."
But he is worried mobile technology has overtaken the need for the NBN.

Saturday, August 16, 2014

NBN Co already running at 500% Cost Benefit Ratio. Why the Vertigan/Ergas Review hold-up?

The Michael Vertigan and Henry Ergas "Cost Benefit Analysis" of NBN Co was announced on 12-Dec-2013 and is still yet to deliver their review.
Meanwhile, NBN Co has achieved more than 500% Cost-Benfit Ratio.

There are two problems I have with the assumptions and methodology announced:
  • Even under the dubiously recalculated figures, the IRR (Internal Rate of Return) of all versions of the NBN Co business plan is positive, albeit FTTP was 2%, down from the Quigley Business Plan of 7.1%.
    • NBN Co is not, and never has been, an expenditure-only investment.
    • The "Cost" of the CBA is zero by definition, and the resulting Cost-Benefit Ratio is infinite.
    • From the announced revised estimates, there was never a reason to run a CBA, once positive IRR's were established.
  • On the available Government Funding figures, somewhere between $5.3B and $7B has been injected as equity by the Federal Government into NBN Co.
    • There is already a directly attributable and precisely measurable economic Benefit of the NBN project: the additional increase in Market Value of listed Telecoms companies.
    • This is at least $36.5 billion,
    • for a Cost-Benefit ratio, already, in excess of 500%.
    • This is the direct benefit only to shareholders of the companies.

Thursday, August 14, 2014

Telstra and the new NBN Deal: Not inked yet and the details won't favour Turnbull.

I find Malcolm Maiden's piece, Telstra's new NBN deal is as good as the first one, Aug 14, 2014, to be misleading and factually inaccurate: Telstra is only a viable business and growth company because of the Labor Government's NBN Co initiative.
Howard and Switkowski's legacy was a deeply damaged and uncompetitive business palmed off onto naive investors. The Telstra share price was performing a "dead-cat" bounce and didn't recover until the NBN Co agreements were signed.
Since the 2013 election, it has continued to increase in value, but not noticeably faster.