Valuing broadband

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.

1 thought on “Valuing broadband”

  1. Three valuable uses for broadband: (1) skype (2) youtube (3)  software downloads. Three valuable uses for narrowband (1) wikipedia (2) ebay  (3) booking airline tickets, or paying other bills. Much value from the internet comes from low bandwidth text, such as wikipedia, shopping on ebay (though without pictures), and saving time buying air tickets or paying other bills.
    Some internet services need more bandwidth, such as skype, youtube, and new software for my iPhone.
    Shane Greenstein’s argument about GDP is interesting – that ISPs contribute only $40B to US GDP.  But the internet creates sigificant value alongside GDP, such as cash savings, by buying from eBay, saved time by getting answers from Wikipedia or paying your bills (or booking airfares) online.
    Even broadband services are not necessarily about GDP but about value – using free Skype services to see my nine year old nephew show off his dance routine in Qld (when I am in Melbourne) creates value for me – a closer connection with my family. Youtube saves me time and money. Where once I might have watched Video Hits or Rage to see music videos, now I can watch that tune I was humming in the shower this morning (Nina Cherry Buffalo Gals). For this value, I am prepared to pay a monthly subscription, but my consumer surplus is significant (and likely growing).
    Hence debates about the monetary value of broadband miss some of the point – the value creation of new infrastructure is largely non-monetary. To justify the expense we need to find a good excuse to spend the money – a core function whose value covers most of the cost. With mobile phones for instance, the function mentioned was often safety, I heard from women – what if my car breaks down?
    If we can find a core excuse for then the monetary question can go away. Some possibilities – (1) online voting – if we all have to vote online, then we need universal access (but this is probably a narowband function); (2) online health – accessing 24/7 medical assistance from home, and emergency assistance; (3) online learning – especially extra school age or mature education, with video and interaction to justify broadband; (4) online police access; (5) online community service volunteer work, such as video-counselling; and so on….
    Education and health are good if they can help cut costs out of these huge government expenses. Online health is perhaps the ideal excuse – saving lives, living longer, preventative medicine.
    These excuses are preferably non-destructive of current businesses (read GDP), so free local calls might not be a good excuse. Hopefully this is of interest to those trying to quantify broadband benefits.

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