The hot issue at the moment in broadband is quantifying the economic benefits of the NBN. Apparently, Henry Ergas and Alex Robson were out yesterday claiming that the benefits didn’t stack up. According to the CommsDay report, the charges for broadband will have to be astronomical for it to be commercially viable and that doesn’t add up. I agree and hence, I have argued that (a) it is not about broadband but about telecommunications and (b) it is a social criteria that you have to look at. But I haven’t done a full study for lack of resources. The Concept Economics report at the heart of this is here and I’ll try and look at that at a later date.
But the news report did list this:
Concept also criticises another cost-benefit analysis from Professor Joshua Gans that found positive benefits for the NBN—claiming he excluded all opex costs from his analysis, as well as confusing wholesale and retail prices and suggesting that a reduction in profits constitutes a net economic benefit when it is merely a transfer from producers to consumers.
I can’t imagine what they are referring to as I have made some comments and not done a study. But in any case, when looking at social value, I looked at the gains to consumer plus producer surplus and so did not count a transfer as an economic benefit. But I do consider sunk costs as sunk.
Anyhow, this debate is something that is always contentious. Look at today’s post by Shane Greenstein as a great example. I’m feeling a certain affinity with Shane today.