Broadband Cost Benefit

Independentcostbenefitanalysisofbroadbandandreviewofregulation
Independentcostbenefit
analysisofbroadbandand
reviewofregulation
VolumeIIThecostsandbenefitsof
highspeedbroadband
August 2014
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Thecostsandbenefitsofhighspeedbroadband
Thispageisleftblankintentionally.
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Contents
Volume I Market and Regulatory Report
1.Executivesummaryandrecommendations...........................................................................9
1.1 Executivesummary..................................................................................................9
1.2 Summaryofrecommendations.............................................................................25
2.Panel'sapproach...................................................................................................................31
2.1. Guidanceforreaders.............................................................................................32
2.2 Consultationandsubmissions...............................................................................33
3.Historicalcontext..................................................................................................................34
3.1 EvolutionofbroadbandinAustralia......................................................................34
3.2 Policyframeworkforbroadbandavailability.........................................................35
3.3 Contextfortheindustrystructureandregulatoryreview....................................39
4.Objectivesandprinciplesforassessingbroadbandmarketstructureandregulatory
options...................................................................................................................45
4.1 Objective................................................................................................................45
4.2 Policyprinciplesusedinassessingstructuralandregulatoryapproaches............45
5.Costbenefitanalysisandpolicydevelopment.....................................................................49
5.1 Thenatureandpurposeofcostbenefitanalysis...................................................50
5.2 Thepanel'sCBA......................................................................................................53
6.FuturemarketstructurearrangementsforNBNdevelopment...........................................61
6.1 Contextandrelevantprinciples.............................................................................61
6.2 ConcernswiththecurrentNBNstructure.............................................................63
6.3 OptionsforfutureNBNstructures.........................................................................65
6.4 Conclusionsandrecommendations.......................................................................72
7.Parts7and8oftheTelecommunicationsActandthetreatmentofnewhighspeed
networks.................................................................................................................74
7.1 Introduction...........................................................................................................74
7.2 Thecurrentrules....................................................................................................74
7.3 Submissions............................................................................................................76
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7.4 Options............................................................................................................................77
7.5 Verticalintegrationissues......................................................................................79
7.6 Networksalreadyexempted..................................................................................83
7.7 Recommendations.................................................................................................84
8.Broadbandserviceprovision.................................................................................................86
8.1 Introduction...........................................................................................................86
8.2 Infrastructureprovideroflastresortobligations..................................................87
8.3 Infrastructureandserviceinnewdevelopments..................................................91
8.4 Affordability...........................................................................................................97
8.5 Subsidy.................................................................................................................101
9.RegulationofNBNCo'sproducts,pricingandexpenditure...............................................112
9.1 Introduction.........................................................................................................112
9.2 Currentregulatoryframework.............................................................................112
9.3 NBNCo'scapitalexpenditureproductsandpricing............................................114
9.4 Generalissuesraisedinsubmissions...................................................................114
9.5 Regulatoryframework.........................................................................................116
9.6 Operationalissuesrelationtotermsofaccess....................................................125
9.7 NBNCooverbuildingandcompetitiveneutrality................................................131
9.8 Telstra'spricecontrols.........................................................................................133
10.PrivatisationandgovernanceofNBNCo..........................................................................137
10.1 Privatisationarrangements..................................................................................137
10.2 ManagementofNBNstructureandassets..........................................................137
11.Administrationofeconomicregulationofthetelecommunicationsindustry.................139
11.1 Introduction.........................................................................................................139
11.2 Stakeholders'viewsontheACCC'srole...............................................................139
11.3 Futureadministrationofeconomicregulationofthetelecommunications
industry................................................................................................................140
Appendix1TermsofReference............................................................................................144
Appendix2Currentbroadbandindustrystructureandregulation.....................................146
Appendix3CurrentarrangementsforfundingtheUSOandtheTUSMAAgreements.......158
Appendix4NBNCo'sFixedWirelessandSatelliteReview..................................................159
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Appendix5Newdevelopments:Implementationofthepanel'sserviceprovisioning
framework............................................................................................................163
Glossaryofterms....................................................................................................................168
Volume II CBA Report

OverviewofvolumeII.................................................................................................................7
1.Introduction..........................................................................................................................22
1.1 Thisreportinthecontextofthepanelstermsofreference................................22
1.2 Whatiscostbenefitanalysis?...............................................................................23
1.3 WhyundertakeaCBA?..........................................................................................26
1.4 Inputsintothecostbenefitanalysis......................................................................26
1.5 Thestructureofthisreport....................................................................................27
2.Understandingtheneedforhighspeedbroadband............................................................29
2.1 Howmuchspeedisneeded,inatechnicalsense?................................................29
2.2 TheCommunicationsChambersreport.................................................................30
2.3 CommunicationsChambersmodelresults............................................................32
3.OverviewofCBAmethodology.............................................................................................36
3.1 Background............................................................................................................36
3.2 Estimatingwillingnesstopay(WTP)......................................................................38
3.3 Analysisofcosts.....................................................................................................38
3.4 GeneralCBAparameters........................................................................................39
4.Thescenariosevaluated.......................................................................................................43
4.1 Speedsavailableundereachtechnology...............................................................46
4.2 Nofurtherrolloutofhighspeedbroadbandornewinfrastructure.....................47
4.3 Unsubsidisedrolloutofhighspeedbroadband....................................................48
4.4 Multitechnologymixscenario..............................................................................49
4.5 Fibretothepremisesscenario...............................................................................50
4.6 Variationofscenarios............................................................................................50
5.Costsofeachscenario...........................................................................................................51
5.1 Approach................................................................................................................53
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5.2 Costdifferencesacrosstechnologies.....................................................................54
5.3 Totalcosts..............................................................................................................55
5.4 Thetimingofcosts.................................................................................................57
6.Benefitsofeachscenario......................................................................................................59
6.1 Willingnesstopayforhigherspeeds.....................................................................61
6.2 Businesswillingnesstopay....................................................................................77
6.3 Valuingpublicandexternalbenefits.....................................................................79
6.4 Residualvalue........................................................................................................81
6.5 Disruptioncosts......................................................................................................81
6.6 Deadweightlossoftaxation...................................................................................82
6.7 Benefitsovertime..................................................................................................82
7.Netbenefitsofalternativeoptionsfordeliveringhighspeedbroadband...........................84
7.1 Netbenefitsoffixedwirelessandsatellite............................................................85
7.2 Sensitivityanalysis..................................................................................................85
7.3 NetbenefitsunderalternativegrowthinWTP......................................................87
7.4 Specificsensitivityanalysis.....................................................................................89
AppendixAGovernmentinvolvementinhighspeedbroadbanddeployment....................93
AppendixBInternetinAustralia............................................................................................98
AppendixCTechnologiesforhighspeedbroadband..........................................................110
AppendixDPreviousanalysisofthecostsandbenefitsofhighspeedbroadband............115
AppendixEActivitieswithbenefitsoutsideofprivatebenefits..........................................121
AppendixFReviewofcostestimatesmadebyNBNCo......................................................137
AppendixGInternationalbroadbandstrategies.................................................................154
AppendixHChoicemodellinganalysis................................................................................165
AppendixISensitivityanalysisinputprobabilities...............................................................189
Glossaryofterms....................................................................................................................194
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OverviewofvolumeII
VolumeIofthereportoftheIndependentCostBenefitAnalysisandReviewofRegulation
highlightedthescopeforchangestothecurrentarrangementstoenhancetheefficiencywith
whichAustraliastelecommunicationsinfrastructureisbuilt,managedandused.Thevery
substantialsumsoftaxpayersfundsthatarebeingcommittedtobroadbandinfrastructure
makethosechangesallthemoreimportant.
Underscoringthatassessmentisthepanelsanalysisofthecostsandbenefitsofincreased
accesstoveryhighspeedbroadband,whichshowsthatwhiletherearenetbenefitstothat
increasedaccess,theywillonlyberealisedbyefficientinvestment,operationandpricing.This
volumeofthepanelsreportsetsoutthosefindings,whicharecloselyboundupwithitspolicy
recommendationsinVolumeI.
Thepanelwasrequiredtocarryoutitsanalysisofcostandbenefitsbyitstermsofreference,
whichspecifiedthatitconsidertheeconomicandsocialvalueofincreasedbroadbandspeeds.
Torespondtothispartofthetermsofreference,researchtomeasureandcomparethecosts
andbenefitsofalternativeoptionsfordeliveringhigherbroadbandspeedstoAustralian
householdsandbusinesseshasbeenundertaken.Thishasincludedoriginalresearch.
Why costbenefit analysis?
Theresultsinthisreporthavebeenpreparedusingtheeconomicdisciplineofcostbenefit
analysis(CBA).CBAdiffersfromfinancialanalysisinthatitisconcernedwithneteconomic
benefitstotheentirecommunity.
Becausemeetingthenationalbroadbandnetwork(NBN)objectiveundercurrentpolicy
settingsinvolvessubstantialgovernmentexpenditure,itisimportanttounderstandthe
magnitudeofthebenefitsthatarisefromthisuseoftaxpayerfunds.
AstherolloutoftheNBNinvolveschoicesabouttechnologies,itisalsoimportantto
understandtherelativemeritsofdifferenttechnologicalchoices,particularlygiventhe
expectationofsteadilygrowingdemandforbroadbandspeed.
CBAisatooldesignedtoplacethebenefitsandcostsofthedifferentNBNchoicesona
commonbasissothattheycanbecomparedandunderstood.CBAiswidelyusedtoassist
policymakersinmakingdecisionsonalternativepolicyandtechnicaloptionsthataffectthe
community.CBAallowspolicymakerstoconsidertradeoffsanddecidewhetherthe
communityasawholeisbetterorworseoffunderthesealternativepolicyandtechnical
scenarios.
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CBAisapowerfultoolthatcanassistinguardingagainstpoordecisions.Animportantaspect
ofCBAisthatitcanhighlightthesensitivityoftheoutcomestochangesinthekeyparameters
affectingcostsandbenefits.Thatmakesitespeciallyusefulindealingwithinevitable
uncertainty,asitclarifiestheextentoftherisksandhelpsstructureoptionsformanaging
them.AmorecompletediscussionofthenatureoftheCBAanditsimplicationscanbefound
inChapter5,Volume1ofthepanelsreport.
Key elements of the analysis
Theanalysisinthisreportfocusesontheincrementalbenefitsandcoststhatarisefrom
providingadditionalbandwidth(speed)tohouseholdsandthosebusinessestobeservedby
theNBN.Eachoftheinvestmentscenariosconsideredinvolvesanincrementtocurrent
speed.
Eachofthescenariosconsideredintheanalysisbeginsfromthecurrentpointintime.The
analysisisnotattemptingtorecreatewhataCBAwouldhavelookedlikeatthetimethe
originaldecisionwasmadetorollouttheNBNandestablishNBNCo.
Thevaluetohouseholdsandbusinessesarisesfromtheincreasedpossibilitiesthatthese
changesinspeedallow.Thisincludesgreaterbenefitsfromexistingusesoftheinternet,
benefitsfromnewusesonlymadepossiblethroughincreasedspeed,timesavings,reductions
intransactionscostsandproductivityincreases.
Theanalysisinthisreporthasaparticularfocusonestimatingthehouseholdwillingnessto
pay(WTP)forhighspeedbroadband.Thisisameasureoftheconsumerbenefitsofthe
additionalspeedthattheNBNoffersandencompasseseachofthetypesofgainnotedabove.
Whereappropriate,WTPforhighspeedbroadbandisalsoextendedtothosebusiness
customersthataretobeservicedbytheNBN.
Inaddition,theanalysisalsoconsidersthelikelypublicbenefitsthatariseinadditiontothe
privatehouseholdandbusinessbenefits.Thesecouldincludechangesinthequalityorcostof
servicessuchashealthandeducationandlowertransportcongestion.
Thetotalbenefitsarethencomparedtothecostsofdifferenthighspeedbroadband
alternativescalculatedusingdetailedinformationprovidedbyNBNCo,andappropriately
modifiedbythepaneltoreflectitsuseinCBA.
The scenarios examined
CBAinvolvesthecomparisonofdifferentoptions.ThescenarioschosenforthisCBAare
designedtoconsiderthequestionofwhichmethodofrollingouthighspeedbroadbandhas
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thegreatestnetbenefitsbutalsotoallowacalculationofthegeneralnetbenefitsof
highspeedbroadbanditself.ThisCBAisconductedaroundfourmainscenarios.
Nofurtherrolloutscenariothisscenarioassumesthereisnofurtherinvestmentin
highspeedbroadbandinfrastructurebeyondtheinvestmentsalreadymadeandno
changeinspeedsfromthoseavailabletoday.Thisisapurelyillustrativescenario(itis
clearlynotrealistic)usedtoestimatethebenefitsofhighspeedbroadband.
Unsubsidisedrolloutscenariothisscenariomodelstherolloutofhighspeed
broadbandusinghybridfibrecoaxial(HFC)andfibretothenode(FTTN)technologies
toareaswhereitcanbeundertakenwithouttheneedforanygovernmentsubsidy.It
providesareferencecaseagainstwhichtocompareotherscenarios.
Multitechnologymixscenario(MTMscenario)thisscenarioassumesacombination
offibretothepremises(FTTP),FTTN,HFCandfixedwirelessandsatellitesolutions(as
setoutintheNBNCoStrategicReview).
Fibretothepremisesscenario(FTTPscenario)thisscenarioassumesdeliveryof
FTTPtoallpremisesinthefixedlinefootprint,complementedinhighcostareasby
fixedwirelessandsatellitesolutions(assetoutintheradicallyredesignedoptionof
theNBNCoStrategicReview).
Thesescenariosdifferintheuploadanddownloadspeedsmadeavailable,inthetimingof
deliveryandintheircoverage.Inparticular,thefollowingfeaturesshouldbenoted.
TheFTTPscenarioandtheMTMscenarioprovidehigherspeedsAustraliawide.
Theunsubsidisedrolloutscenarioprovideshigherspeedstothemajorityofthefixed
linearea(upto93percentofpremises)butnottoareascoveredbytheother
investmentscenariosthroughfixedwirelessandsatelliteservices.
TheFTTPscenarioprovidesthehighestspeedsbutismorecostlyandtakesmaterially
longertodeploy.TheFTTPscenariotakeslongertodeploythantheMTMscenario
becauseitinvolvesreplacingtheHFCassets(whichareusedintheMTMscenario)and
copperconnectionstopremises(whichareusedinFTTNdeliveryintheMTMscenario)
andplacingentirelynewconnectionsinalmostallpremises.Giventhegreatertasks
involved,acceleratingthedeploymentofFTTPtomatchthatintheMTMwouldlikely
entailsubstantialcostincreases.
Appropriatecomparisonofeachofthesescenariosallowsthepaneltorespondtoitstermsof
reference.
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Key findings
Table1summarisestheneteconomicbenefitsofeachscenariousingabasesetof
assumptions.Theseassumptionsarevariedinthesensitivityanalysisconsideredfurther
below.Table1expressestheresultsrelativetotheunsubsidisedrolloutscenario.
Table1showsthefollowingresultsfromtheCBA.
Continuedinvestmentthroughanunsubsidisedrolloutofhighspeedbroadbandhasa
netbenefitof$24billion(whencomparedwiththereferencecasenofurtherrollout
scenario).ThiscanbeseeninTable1asavoidinga$24billionnetcostundertheno
furtherrolloutscenario.
TheMTMscenariohasanetcostof$6billionrelativetotheunsubsidisedrollout
scenario.Thislargelyreflectsthenetcostsofdeliveringhigherspeedstoruraland
remoteareasviafixedwirelessandsatellite.
TheFTTPscenariohasanetcostof$22billionrelativetotheunsubsidisedrollout
scenario.Thisisbecauseitismorecostlyandslowertodeliver,whichdelaysthe
realisationofbenefits.Thismeansthatitscostsarehigheranditsbenefitslowerthan
theunsubsidisedrolloutscenario.Thenetcostsofthisscenarioalsoincludethenet
costsofdeliveringhigherspeedstoruralandremoteareasviafixedwirelessand
satellite.
Table 1: Net benefits of each scenario relative to the reference case

No further
rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
$b, present
value
$b, present
value
$b, present
value
$b, present
value
Cost relative to reference case
-17.7
7.2
17.6
Benefits relative to reference case
-41.7
1.0
-4.7
Net benefits
-24.0
-6.1
-22.2
-2,430
-620
-2,220
Net benefit per Australian household ($)
Note: These results use a discrete choice survey to estimate benefits.

Source: The CIE.
Analternativewayofunderstandingtheseresultsistoconsiderhoweachscenariocompares
withthenofurtherrolloutscenarioandwitheachother.Thisalternativecomparisonin
presentedinChart2,wherethesameinformationinTable1isreexpressed.
Chart2clearlyindicatesthatdifferentmethodsofinvestinginhighspeedbroadbandcan
generatedifferentnetbenefits,andsomewaysofinvestingcancausenetbenefitstodecline
comparedwithlevelsthatcouldotherwisebeachieved.
TheunsubsidisedrolloutscenariousingHFCandFTTNinthefixedlinearea(upto93percent
ofpremises)providesthegreatestnetbenefits.
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TheMTMscenarioextendshighspeedbroadbandtoallpremisesthroughinvestment
intohighercostareasservicedbyfixedwirelessandsatellite.Italsoincludesaround
15percentofpremisesservicedbyFTTP.Thisreducesnetbenefitsby$6.1billionor
$600perAustralianhousehold(comparedwiththeunsubsidisedrolloutscenario).
TheFTTPscenarioprovideshigherspeedswithinthefixedlineareaathighercostand
withaslowerrollout.Thisreducesnetbenefitsbyafurther$16.1billionor$1,600per
Australianhousehold.TheFTTPscenarioonlymakesthecommunity$2billionbetter
off,innetterms,thanunderthenofurtherrolloutscenario.
Chart 2: The net benefits of each scenario (present value)

Net benefits relative to no further rollout ($b,
present value)
30
24.0
20
Netcostoffixed
wireless/satellite,
someFTTPandgovt
funding
6.1
17.9
16.1
10
Netbenefitsfrom
improvedspeedsto
nonrural areas
usingHFCandFTTN
0.0
Net costoffull
FTTPandslower
rollout
1.8
0
No further rollout
Unsubsidised rollout
MTM scenario
FTTP scenario
Data source: The CIE.
Fixed wireless and satellite

ThelowernetbenefitsfromtheMTMscenariorelativetotheunsubsidisedrolloutscenario
areprimarilyaresultofthedeliveryoffixedwirelessandsatellitenetworks.Table3indicates
thereasonsforthisbyshowingthecostsandbenefitsofthefixedwirelessandsatellite
componentseparately.
Thereductioninnetbenefitsof$6.1billioninthisscenarioisprimarilytheresultofnetcosts
ofprovidingfixedwirelessandsatelliteservicesof$4.2billion(seenextparagraph).The
remaining$1.9billionofnetcostsresultsfromcontinuingtherolloutofFTTPwhile
transitioningtoFTTNandHFC(whichtheunsubsidisedrolloutscenariodoesnotassume
occurs)andadditionaldeadweightlossfromthegreatertaxationfundingrequiredforthe
MTMscenario.
Providingfixedwirelessandsatelliteservicescostsnearly$5billionbutthebenefitsareonly
justabove10percentofthat.Theresultisasubstantialnetcosttothecommunity.Thenet
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socialcostisequivalenttoalmost$7,000peradditionalpremisesconnectedthroughthe
provisionoffixedwirelessandsatelliteservices.
Thisnetcostisincurredbecause(i)theWTPforhigherspeedsislessthanthecostsof
deliveringhigherspeedsinthesefootprintsand(ii)thesubstantialgovernmentcontribution
mustbefundedfromtaxes,whichimposeadeadweighteconomicloss(DWL).
Thisoutcomerepresentsthenetcostofprovidingaccesstohighspeedbroadbandtorural
andremoteregionsofAustralia.
Table 3: Net benefits of fixed wireless and satellite
Costs and benefits
Present value
$b
Costs
4.8
Total benefits, made up of:
0.6
Willingness to pay
1.2
Public benefits
0.1
DWL of taxation
-1.1
Disruption costs
-0.1
Residual value
0.6
Net benefits
Net benefit per additional customer connected by 2040 ($)
-4.2
-6,890
Source: The CIE.
Sensitivity analysis
ThekeyfindingssetoutinTable1andChart2dependonawidevarietyofassumptions.To
getasenseofhowrobusttheseresultsare,andinparticularthecomparisonbetweenthe
MTMscenarioandtheFTTPscenario,theCBAincludessystematicsensitivityanalysisofthe
keyassumptions,aswellassensitivityanalysisofeachassumptioninturn.
TheresultsofthesystematicsensitivityanalysisaresummarisedinChart4,whichshowsthe
probabilitydistributionofthedifferenceinnetbenefitsbetweentheMTMscenarioandthe
FTTPscenario.
Thisprobabilitydistributionisderivedbysystematicallyvaryingeachofthe
assumptionsunderlyingtheanalysisandthenrecordingtheresultsforeachindividual
simulation.ByconductingalargenumberofsimulationswiththeCBAmodel,itis
possibletogetasenseofoutcomesforaverywiderangeofassumptions.
Chart4indicatesthatinalmostallcases(98percent)theMTMscenariooutperforms
(thatis,hasgreaternetbenefitsthan)theFTTPscenario.
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o TheFTTPscenarioonlyoutperformstheMTMscenarioincaseswherethe
followingtendtooccurtogether;FTTPcostsarelow,thediscountrateislow,
FTTNunderdeliversonexpectedspeeds,thereisveryrapidgrowthinthe
demandforhighspeedsandnoupgradesareallowedintheMTMscenario.
Chart 4: Probability distribution of net benefits of the MTM scenario relative to the FTTP scenario
FTTP scenario
preferred
MTM scenario preferred (98% of scenarios)
30%
25%
Probability
20%
15%
10%
FTTP is better where:

* FTTP costs are low
* Discount rate is
low
* FTTN underdelivers on speed
* rapid growth in
WTP for high speeds
* long time period
for assessment
(assuming no
upgrade of MTM)
5%
>$40b
$35b to $40b
$30b to $35b
$25b to $30b
$20b to $25b
$15b to $20b
$10b to $15b
$5b to $10b
0 to $5b
-$5b to 0
-$10b to -$5b
Less than -$10b
0%
Net benefits of MTM scenario relative to FTTP scenario
Growth in demand and upgrade potential for the multitechnology mix

OneofthekeyuncertaintiesintheCBAistheextentoffuturegrowthinthedemandfor
highspeedbroadband.ThisuncertaintyisparticularlyimportantwhencomparingtheFTTP
scenario(whichhasveryhighspeedcapabilities)withtheMTMscenario,whichdoesnothave
thesamespeedcapability,buthasthepotentialtobeupgradedatalaterdate.
Totesttheimportanceofgrowthinthedemandforspeed(measuredasgrowthintheWTP
forspeed),Chart5showstheeffectsofextendingtheanalysistoallowforaverywiderange
inWTPgrowth.Chart5showsthenetbenefitsoftheMTMscenarioovertheFTTPscenario
forarangeofWTPgrowthassumptions.Resultsarepresentedfortwocases:first,assuming
nosubsequentupgradestoHFCandFTTNintheMTMscenario(whichistheassumptionin
thebaseMTMscenarioandshownbytheblackline)andsecond,assumingthatthese
technologiesareupgradedtoFTTP(atadditionalcost)asdemandincreases(theredline).
Theupgradecalculationconservativelyassumesthat20percentofthecostofFTTPcanbe
avoidedinanupgradefromFTTNtoFTTPbecauseoftheinvestmentalreadymadeinFTTN.
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TheresultssummarisedinChart5haveanumberofkeyimplications.
First,evenwithoutallowingforupgrades,theMTMscenariocontinuestodominate
theFTTPscenarioformostgrowthratesinWTP.TheFTTPscenarioonlydominatesat
thepointofgrowthinWTPofaround250percentover10years(or13percentper
yearforeachofthose10years).Essentially,thisresultsuggeststhattheFTTPscenario
willdominatetheMTMscenarioifthegrowthrateinWTPforspeedsofferedbyFTTP
andnotbyFTTNisgreaterthan13percentperyear.Thisisconsideredunlikelyforthe
reasonssetoutinBox6.
Second,allowingforupgradestotechnologiesusedintheMTMscenariomeansthat
thisscenariodominatestheFTTPscenariounderanypossiblegrowthinWTP.This
resultarisesbecause:
o underanyWTPgrowthitisbettertofirstrollouttheMTMscenarioasthis
deliversimprovedspeedsquicklyandgiveshigherimmediatebenefits.The
highercostsofdeliveringFTTPcanbedelayeduntilthereissufficientdemand
(thatis,untilWTPissufficientlyhigh);and
o withveryhighgrowthinWTP,thenetbenefitsoftheMTMscenarioactually
increaserelativetotheFTTPscenario.Thisisbecausetheslowdeliveryofthe
FTTPscenariomeansthat,givenhighgrowthindemand,manypotential
benefitsaremissedinthemediumterm.TheMTMscenariowithanupgrade
allowsthesemoreimmediatebenefitstoberealised.
OnewayofsummarisingthisistonotethattheMTMscenariohassignificantlygreateroption
valuethantheFTTPscenario.TheMTMscenarioleavesopenmoreoptionsforthefuture
becauseitavoidshighupfrontcostswhilestillallowingthecaptureofbenefitsif,andwhen,
theyemerge.Itis,inthatsense,farmorefutureproofineconomicterms:shouldfuture
demandgrowmoreslowlythanexpected,itavoidsthehighsunkcostsofhavingdeployed
FTTP.Ontheotherhand,shouldfuturedemandgrowmorerapidlythanexpected,therapid
deploymentoftheMTMscenarioallowsmoreofthatgrowthtobesecuredearlyon,withthe
scopetothenupgradetoensurethenetworkcansupportveryhighspeedsoncedemand
reachesthoselevels.BecausethebaseMTMscenariodoesnotassumeanyupgradepath,it
doesnotincludethisoptionvalueandsounderstatesthegapinnetbenefitsbetweenthe
MTMandFTTPscenarios.
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Net benefit of MTM scenario mix over FTTP

scenario ($b)
Chart 5: Net benefits of MTM scenario over FTTP scenario with and without upgrade
20
Panel assumptions
for WTP growth
Threshold to prefer FTTP scenario

(with no upgrade to MTM scenario)
10
0
-10
-20
Net benefit of MTM scenario over FTTP scenario without upgrade
-30
Net benefits of MTM with upgrade over FTTP
-40
0%
50%
100%
150%
200%
250%
300%
10 year WTP growth
350%
400%
450%
500%
Box 6: Technical modelling to understand growth in demand for speed
HowfastwillWTPforspeedgrow?Moreimportantly,howfastwillWTPgrow
forthehighspeedsthatareservicedbyFTTPandnotbyFTTN?
AnimportantinputtotheCBAhasbeenthedevelopmentofadetailed
bottomupmodelofthetechnicaldemandforbandwidth(thatis,speed).This
model(explainedindetailinChapter2)isafullyAustralianversionofa
modellingframeworkoriginallydevelopedintheUnitedKingdom.Ituses
informationonthebandwidthrequirementsofindividualapplications,
aggregatedtothehouseholdlevel,toprovidedetailedprofilesofthedemand
forbandwidth.
Oneimportantoutcomeofthismodelistheobservationthatbandwidth
demandisnotthesameastraffic.Overalltrafficcangrowveryrapidly,but
thisisnotthesameasthegrowthinbandwidthdemand.Consider,for
example,thesimplecaseofahouseholdthatincreasestimespentwatching
streamedhighdefinitionvideo.Ifpeakbandwidthdemandforthathousehold
wasdeterminedbytheinitialvideoviewing,thenincreasingtheamountof
timespentwatchingvideowouldincreasetrafficwithoutincreasing
bandwidthdemand.Thisisimportanttokeepinmindasitisacommon,but
incorrect,intuitionthatbandwidthdemandwillgrowproportionallytototal
traffic.
ThepotentialfuturegrowthinWTPforbandwidthclearlyneedstobe
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consideredinthiscontext.Whiletrafficislikelytogrowrapidly(morethan
13percentayear,forexample)itdoesnotfollowthatbandwidthdemand
willgrowatthisrate.Indeed,analysiswiththetechnicaldemandmodel
indicatesthatwhiletheWTPforspeedmaygrowrapidlyatlowspeeds(less
than40megabitspersecond(Mbps)download,orlessthan8Mbpsupload),
formostpeopleitisnotexpectedtogrowatallforhigherspeeds(greater
than50Mbpsdownloadorgreaterthan9Mbpsupload).Thus,theoutcome
inChart5where(withoutupgrades)theFTTPscenariodominatestheMTM
scenarioatWTPofgrowthofgreaterthan250percentover10years(13per
centayear)isunlikelytoemergegivenanalysisfromthetechnicaldemand
model.
Understanding the components of the analysis

Theresultssummarisedabovearebasedondetailedanalysisinvolvinganumberof
components.Theseareeachsummarisedinthediscussionbelow.
Thebenefitsofhigherbroadbandspeeds
TheresearchunderlyingtheCBAmodelusesthreedistinctmethodstoestimatethevalueof
higheruploadanddownloadbroadbandspeedsforusers(thatis,theWTPforhigherspeed).
First,estimatesbasedaroundaspeciallycommissioneddiscretechoicemodelling
study.Thisdirectlymeasures,usingstatisticalandsurveytechniques,whathouseholds
arewillingtopayforhigherspeeds.Theseestimatesareusedasthedefaultmethod
formeasuringbenefitsinthisCBA.
Second,estimatesbasedaroundtechnicaldemandforbandwidthderivedfroma
specificallycommissionedbottomupmodelofthedemandforbandwidthinAustralia.
Thismeasureshowusersexperienceisimpactedatdifferentbroadbandspeedsand
seekstoplaceavalueonthis.
Third,estimatesbasedaroundobserveduptakeofNBNspeedplanstodate.
Usingdifferentmethodsallowsforgreaterconfidenceinthefindings,particularlygiventhat
thereislittleexistingresearchonthevalueofbroadbandspeed.
Thethreemethodsgivesimilarconclusionsabouttherelativebenefitsarisingfromeach
scenario,althoughwithdifferencesintheabsolutelevelofbenefitofinvestinginhighspeed
broadband.
16of196
TherearesubstantialbenefitsfromincreasingbroadbandspeedsinAustraliafrom
theircurrentlevels.Theseareestimated(fortheunsubsidisedrolloutscenario)atover
$40billionovertheperiodfrom2015to2040underthefirsttwomethodsdiscussed
above.Theestimateofbenefitsislower,ataround$15billion,whenusingactualtake
updatafromNBNCotodateasabasisforestimatingbenefits.Thisisbecausethe
uptakeofNBNCospeedplanshasmainlybeeninmoremodestspeedrangesforthe
customersconnectedtodatetoFTTP.
Thereisadecliningvaluetoadditionalbroadbandspeedsunderallmethods.Thatis,
anincreaseindownloadspeedsfrom5Mbpsto10Mbpsisworthmoretoconsumers
thananincreasefrom50Mbpsto55Mbps.Usingthediscretechoicemodelling
survey,thevalueofanextraMbpsdownloadspeedis$1.50/monthatverylowspeeds
(15Mbps)anddecreasesto70centsat50Mbpsandthento0at90Mbps.
Usersofbroadbandwouldpreferanincreasetotheircurrentspeedsquickly,rather
thantowaitlongertogainahigherlevelofspeed.Thismeansconsumersplacea
greatervalueontheearlydeploymentofhighspeedsratherthanontheslower
deploymentofveryhighspeedsusingFTTP.
Themajorityofthebenefitsfromhigherspeedbroadbandaccruetoprivateuses
withinthehouseholdsandbusinessesservedbyfasterbroadband.Public,orexternal,
benefitsthatisbenefitsaccruingoutsideindividualhouseholdsorbusinessessuch
asinhealthandeducationareaverysmallproportionofthetotalbenefits
available.Thisreflectspatternsofinternetusageaswellasthefactthat,ascurrently
understood,mostpublicgoodusesrequirerelativelylowbandwidth.
Thecostsofdeliveringhigherspeeds
Eachofthescenariosclearlyinvolvesadditionalcosts.Thestartingpointfortheanalysisofthe
costsofeachoptionwasaseriesofcostmodelsprovidedbyNBNCo.Thesecostmodelswere
developedfortheNBNCoStrategicReview.AspartoftheCBA:
thecostmodelswereindependentlyreviewed;and
financialcoststoNBNCowereconvertedtoeconomiccostsby:
o removingfinancialcoststoNBNCothatrepresenttransferstoanother
organisationforuseofexistingassetsorfordisconnectionofcustomersfrom
existingnetworks,suchassomepaymentstoTelstraandOptus;
o estimatingcostsincurredandavoidedoutsideofNBNCoundereachoption,
suchasmaintenancecostsfortheexistingcoppernetworkandcoststoprovide
ADSLservices;
17of196
o convertingnominalcostsintorealcoststoremovetheeffectofinflation;and
o discountingcostsovertimetogiveapresentvalueoffuturecosts.
BecausetheCBAuseseconomiccoststhatarediscountedtoapresentvalue,thecostsinthis
CBAcannotsimplybecomparedtopreviouspubliccostestimatesfortheconstructionand
operationoftheNBN,whichtypicallysumnominalamountsoverperiodsoftime.
Thetechnologiesforprovidinghighspeedbroadbandhaveverydifferentrolloutcosts
(Chart7).FTTPcapitalexpenditurecostsarearoundfourtimeshigherthanFTTNandHFC
becauselessuseismadeofexistinginfrastructure.
Index of $/premise passed
Chart 7: Average capital costs per premises passed for each technology (index numbers of present
value)
FTTP
HFC
FTTN
Table8summarises(inpresentvalueterms)thecostcomponentsforeachofthescenarios.
Thefixedlinefootprintcostsandthefixedwireless/satellitecostsarethecostsspecific
toeachtechnologythesearethemaincoststhatdifferacrossinvestmentscenarios,
aseachtechnologyhasdifferenttotalcosts.
Generalincrementaleconomicorresourcecostsarecoststhataresimilaracross
scenarios,suchastransitnetworkcostsandoverheadsforNBNCo.
BeyondtheeconomiccoststhataredirectlyincludedintheCBA,therearesubstantial
financialcoststoNBNCoforpaymentstoothers,suchasTelstraandOptus,foruseof
existingassets.ThesecostsarenotshowninTable8becausetheyareregardedas
commercialinconfidencebyNBNCo.Toputthesecostsinperspective,Telstra
summarisesitsDefinitiveAgreementwithNBNCoasleadingtoaposttaxnetpresent
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valueof$11billion1andOptusestimatesthatitsDefinitiveAgreementisworth
$800milliononanetpresentvaluebasis2(notingthattheyhavebeencalculatedusing
differentdiscountratestothatusedinthisCBA).Forexample,eventhoughthe
numbersarenotdirectlycomparable,intheunsubsidisedrollout,thefinancialcosts
fromtheseDefinitiveAgreementsareequivalenttoaroundtwothirdsofthetotal
resourcecostrelativetonofurtherrollout,asNBNCowouldcontinuetopaycontract
paymentsfortheuseofexistingassetsandforcustomertransition.
Whiletransfers(includingfinancingcosts,suchasthosepaymentsmadeunderthe
DefinitiveAgreements),arenotincludedintheCBAdirectlytheydoaffecttheloss
madeontheprojectoverthescenarioperiod.Asthatlossisfinancedthroughtaxes,
theeconomiccoststhesetaxesimposearetakenintoaccountintheCBA.
1Telstrasummaryofdefinitiveagreement.
https://www.telstra.com.au/abouttelstra/download/document/2011definitiveagreementstelstranbnco.pdf
2Optusmediarelease,OptusreacheslandmarkagreementwithNBNCoonHFCnetwork,23June2011
https://www.optus.com.au/aboutoptus/About+Optus/Media+Centre/Media+Releases/2011/Optus+reaches+l
andmark+agreement+with+NBN+Co+on+HFC+network
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Table 8: Costs for each scenario panel assumptions

No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario
$b, present
value
$b, present
value
$b, present
value
$b, present
value
Capital rollout costs
5.4
8.4
19.8
Post-build capex
1.6
1.7
1.1
Opex
1.9
1.9
1.4
Capex
3.7
3.7
Opex
1.1
1.1
Capex
4.6
4.8
4.5
Opex
8.3
8.9
8.8
Other financial (non-resource) costs for NBN Co
Total financial costs for NBN Co a
-4.2
-5.6
-5.2
17.6
24.9
35.3
-17.6
7.2
17.6
Costs
Fixed line footprint costs
Fixed wireless/satellite footprint costs
General resource costs incurred by NBN Co
Other resource costs outside of NBN Co

Resource costs outside of NBN Co
Resource costs avoided outside NBN Co
Total resource costs relative to no further rollout b
Total cost relative to unsubsidised rollout
Cost of FTTP scenario relative to MTM scenario
10.4
a Total financial costs for NBN Co are the sum of fixed line footprint costs, fixed wireless/satellite footprint costs, general resource costs and other financial
(non-resource) costs for NBN Co.
b Resource costs relative to no further rollout are the sum of fixed line footprint costs, fixed wireless/satellite footprint costs, general resource costs and
costs incurred and avoided outside of NBN Co.
Note: The costs for the unsubsidised rollout scenario are shown using the choice modelling benefit results.
Source: The CIE.
Inthecourseofitsreview,anddrawingondiscussionswithNBNCoanditsconsultants,the
panelupdatedsomeoftheassumptionsunderlyingtheNBNComodels.Thechangesin
assumptionsmadebythepanelaresetoutindetailinthebodyofthereport.Table9
indicatestheneteffect(intermsofthepresentvalueofresourcecosts)ofthesechanges.
WeretheunadjustedcostsobtainedfromNBNCousedinthisCBAtheconclusionsofthe
analysiswouldnotbedifferent.
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Table 9: Economic (resource) costs for each scenario

No further
rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
$b, present value $b, present value $b, present value
$b, present
value
Initial estimates using NBN Co

assumptions
17.4
23.9
30.6
Updated panel estimates
17.6
24.9
35.3
Difference (per cent)
na
1.5
4.2
15.2
Note: The costs for the unsubsidised rollout scenario are shown using the choice modelling benefit results. For clarity, NBN Co did not estimate an
unsubsidised rollout scenario in its Strategy Review, this is a panel estimate based on NBN Co cost assumptions.
Source: The CIE.
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1.Introduction
1.1
This report in the context of the panels terms of reference
Thisreportpresentstheresultsfromthepanelsresearchtoaddressthefirstitemofitsterms
ofreference:
1 Whatisthedirectandindirectvalue,ineconomicandsocialterms,ofincreasedbroadband
speeds,andtowhatextentshouldbroadbandbesupportedbythegovernment?
a) Thisshouldconsidertheeconomicandsocialbenefitsofbringingforwardimprovements
inbroadbandspeedandtherespectivebenefitsofalternative/potentialtechnologies.
b) Itshouldalsoconsidertheextenttowhichmarketpricingmechanismscancapturethe
valueofbenefits(includingbenefitstoAustraliangovernments).
ThisreportaddressesthissetofrequirementsbyundertakingacomprehensiveCBAof
highspeedbroadbandoptions.CBArequiresthecomparisonofwellspecifiedscenarios,
whichcanbeevaluatedagainstabaseline(oftenadonothingscenario)oragainsteach
other.
Forthepurposesofthisanalysis,fourscenariosweredeveloped(summarisedinTable1.1and
setoutindetailinChapter4).
Table 1.1: CBA scenarios considered in this report
Scenario
Comment
No further rollout of high-speed broadband or new

infrastructure.
This is clearly not a realistic scenario, but is used as a

point of comparison to allow the calculation of the
overall value of high-speed broadband.
Unsubsidised rollout of high-speed broadband to

premises where this can be done without a government
subsidy.
This scenario leads to rollout of high-speed broadband to

up to 93 per cent of premises. No coverage is provided
to 7 per cent of premises these premises are serviced
by fixed wireless and satellite in the MTM scenario and
the FTTP scenario.
This scenario is used as a reference case against which
other scenarios are compared.
Multi-technology mix (MTM scenario): the rollout of highspeed broadband through the use of multiple
technologies and rollout of fixed wireless and satellite to
remaining premises
This scenario allows the examination of an alternative

set of technological choices.
Fibre to the premises (FTTP scenario): continued rollout

of FTTP under the radical redesign set out in the NBN Co
Strategic Review and rollout of fixed wireless and
satellite to remaining premises
This scenario allows the examination of one particular

technological choice.
This scenario has Australia-wide rollout of high-speed

broadband.

broadband.
Source: Expert panel.
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Theappropriatecomparisonofcostsandbenefitsundereachofthesescenariosallowsthe
paneltodrawconclusionsaroundtheitemsinitstermsofreference.Inparticular,the
analysisofthesescenarioswillhelpinformtheGovernmenton:
thelikelyneteconomicreturnsfromgovernmentinvestmentintheNBN;
thedifferentreturnsthatarelikelytoarisefromalternativetechnologicalchoices,
includingthereturnsfromprovisionofservicesinhighercostareasservicedbyfixed
wirelessandsatellite;
theidentificationofrisksandopportunitiesassociatedwithalternativetechnological
choices;and
thepreferredtechnologicalchoices,giventhevalueandcostsfromdifferent
incrementstobroadbandspeedpossibleunderalternativetechnologies.
Thepanelhastakenaconventional(withinthedisciplineofeconomicanalysis)approachto
theCBAanalysisoftheNBN.CarehasbeentakentosatisfytherequirementsforasoundCBA.
Aswillbesetoutinthecourseofthisreport,researchcommissionedandundertakenbythe
panelprovidesasubstantivenewinputintotheunderstandingoftheeconomicsof
highspeedbroadbandinAustralia.
1.2
What is costbenefit analysis?
CBAisatooldesignedtoplacethebenefitsandcostsofparticularactionsorproposalsona
commonbasissothattheycanbecomparedandunderstood.Itprovidesabasisonwhichthe
Governmentcanassessthenetpublicbenefitsofdecisionsaroundhighspeedbroadbandand
canconsiderthemeritsofalternativeapproachestothedevelopmentofhighspeed
broadband.
CBAprovidesatechniquethatallowsasystematictreatmentoftradeoffsarisingfrom
governmentdecisionsandthechangestheyentail.Itallowsforquantificationandvaluationof
thefullrangeofpotentialimpactsthatmightarisefromchangesinbroadbandavailability
and/orpricing.Itinvolvesaggregationoftheseimpactsacrossthevarioustypesofcostsand
benefitsandthroughtimeintoasinglemetrictheexpectedpresentvalueofnetbenefits
fromachangerelativetoareferenceorbasecase.
ACBAframeworkiswidelyusedasatooltoassistpolicymakersinmakingdecisionson
alternativeoptions(forexample,policyoptionsortechnologyoptions)thatimpactonthe
community.Itiscommonlyusedbypolicymakersinsituationswhereproposedactionshave
differentialimpactsthroughoutthecommunity.Asaresult,policymakersarerequiredto
considertradeoffsanddecidewhetherthecommunityasawholeisbetterorworseoff
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underalternativescenarios.CBAisapowerfultoolthatcanassistinguardingagainstpoor
decisions.
ACBAframeworkisfocusedonthesocialwelfareofthecommunity.Thepolicyoptionthat
deliversthehighestnetsocialwelfareisconsideredtobethebestforsociety.
CBAisdesignedtotakeaccountofthefullrangeofpotentialbenefitsandcostsofparticular
actions.Inthissense,itisholisticanddesignedtoinclude,forexample,theenvironmental,
healthandeconomicimpactsofparticularactions.ACBAplaceseachoftheseimpactsona
commonbasissothattheycanbecomparedandunderstood.
ACBAframeworkalsoconsidersthetimingofeachoftheimpacts.UnderaCBAapproach,
futureimpactsareconvertedintotodaystermssothattheycanbemeaningfullycompared.
ACBA,forexample,willenableanevaluationofpoliciesthatdeliverdifferentstreamsof
benefitsandcostsovertime.
ACBAisusedtoassesswhetheroneoptionispreferredtoanotheroptioninthesensethatit
willleadtobetteroutcomesforthecommunity.CBAisapracticaltoolforpolicymakersthat
areseekingtocomparedifferentspecifiedoptionsandchoosethebestamongthem.
InastandardCBA,netbenefitsaresummedacrossallindividualsinthecommunity.Typically,
issuesofoverallnetgains(indollarterms)areseparatedfromissuesofthedistributionof
thosenetgains.Thisisparticularlyimportantasinmanycasesthereisinsufficientinformation
tomakedistributionaljudgements,whereasthereissufficientinformationtomake
assessmentsofoverallnetbenefits.
BecauseaCBAevaluatesnetbenefitsonthebasisofassumptionsabouteachofthecostsand
benefits,itcanhelpinunderstandingtheuncertaintiesinherentinaparticularproject.
Specifically,byvaryingthoseassumptions,itispossibletotestwhethertheoutcomes,
includingtherankingofalternatives,aremoreorlesssensitivetotheassumptionsonwhich
theanalysisisbased.Thathelpshighlighttheriskstheprojectinvolves,andcaninformthe
managementofthoserisks.
ThekeystepsunderlyingaCBAarepresentedinBox1.2.
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Box 1.2: Key steps in a CBA
ArticulatingthedecisionthattheCBAisseekingtoevaluate.For
example,inrelationtohighspeedbroadband,thedecisionrelatesto
boththeparticulartechnologiesusedtodeliverhighspeedbroadband
aswellastothedecisiontodevotetaxpayerfundstotheproject.The
wayinwhichtheCBAisframedandtheinformationrequirementswill
differdependingonthedecisionbeingevaluated.
Establishingthereferencecase(orbasecase)againstwhichtoassess
thepotentialsocioeconomicandenvironmentalimpactsofchanges.In
thecaseofhighspeedbroadbandwithsubstantivegovernment
involvement,anaturalreferencecaseisthelevelofbroadbandthat
wouldbedeliveredintheabsenceofanysubsidyfromgovernment.
Quantifyingthechangesfromthebasecaseresultingfromthe
possiblescenariosbeingconsidered.Thiswillfocusontheincremental
changestoeconomicwelfareresultingfromthedecision.Thechanges
maybeknownwithcertaintyorcouldalsobedefinedinprobabilistic
terms.Thequantificationshouldfocusonkeychangesthatwillbe
utilisedinthevaluationstage.Forexample,forthisreportthefocusis
onthechangeinthedownloadanduploadspeedsarisingfrom
differentbroadbandscenarios.
Placingvaluesonthechangesandaggregatingthesevaluesina
consistentmannertoassesstheoutcomes.
Generatingthenetpresentvalue(NPV)ofthefuturenetbenefits
stream,usinganappropriatediscountrate,anddecidingonthe
DecisionRuleonwhichtoassessthedifferentoptions.
Undertakingsensitivityanalysisonakeyrangeofvariables,giventhe
uncertaintiesrelatedtospecificbenefitsandcosts,especiallyWTP.
Decidingonwhichoptionisbetterforsociety.Inpractice,additional
information,asidefromtheCBAresults,mayalsobeutilisedwhen
decidingonthepreferredoption.
25of196
1.3
Why undertake a CBA?
Ifthedevelopmentofhighspeedbroadbandwereastrictlyprivateundertaking,funded
throughtheprivatesectorandwithoutgovernmentfundingorotherinvolvement,thenaCBA
ofthetypepresentedherewouldnotbenecessary.Rather,investorswouldproceedifthe
expectedrevenuesexceededtheexpectedcosts,whichisoftenasufficient,butnot
necessary,conditionforaprojecttobesociallyworthwhile.
However,forarangeoflargelyhistoricalreasons,theGovernmentiscloselyinvolvedin
broadbanddevelopmentinAustralia,andasubstantialamountofpublicmoneyhasbeen
committedtobroadbandprovision.Thelimitedrationaleforgovernmentinvolvementin
deliveryofhighspeedbroadband,combinedwiththeactualhistoryofextensiveinvolvement,
strengthenstheurgencyofCBAtounderstandtheunderlyingeconomicsofthepublic
resourcesdevotedtotheNBN.
1.4
Inputs into the costbenefit analysis
TheCBApresentedinthisreporthasbeendevelopedthroughthecombinationofanumberof
commissionedresearchitemsandthroughprofessionalassistance.
DrAlexRobsonfromGriffithUniversitywascommissionedtoprepareanAnalytical
Frameworkforconsideringthecostsandbenefitsofhighspeedbroadband.This
reportwasreleasedseparatelyinMay2014andisavailableontheDepartmentof
Communicationswebsite3.
CommunicationsChamberswascommissionedtoprovideadetailedbottomup
analysisofthetechnicalbandwidthdemandforAustralianhouseholds.
CommunicationsChambersreportisavailableasaseparatedocument.Particular
featuresofthisreportaresummarisedinChapter2andareusedtoformulateoneset
ofestimatesoftheWTPforhighspeedbroadbandassetoutinChapter6.
TheInstituteforChoiceattheUniversityofSouthAustraliawascommissionedto
conductadetailedchoicemodellingstudytounderstandpeoplespreferencesfor
broadbandplansandhowmuchtheyarewillingtopayforhigherspeeds.Thefindings
ofthisreportareusedtoprovidethemainsetofestimatesoftheWTPforhighspeed
broadbandassetoutinChapter6.ThedetailsoftheInstituteforChoiceanalysisareat
AppendixHtothisreport.
3http://www.communications.gov.au/broadband/national_broadband_network/cost
benefit_analysis_and_review_of_regulation
26of196
NBNCoprovidedcostmodelsandrelateddataunderlyingtheirStrategicReview.With
somemodification(detailedthroughoutthisreport)thesecostmodelsformedthe
basisofthecostanalysispresentedinthisreport.NBNCoalsoprovidedinformation
onuptakeofalternativeNBNplansoffered.
LinkEconomicswascommissionedtoreviewthecostsestimatescontainedwithinthe
NBNComodels.Thisincludedadviceonconvertingfinancialcostsintoeconomiccosts
aswellasasetofmodificationstotheoriginalNBNComodels(reflectingthedifferent
purposesoffinancialplanningversuseconomicanalysis).
Aninternationalexpertgroupreviewedthemethodologyusedinthecostbenefit
appraisalanditsimplementation.ThegroupconsistedofProfessorNicolasCurien
(ConservatoireNationaldesArtsetMetiers,Paris),aformermemberoftheFrench
telecommunicationsregulatorycommission,andanexpertintheeconomicsof
telecommunications;ProfessorKennethFlamm(LyndonBJohnsonSchoolofPublic
Affairs,UniversityofTexas,Austin),anexpertintheeconomicsofinnovationandof
technologicalchange;ProfessorCliffWinston(BrookingsInstitution,Washington),who
hasadistinguishedbackgroundinappliedcostbenefitappraisalandregulatory
economics;andProfessorJonathanPincus(UniversityofAdelaide),aformerEconomic
AdvisertotheProductivityCommissionwhohasmadeimportantcontributionsto
publiceconomics,economichistory(includingthatofAustraliantelecommunications)
andthetheoryoftaxation.Althoughtheresponsibilityforthepanel'sworkisitsown,
thisexpertgroupmadeasubstantialcontributiontotheCBA.
TheCentreforInternationalEconomics(CIE)usedthesevariousinputstoconstructa
detailedCBAmodelthathasformedthebasisforthepanelsanalyticalwork.
TheCIEandtheDepartmentofCommunicationshaveassistedindraftingthereport
fortheCBA.
1.5
The structure of this report
Thisreportissetoutasfollows.
Chapter2detailstheneedforhighspeedbroadbandandparticularlytheanalysis
undertakenbyCommunicationChambersastohowbandwidthaffectstheactivities
thathouseholdsareexpectedtoundertake.
Chapter3setsoutanoverviewoftheCBAmethodology.
Chapter4discussesthescenariosevaluatedandthekeyareasofdifferencebetween
scenarios.
27of196
Chapter5setsoutthefinancialandeconomiccostsofeachscenario.Thedetailsof
thesecostsaresetoutinAppendixF.
Chapter6detailstheestimationofbenefitsofhighspeedbroadband.
Chapter7setsoutthenetbenefitsofalternativeoptionsfordeliveringhighspeed
broadbandandhowthisvarieswithalternativeassumptions.
Thereareanumberofappendicesthatprovidefurtherinformationrelevanttothisstudy,
includingbackgroundinformationonAustralianinternetspeeds,internationalbroadband
developments,areasofexternalandpublicbenefitfromhighspeedbroadbandandpast
studiesconsideringthebenefitsofhigherbroadbandspeeds.
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2.Understandingtheneedforhighspeedbroadband
Understandingwhyhouseholdsandbusinessneedhighspeedbroadbandandthenatureof
thebenefitsthatthiswouldbringareimportantstepsintheCBA.Whiletherehavebeen
manyclaimsaboutthebroadbandspeedsthatwillberequiredintothefutureandaboutthe
broadqualitativebenefitsofhighspeedbroadband,thepanelhassoughttoprovideasolid
quantitativebasistospeedrequirementsandbenefits.Inevitably,anyquantificationis
uncertainand,inthefollowinganalysis,thisuncertaintyisrenderedexplicitandthentaken
intoaccount.
Highspeedbroadbandisexpectedto:
increasebenefitsfromexistingusesoftheinternet(includingallowingsome
consumerstoaccessexistingproductstheywerepreviouslyunabletoaccess);
generatebenefitsfromtheabilitytousenewservicesavailableovertheinternet
(includingproductsnotyetdeveloped,orthatwillbeprovidedinAustraliaasa
consequenceofhighspeedbroadband);
leadtoarangeoftimesavings(includingsavingsintraveltimes);
reducearangeoftransactioncosts;and
leadtoarangeofotherproductivityimprovements.
Inprincipletheseareallseparateeffects,butbecauseinmanycasestheywillaccruedirectly
toindividualsorfirmstheywillbecapturedinestimatesofconsumersWTPforfaster
broadband.Putanotherway,thesebenefitscanbecapturedthroughappropriateestimates
ofthedemandforhighspeedbroadband.Estimatesofbenefitsareexplainedinmoredetail
inChapters3and6.
Thischapterfocusesonthespeedandbandwidththatcouldberequiredtogeneratethese
benefits.Understandingthepotentialapplicationsthatconsumersandbusinessescanaccess
atvariousinternetspeedsformsanimportantbaseforcalculatingbenefits.
2.1
How much speed is needed, in a technical sense?
Thetechnicaldemandforbandwidthistheactualbandwidthrequirementwithina
householdtodowhatitwouldliketodo.Thewillingnessofahouseholdtopayforhigher
speedsisclearlyrelatedtothelevelofthistechnicaldemand.Technicaldemandwilldepend
onavarietyoffactorsincluding:
thetypesofapplicationshouseholdmemberswanttouseontheinternet;
29of196
thebandwidthrequirementsofthoseapplications;
thestructureofthehousehold(numbersofadultsandchildren);and
thelikelyextentofsimultaneoususe,whichdependsonthepotentialoverlap
betweenapplicationsandbetweenmembersofthehousehold.
Alargehouseholdwithmembersthatallwishtousemultipleapplicationsatthesametime
willhavemuchhigherbandwidthdemandthanasinglepersonhouseholdusingone
applicationatatime.
2.2
The Communications Chambers report
Asdetailedfurtherbelow,thepanelhastakenanumberofapproachestoestimatingtheWTP
forhighspeedbroadband.Oneofthekeystudiesthepanelcommissionedexaminedthe
technicaldemandforbroadbandspeed.
ThepanelcommissionedCommunicationsChamberstoprovideadetailedbottomupmodel
ofhouseholddemandforbandwidthamodelthatcouldtrackthespeedsnecessaryto
allowhouseholdstoundertaketheinternetactivitiesthattheyexpecttoundertake.
CommunicationsChambersworkprovidesafullAustralianimplementationofwork
previouslyundertakenfortheUnitedKingdom.ThefullCommunicationsChambersAustralian
reportisavailableasaseparatedocumentandthepanelhighlycommendsthereportto
readers.
Aspartofitsanalysis,CommunicationsChambersconsultedanumberofAustralianinternet
serviceproviders,bothtotestthemodellingmethodologyandtoobtain(confidential)data
necessarytoimplementthemodel.Thecompletedmodelfindingswerethenfurthertested
withinternetserviceproviderswhoprovidedfeedbackandcomments.
What is needed in a bandwidth demand model?
SystematicallymodellingbandwidthdemandforAustralianhouseholdsimpliesparticular
basicrequirementsforthemodel,asfollows.
Arigorousapproachtodeterminingthespeedsrequiredbyindividualapplications,in
particularbyinvestigatingthespeedsrecommendedbytheleadingprovidersofthe
serviceinquestion.
Accountingforchangesintherequiredspeedsovertime.Inmanycases,requirements
willriseforinstance,consumerexpectationsofacceptabledownloadtimeswill
likelyshorten.However,requirementsmayalsofall.Inparticular,constantlyimproving
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videocompressionmeansthat(foragivenvideodefinition)requiredbandwidthwill
decline.
Reflectingvariationindemandacrosshouseholds,particularlythatdrivenby
householdsize.Approximately58percentofAustralianhouseholdscontainonlyone
ortwopeople.Theaverageusageandbandwidthrequirementsofsuchhouseholds
will,allotherthingsbeingequal,belowerthanthatoflargerhouseholds.
Buildingaquantifiedviewoftheprobabilityandlikelydurationofappstacks.Much
discussionoffuturebandwidthneedshasbeenanecdotal,suchasimaginea
householddoingX,YandZsimultaneously.Whileanysuchappstackisconceivable,
thatdoesnotnecessarilymeanitislikelyorwillhappenregularly.
Providingapictureofthedurationofthehighestlevelsofdemandinahousehold.This
allowsthecalculationofthecostsofdemandnotbeingmetthroughavailable
bandwidth.
The modelling approach

Tomeettheserequirements,theCommunicationsChambersmodeltakesabottomup
approach.Itbeginswithasetof13differentcategoriesofapplicationsthatcoverthevast
majorityofwaysinwhichthedomesticinternetisused.Some,suchaswebuse,arebroad,
coveringeverythingfromFacebookthroughtoparticularvarietiesofcloudservicessuchas
salesforce.com.
Basedonthebestavailabledata,themodelincorporatesassumptionsaboutboththe
bandwidthneedsandthevolumeofusageofeachoftheseapplications.Notethatthemodel
doesnotnecessarilybasetheseontodayscurrentusage.Insomecases,currentusageis
constrainedbycurrentbandwidth,ratherthanreflectingwhatmightbereasonablyexpected
absentthisconstraint.Totakeoneexample,whiledownloadingaconsolegamemight
typicallyrequireausertowaitovernightorlonger,themodelsetsexpectationsto
60minutes,withthisfiguredecreasingovertime.
However,inmakingsuchassumptions,theCommunicationsChambersmodeltakesamiddle
linebetweentodaysexpectationsandaperfectworld.Inaperfectworld,everyonewould
beabletodownloadeverythinginseconds.However,thiswouldimplythateveryoneneeds
gigabitspeedstoday.Thisisnotparticularlymeaningful,andasapracticalmatter,other
elementsofthechainfromthecontentprovidersservertotheconsumersdevicemightnot
beabletoprovidegigabitspeeds,eveniftheaccessnetworkcould.
Themodelcombinesusageprofilesofthevariousapplicationsintousageprofilesof
individuals.Indoingso,ittakesaprobabilisticapproachtocombiningapps.Forexample,if
31of196
appAisbeingusedfor50percentofthetimeandappBisusedfor40percent,thenthetwo
wouldbeusedsimultaneouslyfor20percentofthetime.
Themodelthencombinestheseindividualprofilesintohouseholdprofiles(againtakinga
probabilisticapproach),dependingonhouseholdcomposition.Thisisbasedon16household
types(forexample,singleadult,twoadults,andtwoadultsonechild)andonthetypeof
primaryTVset(suchaswhetheritisstandard,highorultrahighdefinitionforexample,
ultrahighdefinition4KTVshavethepotentialtobeanimportantcontributortobandwidth
demand).Themodelalsodisaggregateshouseholdsoutintohigh,medium4andlow
categoriesbasedontheirpropensitytousetheinternet.Incombination,thesesplitsbuildto
atotalof192householdtypes.
Thesehouseholdprofilesarethencombinedintoapictureofthenationalmixofdemand.
Whiletheseprofiles(andtheunderlyingusageassumptions)coverthevastmajorityofcases,
theywillnotaddressallpossibilitiesforinstance,peopleworkingathomeonprofessional
animationoranalysingastronomicaldatasetsmightneedtoupordownloadverylargefiles.
Theseextremehighusersarenotcoveredinthemodel.
Theoutputsofthemodelfocusonthebusyhours.Bandwidthdemandisdrivenbypeaks,
nottheaveragespeedrequired,andthemodelfocusesonthebusiestfourhoursperday(in
manyhouseholdsthisislikelytobe711pmorlater).Themodelassumesthat50percentof
usageoccursinthesefourhoursputanotherway,thisassumptionmeansthattherateof
usageinthisperiodisfivetimestherateofusageintherestoftheday,andthustallapp
stacksaremuchmorelikely.
2.3
Communications Chambers model results
Usage profile for sample households

Chart2.1showstheusageprofilegeneratedbythemodelforthreedifferentsample
households(outofthe192coveredbythemodel).Chart2.1tracesthenumberofminutesof
use(duringthebusyhoursofamonth)thatparticulardownloadspeedsaredemanded.There
isatotalof7,200minutesinbusyhoursinamonth(4hoursperdayfor30days=7,200
minutes).Thebusiestminutesaretowardstheleftsideofthehorizontalaxis.
4Themediumcategoryisthenfurthersplitintothosewhodoanddonotparticipateinlargesoftware
downloadsandvideouploads.
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Chart 2.1: 2023 usage profiles for three sample household types
60
1 adult low useage household with SDTV
Mbps (download)
50
2 adult medium useage household with HDTV
40
4 adult high useage household with 4K TV
30
20
10
0
0
1,200
2,400
3,600
4,800
Monthly minutes during busy hours

(high demand -> low demand)
Data source: Communications Chambers bandwidth demand model.
6,000
7,200
ForthesinglepersonlowusagehouseholdwithSDtelevision,theconnectionisinfactidlefor
muchofthetime(wherethegreycurvehitsthehorizontalaxis),buthasseveralhoursat
5Mbpsandshortperiodsintherangeof810Mbps.Conversely,thefouradulthouseholdhas
appreciableusagealmostconstantlyduringthebusyhours,attimesof20Mbpsoreven
higher.Thepeakdemandforthefouradulthouseisaround70Mbps,althoughthisisonly
requiredfor0.1minutesamonth.
Monthly bandwidth demand
The192householdprofilesarecombinedtogethertocalculatetheprofileofmonthly
householddemandforallhouseholds(asillustratedinChart2.1).Thedefaultsettinginthe
modelistodothisona4minutesexcludedmonthlybasis.Thismeansthebandwidth
necessarytoserveallbutthefourbusiestminutesinthemonth(oroneminuteperweekfor
eachhousehold)thatis,thefourminutesattheextremeleftofChart2.1.Communications
Chambersarguesthatthismetricisusefulandsensibleasatechnicalperformancestandard.
Underthismeasure,consumersexperienceoneminuteperweekofdegradedperformance,
suchasavideostreamwithbrieflylowerresolution.
Importantly,thisassumptioncaneasilybevariedintheCommunicationsChambersmodel(its
reportalsocontainsconsiderablesensitivityanalysis).Moreimportantly,however,in
convertingthistechnicaldemandtoWTP(assetoutindetailinChapter6),the4minutes
excludedadjustmentisnotused,rathertheCBAmodelattachesacosttoallminutesofusage
notcoveredbyavailablebandwidth.
Chart2.2showstheresultingdistributionof(download)bandwidthdemandfor2013,2018
and2023.Thischartshows,forthreedifferentyears,theproportionofhouseholds(onthe
verticalaxis)thatrequireparticulardownloadspeeds(onthehorizontalaxis).Thehighest
demandhouseholdsaretowardsthebottomoftheverticalaxis.
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In2023,themedianhousehold(the50percentproportionofhouseholds,asindicatedbythe
linefromtheverticalaxisacrosstothe2023profile)requiresbandwidthof15Mbps.Thetop
5percentofhouseholdshavedemandof43Mbpsormore.Thetop1percentofhouseholds
havedemandof45Mbpsormore.Thetop0.01percentofhouseholdshavedemandof
48Mbps.
Chart 2.2: Technical household demand for speed
Proportion of households
100%
90%
2013
80%
2018
70%
2023
60%
50%
40%
30%
20%
10%
0%
0
10
15
20
25
30
35
40
45
50
Download speed (Mbps)
Note: these results are presented on a 4 minute excluded basis: that is the bandwidth required to service all but the 4 busiest minutes in the month. The
Communications Chambers report provides significant sensitivity analysis around this assumption.
Thefiguresformediandemandshouldbeinterpretedwithsomecare;networkcapacity
shouldnotbebasedonthismetricasbydefinition,suchanetworkwould(tosomeextent)
disappoint50percentofhouseholds.
Thefiguresof15Mbpsand43Mbpsformedianandtop5percentofdemandmayseemlow,
particularlybycomparisontotheresultsofsomeotherresearchinthisarea.However,the
mostcommontypeofhouseholdcomprisesjusttwopeople.Evenifthosetwoareeach
watchingtheirownHDTVstream,eachsurfingthewebandeachhavingavideocallall
simultaneously,then(inpartthankstotheimpactofimprovingvideocompression)thetotal
bandwidth(in2023)forthissomewhatextremeusecaseforthathouseholdisjustover
14Mbps.
Insummary,thekeyfactorsthatdrivethetechnicaldemandforbandwidthinthe
CommunicationsChambersmodelinclude:
bottomupaccountingofdemandlookingat13categoriesofapplicationusedby
individualsin192differenthouseholdtypes;
carefullyaccountingfortheprobabilityofdifferentstacks(thatis,simultaneoususe)
ofapplicationswithinahousehold;
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referencetoactualbandwidthrequirementsofindividualapplications(asspecifiedby
theapplicationdesigners)aswellasexplicitlyaccountingfordevelopmentsovertime
(includingcontinuingadvancesincompressiontechnology);and
adetailedanalysisofactualhouseholddemographics(forexample,themostcommon
householdcomprisestwopeople,incontrasttotheassumedlargehouseholdsinsome
analyses).
Bandwidth demand versus traffic

Itisacommonforecastingmethodologytoessentiallyassumethatbandwidthdemandwill
moveproportionallywithtraffic5.
Incontrast,themethodologyadoptedbyCommunicationsChamberseffectivelyinvolves
addinguptheexplicitbandwidthdemandofarangeofdifferentapplicationsusedbyavariety
ofhouseholdtypes.Bandwidthdemandisexplicitlydirectlymodelled,andtrafficdemand
(thatis,thevolumeoftrafficoveraconnection)emergesasaconsequenceofgrowing
bandwidthdemandanddurationofuse.Underthismethodology,bandwidthdemandand
trafficdemandarenotproportional.Indeed,trafficdemandcan(anddoes)increasemuch
fasterthanbandwidthdemand.AsidefromtherecentAustraliandatawhichillustratesthis,
thiscanalsobeseenbyconsideringthesimplecaseofahouseholdthatincreasestimespent
watchingstreamedHDVideo.Ifpeakbandwidthdemandforthehouseholdwasdetermined
bytheinitialvideoviewing,thenincreasingtheamountoftimespentwatchingvideowould
increasetrafficwithoutincreasingbandwidthdemand.
Caveats
Likeallfuturelookinganalysis,theCommunicationsChambersmodelissubjectto
uncertainty.ToaddressthisCommunicationsChambersundertakesconsiderablesensitivity
analysisinitsreport.However,thepanelconsidersthatthesefindingsprovidecrucial
backgroundforunderstandingbandwidthdemandinAustralia.Assubsequentanalysisinthis
reportwilldemonstrate,alternativemethodsofunderstandingdemandalignverycloselywith
theCommunicationChambersanalysis.
5Forexample,arecentEuropeanstudy(vanderVorstetal,2014)projecteddownloaddemandof165Mbpsin
2020.Themethodologyforthisstudyessentiallyassumesthatbandwidthdemandwillbeproportionalto
traffic.
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3.OverviewofCBAmethodology
3.1
Background
Theanalysispresentedinthisreportusesthebroaddisciplineofcostbenefitanalysisto
considerandcomparethecostsandbenefitsofalternativescenariosfordeliveringhighspeed
broadband.Reflectingthis,thedifferencesbetweenscenariosaremodelledintermsof
incrementalchangesinuploadanddownloadspeeds.
ThischapterprovidesanoverviewofthemethodologyusedinthisCBAandanexplanation
andquantificationofthekeyparametersincludedinthecalculations.
Asnotedintheintroduction,CBAinvolvesanumberofcomponents.Forthisanalysis,the
particularareasoffocusare:
definingthescenariostobeexamined.AssetoutindetailinChapter4,these
scenariosincludeareferencecasethatisusedasthebasisfordeterminingthe
incrementalcostsandbenefitsoftheotheroptions;
convertingthefinancialcostsidentifiedbyNBNCointheirStrategicReviewinto
economiccostsrelevantfortheCBAthisallowsthemeasurementoftheunderlying
resourcecostsfromadoptingalternativehighspeedbroadbandscenarios;
identifyingconsumerWTPforincreasesinbroadbandspeedasthecoremeasureof
economicbenefits;and
businessbenefitsaswellasexternalbenefits(orpublicgoodbenefits)havebeen
relatedtoconsumerWTP.
ThebenefitsandcostsconsideredaresetoutinTable3.1.
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Table 3.1: Costs and benefits included

Costs
Benefits and disbenefits
Capital costs of new infrastructure
Private WTP for higher speeds (for business and

residential users)
Operating costs of high-speed broadband

Costs avoided as a result of high-speed broadband
rollout, such as costs for provision of existing
broadband services
Third party benefits from higher speed and other

attributes including government impacts and
externalities
Costs incurred by others as a result of high-speed
broadband (including disruption costs)
The cost arising from taxation to fund the government
contribution to high-speed broadband delivery
(deadweight loss of taxation)
Residual value of assets at the end of evaluation
period
Source: The CIE.
Thisstudydoesnotconsiderchangesintheamountofdatadownloaded,latencyorjitter.
Increasesintheamountofdatadownloadedwillhavecostsforretailserviceproviders
directly(whicharethenpassedthroughtocustomers)andbenefitstocustomers.To
evaluatethischangewouldrequireestimatingthecostsofallowinggreater
downloads,notjustacrosstheaccessnetwork,andthebenefitsthatcustomersobtain
fromgreaterdownloads.Bynotincludingeitherofthesecostsandbenefitsthe
analysisassumescostreflectivepricingofdatadownloadsthroughdatalimits.(The
sameapproachisappliedtootherservicesofferedovertheinternetforacharge,such
asvideoondemand.)
Thereareothercustomerexperiencechangesthatarelessimportantthanspeedsand
thatarenotquantifiedinthisCBA.Theseinclude:
o variabilityofspeedsthiswillreflectfactorsrelatedtotheinternetservice
provider,andcapacityofinfrastructure;
o latencythetimetakenfordatatotraveltoathirdpartyserverandback
forexamplefromahouseholdtoAmazonandback.Thiswillreflectthe
locationofserversandinfrastructureoutsideoftheaccessnetwork,most
obviouslyforsitesthatrequireinternationalconnections;
o packetlosstheproportionofdatathatislostintransmission;and
o jitterthevariabilityoflatency.
Therearelikelytobesomedifferencesbetweenthesefactorsforeachscenario,withFTTP
likelytoleadtolowerlatencyfortheaccessnetwork.Thesedifferencesareexpectedtobeof
anorderofmagnitudesmallerthanthevalueofchangesinspeedandarehencenot
quantified.
37of196
3.2
Estimating willingness to pay (WTP)
Aconsiderablefocusoftheresearchforthisanalysishasbeenonidentifyingandmeasuring
consumerWTPforhigherspeedbroadband.WTPcapturesthevalueofhigherspeed
broadbandtousers.
Theanalysishasdevelopedthreedistinct(andindependent)methodsformeasuringWTP.
Usingdifferentmethodsallowsforgreaterconfidenceinthefindings,particularlygiventhat
thereislittleexistingresearchonthevalueofbroadbandspeed.
TheInstituteofChoicewascommissionedtoundertakeadetailedchoicemodelling
studyofthedemandforbroadbandfocussingonalltheelementsoftheconsumers
decisionwhenmakingbroadbandchoices.Thiswellframedstudyallowsspecific
identificationofthedemandforspeed(andhencetheincreaseinconsumerwelfare
asspeedincreases),whileatthesametimecontrollingforthevariousotherfactors
thatdetermineconsumerdemand.ThevalueofWTPcalculatedfromthismodellingis
usedasthedefaultmethodformeasuringbenefitsinthisCBA(withthetwomethods
beloweffectivelyusedtotestsensitivities).Detailsofthisstudyaresetoutin
AppendixH,whilekeyfindingsforWTParesetoutinChapter6.
Secondly,adetailedstudyoftechnicalbandwidthdemand,usingabottomup
simulationmodel,wasdevelopedbyCommunicationChambers,asdiscussedin
Chapter2.ThefindingsofthisanalysisarediscussedinmoredetailinChapter6and
thedetailedfindingsareavailableinaseparatereport.
Third,thepanelundertookadetailedanalysisofNBNtakeupdatatodate.The
observedchoicesofconsumersinactuallytakingupNBNpackagescanbeusedtoinfer
WTPforspeed.ThesefindingsarealsodetailedinChapter6.
ThesemethodsgenerateestimatesforWTPforhigherspeedbroadbandnow.Growthrates
needtobeappliedtotheestimatesfromthesemethodstoestimateWTPintothefuture.
3.3
Analysis of costs
TheunderlyingbasisofthecostanalysisinthereportarethemodelspreparedbyNBNCoas
partoftheirStrategicReviewandprovidedtothepanel.
TheNBNComodelswereindependentlyreviewedandadjustedassetoutinChapter5and
AppendixF.
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3.4
General CBA parameters
ThereareanumberofgeneralCBAparametersthatframetheanalysis.Theseincludethe
timeperiodoverwhichanalysisisconducted,thevalueappliedtoassetsattheendofthis
period,thediscountrate(whichdetermineshowfuturecostsandbenefitsareweighted
relativetomoreimmediatecostsandbenefits)andthedeadweightlossoftaxation.These
factorsarediscussedbelowinturn.
Time period
Thisstudyevaluatesscenariosovertheperiod2015to2040.Thisisconsistentwiththetime
periodusedintheNBNCoStrategicReview.Thisallowsfor16yearsaftertherollouttothe
lastfixedlinepremisesundertheslowestrolloutscenario.
costincurredtodatearenotincludedaspartoftheCBA;and
coststhatareunavoidableasaresultofpastdecisions(forexamplethecreationof
NBNCo),buthavenotyetbeenincurred,havebeenincluded.
Thetimeperiodadoptedreflectstherisksinherentininvestmentintelecommunications
infrastructure,asopposedtootherinfrastructure.Forsomeinfrastructureprojects,suchas
roadinvestments,longerperiodsareoftenusedsuchas30years.Resultsforalongertime
periodarealsotested.
Residual value
Therearetwoapproachesavailableforestimatingtheresidualvalueoftheassetsattheend
oftheevaluationperiod.Thefirstapproachiscostbaseditconsidersthedepreciatedvalue
ofassetsattheendoftheCBAperiod.Thesecondapproachisbenefitbaseditconsiders
thefuturevalueofbenefitsextendingbeyondtheevaluationperiod.
Acostbasedapproachhasbeenemployed.Thisapproachavoidsthedifficultiesinvolvedin
estimatingWTPbeyondtheterminaldate.Ittypicallygivesalowerresidualvalue.
Discount rate
Thediscountratedeterminestheweightplacedonfuturebenefitsandcostsrelativetomore
immediatebenefitsandcosts.
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Thepresentvalueofcostsandbenefitsiscalculatedusingahighspeedbroadbandspecific
discountrate,basedoncalculatingthepretaxrealweightedaveragecostofcapital.6There
areanumberofsourcesfordiscountratesforhighspeedbroadbandspecificinfrastructure,
assetoutinTable3.2.ThelowestoftheseisfromtheOptus2007proposalat6.6percent
thedebtmargincitedinthisproposalislowerthanotherestimates,astherehasbeena
wideningindebtmarginssincethetimeofOptussubmission.TheTelstra2006proposalwas
substantiallyhigherinitsestimatedcostofcapital(andhigherthantheestimatebelowfor
thisCBA).
TheinvestmentspecificdiscountrateusedinthisCBAis8.3percent(realpretax).Thisis
slightlyabovetheimplied(realpretax)weightedaveragecostofcapitalallowedbytheACCC
inNBNCosSpecialAccessUndertaking.7
ResultsfortheCBAarealsoshownusingthegenericrealdiscountratesrecommendedby
InfrastructureAustralia,of4percent,7percentand10percent.
6TheanalysisusesthepretaxweightedaveragecostofcapitalasrecommendedbyHarrison(2010).
7NotethattheNBNCoSAUisfocusedonNBNasanentity,forwhichthecostsandrevenuesoftheincrementof
speedareonlyapart.Forexample,NBNCoreceivesrevenuesfromprovisionoftelephonyandbroadband
services,ratherthanonlytheincrementalrevenuefromspeedsaboveexistingspeeds.Itwouldbeexpected
thattheincrementwouldhaveahighercostofcapitalthantheentityasawhole.
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Table 3.2: Weighted average cost of capital estimates

Panel estimate
Optus proposal
2007
NBN Co advice
2011
NBN Co Special
Access
Undertaking
2013
Per cent
Per cent
Per cent
Per cent
Nominal risk-free rate
5.0
5.0
5.0
Real risk free rate
2.3
2.3
2.3
Inflation
2.7
2.7
2.7
Market risk premium (MRP)
6.0
6.0
7.0
Debt margin
3.1
1.2
2.87
Debt to total asset
50.0
60.0
40.0
Gamma
0.25
0.25
0.25
Tax rate
30.0
30.0
30.0
1.0
1.0
0.7
Equity beta
Cost of equity (nominal post-tax)
2.3
11.0
11.0
9.9
Cost of Debt (nominal pre-tax)
8.1
6.2
7.9
Real pre-tax WACC
8.3
6.6
8.0
na
Real post-tax WACC
6.7
5.4
6.3
5.8
Note: Optus proposal debt margin is from FANOC (2007); panel debt margin estimate from IPART (2014); Formulas for real pre-tax and post-tax WACC as
used by the Independent Pricing and Regulatory Tribunal of NSW; Risk-free rates (real and nominal) use 10 year government bonds. This analysis uses an
average over the past 10 years, given that recent low risk-free rates have probably been associated with a higher MRP.
Sources: FANOC 2007; Value Adviser Associates 2011; IPART 2014; ACCC 2013.
Deadweight loss of taxation

Thedeadweightloss(DWL)oftaxationcapturesthecostsofraisinggovernmentrevenueto
fundhighspeedbroadbandinfrastructure.Thatis,taxlevelswillbehigherthanwould
otherwisebethecaseinordertofundanynetgovernmentcontributiontothedeliveryof
highspeedbroadband.Taxesimposeeconomiccostsbecausetheyinduceindividualsto
behavedifferentlyandmakedecisionstheywouldnothavemadeintheabsenceofthetax.
Taxesencourageindividualstoconsumeamixofgoodsthatislessdesirablefromthe
standpointoftheirsubjectivepreferences.Theresultiswhateconomistscallasocialcostor
excessburden.Theexcessburdenfromataxisthedifferencebetweenthecosttotaxpayers
fromhavingataximposedandtheamountoftaxcollected.Themorethetaxchanges
behaviour,thegreatertheexcessburden.
Thelossesassociatedwiththeseexcessburdensshouldbeincludedwherethereisa
substantialnetgovernmentcontribution,asisthecaseforsomeofthehighspeedbroadband
scenariosthatthisCBAevaluates.Thesecostsoftaxationaretypicallyreportedasthedollar
socialcostperdollarofrevenueraisedfromtaxation.
EstimatesofthesecostsforthemainAustralianGovernmenttaxesaresetoutinTable3.3.
Themarginalexcessburdenistheburdenofslightlychangingthetaxtoraiseadditional
revenue.Theaverageexcessburdenmeasurestheimpactofmovingfromnotaxtothetaxat
itscurrentlevel.
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Thecostandbenefitnumbersreportedinthisstudyuseamoderatedeadweightlossof
taxationof24centsperdollar,reflectingfundingthegovernmentcontributionthroughhigher
labourincometaxesthanwouldotherwisebethecase.Insensitivitytesting,sensitivitiesare
testedforDWLoftaxationrangingfrom10centsperdollarto70centsperdollar.
Table 3.3: Estimates of the deadweight loss of Australian Government taxes
Australian Government tax
Marginal excess burden
Average excess burden
$/dollar of revenue raised
$/dollar of revenue raised
GST
0.08
0.06
Labour income tax
0.24
0.16
Corporate income tax
0.40
0.23
Conveyancing stamp duties
0.34
0.31
Motor vehicle registration
0.37
0.32
Motor vehicle stamp duties
0.38
0.38
Insurance taxes
0.67
0.47
Crude oil excise
0.70
0.50
Specific sector taxes
Source: KPMG Econtech 2010, CGE analysis of the current Australian tax system, prepared for Department of Treasury, 26 March.
42of196
4.Thescenariosevaluated
AllCBAinvolvesthecomparisonofdifferentscenariosCBAassessestheincrementalnet
benefitsofdecisions,relativetoawellspecifiedbaselineorreferencescenario.Itiswidely
usedtoassistpolicymakersinmakingdecisionsonalternativepolicyandtechnicaloptions
thataffectthecommunity.CBAallowspolicymakerstoconsidertradeoffsanddecide
whetherthecommunityasawholeisbetterorworseoffunderalternativepolicyand
technicalscenarios.
ThisCBAisatooldesignedtoplacethebenefitsandcostsofthedifferentchoicesforrolling
outtheNBNonacommonbasissothattheycanbecomparedandunderstood.Animportant
partoftheprocessisidentifyingthepolicyoptionsthatwillbeconsideredandanyreference
scenariosthattheywillbecomparedagainst.
ThisCBAconsidersfourscenariosthatdifferintermsofthecoverageofpremisesthatthey
provideandthetechnologyusedtodeliverhigherspeeds.Thesescenariosaredesignedto
considerthequestionofwhichmethodofrollingouthighspeedbroadbandhasthegreatest
netbenefitbutalsotoallowacalculationofthegeneralnetbenefitsofhighspeedbroadband
itself.ThesescenariosaresummarisedinTable4.1andtheircharacteristicsaredescribedin
moredetailintherestofthechapter.
Table 4.1: CBA scenarios considered in this report
Scenario
Comment
No further rollout of high-speed broadband or new

infrastructure.
This is clearly not a realistic scenario, but is used as a

point of comparison to allow the calculation of the
overall value of high-speed broadband.
Unsubsidised rollout of high-speed broadband to

premises where this can be done without a government
subsidy.
This scenario leads to rollout of high-speed broadband to

up to 93 per cent of premises. No coverage is provided
to 7 per cent of premises these premises are serviced
by fixed wireless and satellite in the MTM scenario and
the FTTP scenario.
This scenario is used as a reference case against which
other scenarios are compared.
Multi-technology mix (MTM scenario): the rollout of highspeed broadband through the use of multiple
technologies and rollout of fixed wireless and satellite to
remaining premises.
This scenario allows the examination of an alternative

set of technological choices.
Fibre to the premises (FTTP scenario): continued rollout

of FTTP under the radical redesign set out in the NBN Co
Strategic Review and rollout of fixed wireless and
satellite to remaining premises.
This scenario allows the examination of one particular

technological choice.

broadband.

broadband.
Source: Expert panel.
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Thekeydifferencesininvestmentscenarios(thatis,allscenariosexceptfornofurtherrollout)
are:
unsubsidisedrolloutdeliversimprovedhighspeedbroadbandtomostAustralian
premises,whiletheMTMscenarioandFTTPscenariodeliverhigherspeedstoall
premises.Themaindifferenceisthatunsubsidisedrolloutwouldnotprovidecoverage
totheareascoveredbyfixedwirelessandsatelliteinotherinvestmentscenarios
(Table4.2);
unsubsidisedrolloutandtheMTMscenarioprovideasimilartechnologymixinthe
fixedlinearea,exceptthattheMTMscenarioallowsforrolloutofFTTPtoabout
1.5millionpremises,whileunsubsidisedrolloutdiscontinuesthedeliveryofany
furtherFTTP;and
theFTTPscenariodelivershigherdownloadanduploadspeedsthantheMTM
scenariobuttakesalongertimetorollout(Charts4.3,4.4and4.5).
Table 4.2: Scenarios premises coverage and technologies used

No further Unsubsidised rollout
rollout
MTM scenario
FTTP scenario
Per cent of premises with

fixed line coverage for highspeed broadband
26
47-93
93
93
Per cent of premises with

non-fixed line coverage for
high-speed broadband
<1
<1
FTTP
na
No
Yes
Yes
HFC
na
Yes
Yes
No
FTTN/FTTdp
na
Yes
Yes
No
Fixed wireless/satellite
na
No
Yes
Yes
<2021
2020
2024
Technology mix for additional investment
Rollout finalised
Source: The CIE.
44of196
Chart 4.3: Timing of rollout of each scenario

12
FTTP scenario (fixed line)
MTM scenario (fixed line)
Unsubsidised rollout (fixed line)
Premises passed (millions)
10
8
6
4
2
0
2014
2016
2018
2020
2022
2024
2026
2028
2030
Note: The chart shows the unsubsidised rollout for the main assumptions used. The level of rollout for this scenario can change under alternative methods
of estimating WTP and costs. Fixed wireless and satellite is premises connected rather than passed.
Data source: NBN Co; The CIE.
Chart 4.4: Share of existing premises achieving different available download speeds (Mbps)
0-5
5-10
10-15
15-20
20-25
25-50
50-100
>100
Current
No further
rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
0%
20%
40%
60%
Share of existing premises
80%
100%
Note: The chart shows the unsubsidised rollout for the main assumptions used.
45of196
Chart 4.5: Share of existing premises achieving different upload speeds (Mbps)
0-1
1-2
2-5
5-10
10-20
20-30
30-40
40-50
>50
Current
No further
rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
0%
20%
40%
60%
80%
100%
Note: The chart shows the unsubsidised rollout for the main assumptions used.
Thedetailsofeachscenarioarediscussedbelow.
4.1
Speeds available under each technology
Thespeedsavailableundereachtechnologyandtheshareofpremisesthatareestimatedto
becoveredbyFTTNspeedsaresetoutinTable4.6andCharts4.7and4.8.Thesespeed
assumptionsareheldconstantovertheperiodto2040.8Notethatthepanelhadaccessto
FTTNdownloadanduploadspeedsbydistancefromthepremisestothenode,butthesedata
arenotincludedhereforcommercialinconfidencereasons.
Table 4.6: Download and upload speeds assumed
Down (Mbps)
Up (Mbps)
HFC
50-100
5-10
FTTP
>100
>50
FTTN
Mainly 50-100, some 25-50 and lower.
Mainly 20-50, some lower.
Fixed wireless
20-25
2-5
Dial-up
0-5
0-1
ADSL
Varies as per set out in Appendix B
Varies as per set out in Appendix B
Note: HFC speeds increase from those currently available because of the investments made in HFC networks under the unsubsidised rollout and MTM
scenario.
Source: The CIE.
8Thisislikelytobeaconservativeassumptionastheachievablespeedsarelikelytoincreaseovertimeforall
technologyoptions,oftenwithminimalcost.
46of196
Chart 4.7: FTTN download speeds (Mbps)
0-5
5-10
10-15
15-20
20-25
25-50
50-100
>100
Base assumptions
Pessimistic assumptions
0%
20%
40%
60%
80%
100%
Data source: The CIE based on consultation with technology providers.
Chart 4.8: FTTN upload speeds (Mbps)
0-1
1-2
2-5
5-10
10-20
20-30
30-40
40-50
>50
Base assumptions
Pessimistic assumptions
0%
20%
40%
60%
80%
100%
Data source: The CIE based on consultation with technology providers.
4.2
No further rollout of highspeed broadband or new infrastructure
Nofurtherrolloutallowsfornoadditionalinvestmentininfrastructurebeyondthe
investmentsalreadymadeandnochangeinspeedsfromthoseavailabletoday.Thisscenario
assumesthatallexistingbroadbandnetworksremaininplace,includingtheOptusandTelstra
HFCnetworksandNBNCosinvestmentsalreadymadeinFTTPandfixedwirelesscontinuing
toprovidehighspeedbroadband,andADSLprovidedoverTelstrascoppernetwork
continuingtoprovidethemajorityoffixedlineservices.
47of196
Thisscenarioisnotarealisticscenario:inpracticetherewouldcontinuetobeincremental
investmentsthatwouldimprovespeeds.Itisintendedonlytoallowthecalculationofthe
benefitsofhighspeedbroadband,aspartofthepanelstermsofreference.
4.3
Unsubsidised rollout of highspeed broadband
Unsubsidisedrolloutallowsforhighspeedbroadbandtoberolledouttopremiseswherethis
couldbedonewithoutagovernmentsubsidy.
Thisscenarioisthereferencecaseagainstwhichthecostsandbenefitsoftheother
highspeedbroadbandscenariosarecompared.
Thisscenarioassumesthatforfutureincrementalrolloutofhighspeedbroadband:
NBNCoorasimilarmonopolycontinuestobethecompanythatrollsouthighspeed
broadband;
rolloutdecisions(thatis,whethertorollout)aremadeonanexchangeservicearea
(ESA)basisandwithineachESA,adecisionismadeseparatelyforareaswhereHFCis
availableandwhereitisnotavailable.Thisleadstodecisionsbeingmadeseparately
for5,300areas;
thepricesthatNBNCocanchargearenotrestrictedtothepricesthatitiscurrently
allowedtochargeunderitsSpecialAccessUndertaking.Instead,itisassumedthat
NBNCowouldbeabletosetpricestoenableittoobtainrevenueupto70percentof
theincrementalWTPineacharea;9
rolloutdecisionsaremadesolelyonthebasisofcostandthe70percentofWTP
assumption,ratherthanincorporatinginformationrelevantfordemand(suchas
incomes)ineacharea.Thishasbeendonebecausethereisnodisaggregateddemand
dataonwhichtodeviseabetterdecisionmakingrule;and
therateofreturnsoughtisequaltotheNBNspecificcostofcapital.Therateofreturn
isestimatedoveraperiodof25years,whichmatchestheperiodfrom2015to2040
usedintheCBA.
9Aperfectlypricediscriminatingmonopolistwouldbeabletoextractupto100percent.Inpractice,lessthan
thefullamountwouldbeabletobeextracted.Underthemethodsusedtoestimatethesurplusfromchanges
inspeedsinChapter6,abasiclevelofpricediscrimination,suchasisinNBNCoscurrentpricingstructure,
wouldcapture50percentto70percentoftotalsurplus.
48of196
UnsubsidisedrolloutisassumedtouseHFCwithinthecurrentHFCfootprintandFTTNoutside
ofthecurrentHFCfootprint.BecauseFTTPdeploymentismorecostlythanothertechnologies
itisnotcontinued(butexistingFTTPcontinuestobeused).Asthereisadelaybefore
alternativetechnologydeploymentcommences,thisscenarioisrolledoutmoreslowlythan
theMTMscenario,inwhichFTTProlloutcontinuesduringthetransitionperiod.
UnsubsidisedrolloutassumesthatcopperandtheHFCnetworksarenotmaintainedas
competitornetworksforhighspeedbroadband.ItfurtherassumesthattheOptusHFC
networkiscloseddown.
Itisassumedthatfixedwirelessandsatellite,ascurrentlyspecifiedbyNBNCo,wouldnotbe
rolledoutinthisscenario.ThisreflectsthefactthatWTPfortheseservicesand,hence,
potentialrevenueiswellbelowthecosts.10Notetheremaybeoptionstodeliveran
improvementinbroadbandspeedstoareasoutsideofthefixedlinefootprintwithouta
governmentsubsidy.Thismightbepossibleifthestandardofservicestobedelivered,suchas
thereliabilityoffixedwireless,werespecifieddifferently.Thishasnotbeeninvestigatedin
detail.
Thecoverageofpremisesunderthisscenariovariesfrom50percentofpremisesto93per
centofpremises(theentirefixedlinefootprint),dependingonthecostandbenefit
assumptions.Theaverageacrossarangeofsensitivitiesis85percent.Thatis,acommercial
rolloutwouldmostlikelyoccurtomuchofthefixedlinearea.
4.4
Multitechnology mix scenario
TheMTMscenarioallowsfortherolloutofhighspeedbroadbandthroughtheuseofmultiple
technologies.Thefollowingassumptionsaremade:
HFCisusedinareaswithintheexistingHFCfootprint;
FTTPcontinuestoincreaseto1.5millionpremises,includingintheinterimwhileother
technologyoptionsareimplemented;
FTTNcoverstheremainingpart(andmajority)ofthefixedlinefootprint;11and
fixedwirelessandsatellitecoverthenonfixedlinefootprint.
10TherearesomemethodsforestimatingWTPthatwouldmakethefixedwirelessandsatelliterolloutbeing
undertakenbyNBNCoacommercialproposition.However,acrossmostmethodsthisisgenerallynotthe
case.
11Insomecasesfibretothedistributionpoint(FTTdp)isusedinsteadofFTTN.
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ThisscenarioisassumedtobeabletoberolledoutaccordingtotheNBNCoStrategic
Reviewstimingassumptions.
Thisscenarioassumesasinglehighspeedbroadbandnetworkineacharea.Overlapping
networks,wheretheyexist,areassumedtobeshutdown.12
4.5
Fibre to the premises scenario
TheFTTPscenarioallowsfortherolloutofFTTPtoallpremisesinthefixedlinefootprint,
undertheradicalredesignsetoutintheNBNCoStrategicReview.Italsoallowsfortherollout
offixedwirelessandsatelliteoutsideofthefixedlinefootprint.
ThetimingoftherolloutisassumedtofollowthatmodelledinNBNCosStrategicReview.
TheFTTPscenarioassumesthatcopperandtheHFCnetworksarenotmaintainedas
competitornetworksforhighspeedbroadband.ItfurtherassumesthattheOptusHFC
networkiscloseddown.
4.6
Variation of scenarios
TheCBAtestsanumberofvariationstothesescenarios.
ThetimingoftherolloutofscenariosisvariedsothattheMTMscenarioandFTTP
scenariohavethesamerolloutspeed.Thisseekstoisolatetheextenttowhichthe
costsandbenefitsdifferbecauseofthespeedsdeliveredortheabilitytodeliver
speedsmorerapidlyormoreslowly.
FTTPisremovedfromtheMTMscenario.
12Thatis,anypartsoftheOptusorTelstraHFCnetworksthatoverlaparenotmaintainedascompetitor
networksforhighspeedbroadbandandthecoppernetworkisnotmaintainedasacompetitornetworkfor
broadbandintheHFCareasorinFTTPareas.
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5.Costsofeachscenario
Onesideofthecostbenefitcalculationisidentifyingandvaluingthecostsofbuildingand
operatingthenetwork(s)thatwilldeliverhigherspeedbroadbandtotheAustralian
community.
CostsinaCBAaremeasuredaseconomiccosts(orunderlyingresourcecosts)ratherthan
financialcosts.Asthisanalysisbeginswithfinancialcosts,theyhavebeenadjustedby
excludingcoststhataretransfersbetweenorganisations(suchasfortheuseofexistingassets
orforthedisconnectionofcustomersfromexistingnetworks)andaccountingforcosts
avoidedbecausetheNBNisbeingconstructed(suchasmaintenanceonnowobsolete
networks).
Costsareshowninpresentvalueterms,withcostsincurredinthefuturediscountedbacktoa
presentdayequivalent.
Forbothofthesereasons,thecostsinthisCBAcannotsimplybecomparedtopreviouspublic
costestimatesfortheconstructionandoperationoftheNBN.
Thischapterdetailsthecostestimatesforeachscenario,includinginformationonhowthey
wereconstructed.
Thethreescenariosthatrollouthigherspeedbroadbandhavedifferentcostsforthose
rollouts(thenofurtherrolloutscenarioobviouslyhasnoadditionalcosts).
Unsubsidisedrolloutprovidesforamoderatecostupgradetoexistingspeeds,overa
relativelyshorttimeperiodthroughtheuseofexistinginfrastructurewherepossible.
TheMTMscenarioincursanincrementalcostabovethisbecauseitrollsoutFTTPto
around1.5millionpremisesatahighercostanddeliversfixedwirelessandsatellite
services,atanadditionalcost.
TheFTTPscenarioincursanincrementalcostabovethisagain,asFTTPinvolves
replacingcopperconnectionstoeachpremiseswithfibre.However,thecostsoccur
overalongerperiod.Thismeansthatoncethediscountrateisapplied,thecost
differencesarereduced.
Asummaryoftheeconomiccostsofeachscenariounderthepanelspreferredassumptions
andNBNCosStrategicReviewassumptionsaresetoutinTable5.1.TheFTTPscenariohas
coststhatareabout$10billionhigherinpresentvaluetermsthantheMTMscenariounder
thepanelscostassumptions.
51of196
Table 5.1: Costs for each scenario

No further rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
$b, present value
$b, present value
$b, present value
$b, present value
Panel assumptions
17.6
24.9
35.3
NBN Co assumptions
17.4
23.9
30.6
Note: The costs for unsubsidised rollout are shown using the preferred benefit assumptions. For clarity, NBN Co did not estimate an unsubsidised rollout
scenario in its Strategy Review, this is a panel estimate based on NBN Co cost assumptions.
Source: The CIE.
UsingNBNCoassumptionsfromtheStrategicReview,thecostdifferencebetweentheFTTP
scenarioandtheMTMscenariois$6.8billion(inpresentvalueterms).Thepanelhasmade
twoadjustmentstotheseassumptionsthatwidenthecostdifferencebetweenthese
scenariosto$10.4billion(inpresentvalueterms,Chart5.2).Thesearediscussedbrieflybelow
andsetoutindetailinAppendixF.
1.TheNBNCoStrategicReviewmadeassumptionsabouthowcostsmaydeclineovertime
becauseofproductivityimprovements.Inthepanelsviewtheseadoptedanoptimistic
viewofFTTPproductivityimprovementsandapessimisticviewofFTTNproductivity
improvementsovertime.Thepanelhasreviewedandamendedtheseassumptionssothat
productivityimprovementsinalltechnologiesarelowerandsothatFTTPdeliverycosts
declinefromaninitiallevelthatmatchesthecostsanticipatedinNBNCosCorporatePlan.
2.TheNBNCoStrategicReviewhadlowcostsforremedyingfaultsintheFTTPnetwork,which
differedfromthecostsforremedyingfaultsforothertechnologies.Thepanelhasmadean
adjustmenttobetteraligntheseassumptions.Aminoradjustmenthasalsobeenmadeto
reduceelectricitycostsforFTTNtoalevelbelowthegeneralconsumerretailprice.
ThepanelsestimatesofthedifferencebetweenthecostsfortheFTTPscenarioandtheMTM
scenarioarelikelytobeconservativeorunderstatethedifferenceincostsforotherreasons.
InChart5.2,someotherplausibleadjustmentsareshown,aswellaschangesthatshowthe
underlyingcostdifferencesbetweentechnologiesonalikeforlikecomparison,suchas
aligningrollouttiming.Theseareusedassensitivitiestotheanalysis.Theseadjustmentsare:
reducingindirectcostsandprojectmanagementcoststoreflectthescopeforcost
savingsintheMTMscenario;
removingFTTPfromtheMTMscenario;
speedinguptherolloutoftheFTTPtomatchtherollouttimingoftheMTMscenario;
and
increasingFTTPcapitalcoststothoseoftheCorporatePlan(thatis,allowingforno
productivityimprovementsinFTTPdeliverycosts).
52of196
ThecostdifferencesbetweentheMTMscenarioandFTTPscenarioinTable5.1aresmaller
thanthecostdifferencesbetweentechnologies(thatis,betweenFTTN/HFCandFTTP)
becausetheMTMscenarioincludessomeFTTP.Inaddition,therolloutfortheMTMscenario
occursmorerapidlyandhencehasahighercostoncediscountratesareapplied.
Chart 5.2: The cost difference between the FTTP scenario and the MTM scenario
20.5
c-in-c
c-in-c
c-in-c
c-in-c
Remove FTTP
from MTM
Speed up FTTP
roll-out to match
MTM
Adjust to
corporate plan
FTTP cost
15
Adjust Indirect
and project
management
costs
20
c-in-c
c-in-c
Adjust FTTP and

FTTN opex
6.8
Adjust
productivity
10.4
10
Panel estimates
NBN Co
assumptions
0
All adjustments
Cost difference between FTTP scenario and MTM

scenario ($b, present value)
25
5.1
Approach
ThecostofeachscenariohasbeenestimatedusingcostdataprovidedbyNBNCo.Thiscost
datahasbeen:
independentlyreviewed,withanumberofchangesmade,assetoutinAppendixF;
adjustedtoremovetransfersorcoststhatwouldoccurintheabsenceofahighspeed
broadbandrollout;
usedtoconstructanadditionalscenarioforunsubsidisedrollout;and
adjustedtoremovecostsavoidedbyothers.Inparticular,theanalysistakesaccount
ofthecostsofmaintainingthecoppernetworkandADSLservicesintheabsenceof
newinvestmentfordeliveringhighspeedbroadband.
ThecostshavenotbeenadjustedtoincludeanycostsoutsideofNBNCo,suchasthoseborne
byretailers.Inpractice,retailersmayalsoincursomecoststhesearenotconsideredto
differsignificantlybetweenthescenarios.
53of196
Notethattherearealsosomecoststohouseholdsandtosocietyfromthedeadweightlossof
taxation.ThesearetreatedasdisbenefitsandassessedinChapter6.
AppendixFcontainsdetailsoftheapproachusedtodevelopestimatesofcosts.
5.2
Cost differences across technologies
Thetechnologiesusedineachscenariohavedifferentrolloutcosts.
FTTPis2.5timesasexpensivetorolloutonalifecyclebasisasFTTNand3timesas
expensiveasHFC(Table5.3).Table5.3showsindexnumbersthatgiveaguideto
relativecostsofdifferentstagesoftherolloutsasthedollarperpremisesfigures
cannotbeshownforcommercialinconfidencereasons.
ThedirectrolloutcostsforFTTPwouldcostaround$permonthperpremises,
comparedtolessthan$permonthperpremisesforeitherHFCorFTTN.13
Thesefiguresareperpremisespassed.Notallpremisestakeupservices,sothecostper
premisesactivatedishigher.
Table 5.3: Relative average rollout and operating costs for each technology (index numbers)
Capex cost - build
Capex cost - post

build
Opex cost
Total cost
cost/premises
cost/premises/ye
ar
cost/premises/ye
ar
cost present
value/premises
cost/month/
premises
NBN Co
246
260
Panel
245
271
NBN Co
59
86
Panel
59
86
NBN Co
61
104
Panel
61
100
Equivalent cost
per month
FTTP
HFC
FTTN
Note: This table provides index numbers to show the relatively costs of the various stages of rolling-out various technologies the figures are not dollars.
The total cost of FTTN using the panels assumptions has been set at 100, with all other figures set relative to that number. This approach was taken as the
dollar figures are commercial-in-confidence to NBN Co.
The total costs were calculates as a present value cost over 30 years using the NBN specific discount rate. The post build costs apply after 1 year for HFC,
after 5 years for FTTN and after 8 years for FTTP. The costs are economic costs that is, are adjusted to remove any transfers, including pole leases.
Source: NBN Co; The CIE analysis.
13Thisisacrossallpremisespassed.Asignificantnumberofpremisespassedwouldnottakeupaservicesothe
costsperpremisestakinguptheservicewouldbehigher.
54of196
Fixedwirelessandsatellitecostsaresignificantlyhigherthanthecostsforfixedline
technologies.Thecostsfortherolloutinthenonfixedlinefootprintareestimatedat$per
premisestakingupaservicepermonth.Thisisnotdirectlycomparabletothefiguresaboveas
thesecostsincludesomeofthetransitcoststhatareseparatelyaccountedforinthefixedline
networkandthecostisperpremisestakingservice.Nevertheless,thisdoesindicatethe
significantcostpenaltyinvolvedinprovidingfixedwirelessandsatelliteservices.
5.3
Total costs
Thetotalcostofeachscenarioishigherthantherolloutandoperatingcosts.Othereconomic
coststhatwouldbeincurredincludecostsrelatedtothetransitnetworkandoverheadsfor
NBNCo.TherearealsosubstantialfinancialcoststoNBNCothatarenoteconomiccosts,
eitherbecausetheywouldhaveoccurredinthebaselineorbecausetheyaretransfersto
otherbusinesses.TheseincludepaymentsmadetoTelstraandOptus,whicheitherreplace
paymentsthesecompanieswouldanticipatefromcustomersshouldhighspeedbroadband
notberolledoutorareatransfertothesecompanies.14
Thecostsforeachofthescenariosovertheevaluationperiodanddiscountedtothepresent
aresetoutinTable5.4.ThecostsfortheFTTPscenarioarehighest,costing$10billionmorein
economicterms(discounted)thantheMTMscenarioand$18billionmorethanthe
unsubsidisedrollout.
Table5.4alsoshowsthesubstantialfinancialcoststoNBNCothatarenoteconomiccosts,
eitherbecausetheywouldhaveoccurredinthebaselineorbecausetheyaretransfersto
otherbusinesses.ThisincludespaymentstoTelstratoleaseexistingassetsandpaymentsfor
customerdisconnectionstoTelstraandOptus.
14TransferstooverseasownersofTelstraandOptusaretreatedasaresourcecost.
55of196
Table 5.4: Costs for each scenario panel assumptions

No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario
$b, present
value
$b, present
value
$b, present
value
$b, present
value
5.4
8.4
19.8
Post-build capex
1.6
1.7
1.1
Opex
1.9
1.9
1.4
Capex
3.7
3.7
Opex
1.1
1.1
Capex
4.6
4.8
4.5
Opex
8.3
8.9
8.8
-4.2
-5.6
-5.2
17.6
24.9
35.3
-17.6
7.2
17.6
Costs

Total resource costs relative to no investment b
Total cost relative to the unsubsidised rollout
10.4
b Resource costs relative to no investment are the sum of fixed line footprint costs, fixed wireless/satellite footprint costs, general resource costs and costs
incurred and avoided outside of NBN Co.
Note: The costs for unsubsidised rollout are shown using the main benefit assumptions.
Source: The CIE.
ThesamecosttableispresentedforcomparisonforNBNCoassumptions.
56of196
Table 5.5: Costs for each scenario NBN Co assumptions

No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario
$b, present
value
$b, present
value
$b, present
value
$b, present
value
5.1
7.5
16.0
Post-build capex
1.6
1.7
1.1
Opex
2.0
1.7
0.5
Capex
3.7
3.7
Opex
1.1
1.1
Capex
4.6
4.8
4.5
Opex
8.3
8.9
8.8
-4.2
-5.6
-5.2
17.4
23.9
30.6
-17.4
6.5
13.2
Costs

Total resource costs relative to no investment b
Total cost relative to the unsubsidised rollout
6.8
b Resource costs relative to no investment are the sum of fixed line footprint costs, fixed wireless/satellite footprint costs, general resource costs and costs
incurred and avoided outside of NBN Co.
Note: The costs for unsubsidised rollout are shown using the main benefit assumptions.
Source: The CIE.
5.4
The timing of costs
ThetimingofthetotalcostsincurredissetoutinChart5.6.TheFTTPscenariohasa
continuationofcostsoveralongerperiod.Oncefullyrolledout,itscostsarelowerthanthe
MTMscenario.
57of196
Chart 5.6: Timing of resource costs

8
Cost ($b)
7
MTM scenario
FTTP scenario
5
4
3
2
1
0
2015
2017
2019
2021
2023
Note: The costs for unsubsidised rollout are shown using the WTP method.
58of196
2025
2027
2029
6.Benefitsofeachscenario
ConsiderablefocusoftheresearchforthisCBAhasbeenonidentifyingandmeasuringthe
benefitsofhigherspeedbroadband.AsnotedinChapter2,whiletherehavebeenmany
claimsaboutthebroadqualitativebenefitsofhighspeedbroadband,thepanelhassoughtto
provideasolidquantitativebasistothesebenefits.
AmajoraspectofthispartoftheCBAhasbeenestimatingWTPbyhouseholdsforfaster
broadband,whichhasincludedcommissionedstudiesasinputs.Effortshavealsobeenmade
toidentifyotherbenefits,suchasWTPbybusinessesthatwillconnecttotheNBNandpublic
andexternalbenefits.
Thecalculationofbenefitsalsoincludesbyconventionsomedisbenefits(effectivelycosts),in
thiscasedisruptioncostsanddeadweightlossoftaxation.
Likecosts,thebenefitsfromhigherspeedbroadbandwilloccurovertime.Thereforeitis
importanttoconsiderhowbenefitscouldevolveandgrowovertime,andtheinfluenceson
thatevolution.
Thischapterpresentstheestimatesofthevalueofhigherspeedbroadbandunderthefour
scenariosanddetailshowthosebenefitswerecalculated.
Thescenariosfordeliveringhigherspeedbroadbandhavedifferentbenefitsbecauseofthe
speedsdeliveredoncefullyrolledoutandthetimetakentorollout.Ofthesetwoeffects,the
secondisquantitativelythemoreimportant.Thismeansthat,forexample,theMTMscenario
hasbothlowercostsandhigherbenefitsthantheFTTPscenario.
Thescenariosalsodifferintheircoverageofpremises.Thebenefitsofcoveragethroughout
Australiaareonlymarginallyhigherthanthebenefitsofmainlycoveringthefixedlinearea.
Thisisbecausethechangeinspeedsissmalleroutsidethefixedlineareaandthenumberof
premisesservedissmall.
AsummaryofthebenefitsforeachscenarioissetoutinTable6.1.Themajorityofbenefits
arefromhouseholdandbusinessWTPforhigherspeedsinthefixedlinearea.
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Table 6.1: Estimates of benefits using base assumptions

No further rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
$b, present value
$b, present value
$b, present value
$b, present
value
33.1
34.5
32.4
6.4
6.6
6.2
1.2
1.2
2.1
2.2
2.1
DWL of taxation
-2.4
-6.6
Disruption costs
-1.4
-1.6
-1.7
Residual value
1.5
2.2
3.5
41.7
42.7
37.0
-41.7
1.0
-4.7
Household WTP - fixed line area

Business WTP - fixed line area
WTP - non-fixed line area
Public benefits and externalities
Total benefits
Source: The CIE.
ThetimingofWTPbenefitsundereachscenarioandthebaseassumptionsaresetoutin
Chart6.2.TheFTTPscenariohasthehighestbenefitsonceitisfullyrolledout,buttakesa
longertimetorollout.TheMTMscenariohasslightlyhigherbenefitsinthefixedlinearea
thantheunsubsidisedrolloutbecauseofthosepremisesservedbyFTTP.
WTP for increment over current speeds ($b)
Chart 6.2: Timing of direct benefits to households and businesses for each scenario
9
8
7
6
5
FTTP scenario (fixed line)
MTM scenario (fixed line)
1
0
2015
2020
2025
2030
2035
2040
ThebenefitsunderalternativemethodsofestimatingWTPrelativetoanunsubsidisedrollout
areshowninTable6.3.Notethatthecoverageoftheunsubsidisedrolloutvariesacrossthese
methods,sothesecannotbecomparedtothecostsinChapter5.Forexample,the
unsubsidisedrolloutwouldprovidecoverageto59percentofpremisesundertheuptake
method.Thismeansthecostsarealsosubstantiallylower.
Thesebenefitsreflectperhouseholdbenefitsof$40to$50permonthforthefirsttwo
methodsandabouthalfthisusingtheuptakemethod.
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Table 6.3: Benefits alternative estimation methods

No further
rollout
MTM scenario
FTTP
scenario
$b, present
value
$b, present
value
Coverage
(%)
$b, present
value
$b, present
value
Choice modelling (base assumption)
-41.7
93%
-4.7
1.0
Technical bandwidth demand
-47.5
93%
-6.2
6.2
Uptake data
-15.1
59%
4.3
7.9
Source: The CIE.
Thesectionsbelowdetailtheapproachtoestimatingbenefits.
6.1
Willingness to pay for higher speeds
InthisCBA,WTPseekstomeasurethevaluethathouseholdsorbusinessesplaceon
additionalinternetspeedstothosecurrentlyavailable.
ThereareanumberofwidelyusedmethodologiesthatcanbeusedtoestimatethisWTP.
PreviousliteratureseekingtoidentifythisWTPhasusedavarietyoftechniques,including:
choicemodellingsurveysthistechniqueaskshouseholds(orbusinesses)tochoose
amongstalternativepossibleinternetplansandthenusesthistoidentifythevalue
thatpeopleplaceonparticularattributes;and
analysisofmarketdatathistechniqueusesobservedbehaviour(priceanduptake)
toinferthevaluethatconsumersplaceonparticularinternetoptions.
Inaddition,assessingWTPbymeasuringandvaluingthetimesavedbyhouseholdsand
businessesfromimprovedinfrastructurehasbeenacommonfeatureofCBA.
Giventhatthereislittleexistingresearchonthevalueofbroadbandspeed,thepaneladopted
ascomprehensiveanapproachaspossibletoestimatingWTP,includingusingmultiple
estimationmethodologies.
General approach
TheapproachusedinthisstudytoestimateandapplyWTPhasthefollowingsteps.
FirstestimatingtheaverageWTPperhouseholdtomovefromexistingspeedsto
speedsavailableundereachscenario.
o Thisisundertakenusingthreeseparatemethodologies,togiveasrobustaview
aspossibleonWTP.Thesemethodologiesusechoicemodellinganalysis
undertakenbytheInstituteforChoice,amodeloftechnicaldemandfor
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bandwidthdevelopedbyCommunicationChambersandexistingdataontake
upofNBNplans.
o Foreachscenario,measuringthechangefromcurrentlyavailablespeeds(see
AppendixB)tofutureavailablespeedsundertheparticularscenario.Many
householdswillnotchoosethemaximumspeedsavailableeitherwithinthe
currentmarketorunderalternativescenarios,becauseofthehigherpricesof
higherspeedpackages.
ApplyingarateofchangetotheaverageWTPfiguresthroughtime.Thisisappliedasa
percentchangeinaverageWTPperyearandtheimplicationsofalternative
assumptionsarecarefullyconsidered.
TheaverageWTPperhouseholdisappliedtothenumberofhouseholdsthathave
takenuphighspeedbroadbandservicesateachpointintime
AnestimateismadeofaveragebusinessWTPrelativetohouseholdWTP.Thisis
appliedtothenumberofbusinessesexpectedtotakeuphighspeedbroadband
servicesateachpointintime.
Thesectionsbelowsetouttheapproachesandfindingsforthethreemethodsofestimating
householdWTPingreaterdetail.
Choice modelling
TheInstituteforChoicewascommissionedtoundertakeachoicemodellingsurveyof
Australianhouseholds.AppendixHsetsoutthedetailsofthisstudy.Choicemodellingisa
statisticalapproachthatseekstounderstandpeopleschoicesbetweenpossibleplansthat
havedifferentlevelsofspeedandothercharacteristics.Bydoingthis,thevaluethat
householdsplaceonthekeyattributesthatarechangedbyhighspeedbroadband(upload
anddownloadspeeds)canbemeasured.Theexperimentallowsforabroaderrangeof
packagesandspeedstobeconsideredbyconsumersthanoccursinanyactualmarket,
therebyelicitinggreaterinformationonpreferencesthancanbeobservedinuptakerates
alone.
ThevalueofWTPcalculatedfromthismodellingisusedasthebaseassumptionformeasuring
benefitsinthisCBA.
Theresultsofachoiceexperimentcanbeusedinmanyways.ForthepurposesofthisCBA,
thekeyimpactofconcernishowconsumersvalueadditionaluploadanddownloadspeed.
Consumersweredividedintotwogroupsinthesurvey.Onegroupwasshownminimal
informationaboutwhatspeedsmeantinpracticesuchasdownloadtimesfortelevision
shows.Thisistheuninformedconsumersgroup.Asecondgroupwasshowninformation
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aboutactivitiesthatcouldbeundertakenatdifferentspeeds,suchasvideoconferencingand
4Ktelevision(seeChartH.1).Thisistheinformedconsumergroup.
Withineachgroup,peoplecanfallintoseveralclassesthatresponddifferentlytothe
characteristicsofbroadbandpackages,dependingontheirageandincomeforexample.
Takingaweightedaverageacrosstheseclasses,themarginalwillingnesstopay(MWTP)for
downloadanduploadspeedsareshowninCharts6.4and6.5.15Thismeasurestheamount
thathouseholdswouldbewillingtopayforanextra1Mbpsofspeed.Thisamountvarieswith
thelevelofspeed.
Importantly,andechoingtheresultsofCommunicationChambersbandwidthdemandstudy,
thereisadecliningvalueonbothuploadanddownloadspeed.Thismeans,forexamplethat
anextraMbpsat5Mbpsisworthmorethanitisat50Mbps.
Alsoimportantly,thosethatwereinformedabouthowspeedsimpactedonactivitiesshowed
ahighervaluationintotalbutasteeperdeclineinthevalueofadditionalspeedthanthose
whowerenot.ThisisalsoshowninChart6.15,inasteeperdemandcurveforthosepeople
thatwereinformed.Abetterunderstandingofthespeedsrequiredforparticularapplications
increasestheMWTPforextraspeedatlowspeeds,butwithasharperdeclineinMWTPasthe
speedincreases.
Chart 6.4: Marginal willingness to pay for download speed
3.0
2.5
Uninformed consumers
Informed consumers
$/Mbps
2.0
1.5
1.0
0.5
0.0
0
10
20
30
40
50
Speed (Mbps)
60
70
80
90
100
Note: The MWTP curves are a weighted average across the two classes estimated by the Institute for Choice and for a price of $75 per month.
Data source: Institute for Choice; The CIE calculations.
15Theshapeofthesecurvescanchangedependingontheestimation.Forexample,theuseofalogcurveshows
asteeperrelationshipthantheuseofsquaredtermsshowninthesecharts.Therelationshipsshownarethose
thatprovidedthebestfittothedata.
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Chart 6.5: Marginal willingness to pay for upload speed

0.7
Uninformed consumers
Informed consumers
0.6
$/Mbps
0.5
0.4
0.3
0.2
0.1
0.0
0
10
15
20
25
Speed (Mbps)
30
35
40
Note: The MWTP curves are a weighted average across the two classes estimated by the Institute for Choice and for a price of $75 per month.
Data source: Institute for Choice; The CIE calculations.
Theserelationshipscanbeusedtoshowthevalueofgivingconsumersadditionalspeed,while
keepingeverythingelseinahouseholdsinternetplanunchanged(forexample,download
limitsandbundlingwithvoiceproducts).Table6.6setsoutanexampleofhowthiscalculation
isundertakenusingtwoillustrativeexamples.
First,thechangeinspeedexperiencedbytheparticularhouseholdisestimated.Thiswill
dependontheparticularscenariounderexamination.InTable6.6,illustrativehousehold1
goesfrom10Mbpsto40Mbpsfordownload,andfrom2Mbpsto5Mbpsforupload.For
household2,theincrementislarger.16
AvalueisthenappliedtothechangeinspeedsbasedontheWTPtomovebetweendifferent
levelsofspeed.17
16NotethatintheCBAmodel,eachhouseholdwithinanexchangeserviceareaiseffectivelyconsideredtobe
identicalsothespeedchangeforeachhouseholdisnotidentified,justthespeedchangesacrossall
householdsinanexchangeservicearea.Thishasnoimpactontheresults.Forexample,thecalculationsresult
inthesameestimateifhouseholdAgoesfromaspeedof5to10andhouseholdBgoesfromaspeedof2to
20,comparedtohouseholdAgoingfrom5to20andBfrom2to10.
17ThisisessentiallytheareaunderthecurvesinCharts6.4and6.5.
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Table 6.6: An example of how MWTP is applied choice modelling approach

Illustrative example household 1
Illustrative example household 2
10 Mbps
5 Mbps
2 Mbps
1 Mbps
40 Mbps
60 Mbps
5 Mbps
10 Mbps
$33.2
$54.1
$1.8
$5.2
$35.0
$59.3
Current speed
Download
Upload
Future speed
Download
Upload
WTP to go from current to future speed ($/month)
Download
Upload
Total WTP ($/month)
Source: The CIE.
Table6.7appliesthiscalculationtothechangesinspeedforallhouseholdsundereachofthe
threescenarios(allcomparedwiththenofurtherrolloutscenario).Theaveragegainper
householdwithintherolloutfootprintforthescenariois$41fortheunsubsidisedrolloutand
theMTMscenario.Itishigherat$46perhouseholdpermonthfortheFTTPscenario,because
ofthehigherspeedsachievedunderthisscenario.
Thesefiguresarethegainfrommovinghouseholdsimmediatelytothehigherspeeds.Each
scenariohasdifferentpathsofupgradingspeedsandthevalueofupgradingchangesthrough
time,whichhastobeaccountedfor,asdiscussedlaterinthischapter.
Table 6.7: Current average benefits to households that use the internet MWTP calculated from
choice modelling results
Benefit relative to no Benefit relative to no further
further rollout download
rollout upload
Share of premises
rolled out to
$/household in $/household in rollout/month

rollout/month
Per cent
Fixed line footprint

scenario
40.4
6.1
89.4
MTM scenario
40.5
6.1
95.6
FTTP scenario
45.8
9.7
95.6
Non-fixed line footprint

scenario
na
na
MTM scenario
23.0
0.6
91.0
FTTP scenario
23.0
0.6
91.0
Note: The shares of rollout are less than 100 per cent because some premises have already received FTTP and fixed wireless/satellite.
Source: The CIE.
Thevaluefromspeedupgradessetoutabovereflectsthechangeintheavailablespeed.
BecausetheNBNispriced,somepeoplewillnottakeupthemaximumavailablespeednor
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havehouseholdsallcurrentlytakenupthemaximumspeedsavailabletothem.Thismeans
thattheestimatedgainsaremarginallyoverstated,asthosewhovaluespeedthemostwill
continuetotakeupthosespeedsdespitethehigherprices.
Thegainssetoutaboveareforinternetusinghouseholds(mobileandfixedline),asthese
householdsconstitutedthesampleusedinthechoicesurvey.Accordingtothemostrecent
ABSsurvey,83percentofhouseholdsusetheinternet(ABS2014).Theestimatesaboveare
thereforereducedby17percenttoaccountforhouseholdswhichtakeupaconnectiontoa
highspeedbroadbandnetworkfortheuseofvoice(orothernoninternet)services.
Time savings based on technical bandwidth demand
ThebandwidthdemandinformationgeneratedusingtheCommunicationsChambersmodel
(discussedinChapter2)canbeusedtoinferthepotentialtimecosttoahouseholdasaresult
ofhavingbandwidthlessthanthatrequiredforthehouseholdtodothethingsitwantstoon
theinternet.
ThiscanbemeasuredfromtheCommunicationsChambersmodelasthenumberofdegraded
minutes(permonth)thatahouseholdislikelytoexperience.Degradedminutesarethe
minuteswithinamonthwherethehouseholddemandisnotsatisfiedbythehouseholds
currentbandwidth.Bydefinition,duringthistimesomepartofinternetaccessmustbe
degraded.Thiscouldcomeaboutinanumberofways,throughlowervideoresolution(for
thoseminutes)orthroughlongerdownloadtimes(orlongerpageloadtimesinthecaseof
webbrowsing).Itispossiblethatthehouseholdwillnotnoticethiseffect,althoughforthe
purposeshereitisassumedthatalldegradedminuteshavesomecosttothehousehold.
Thepatternsofdegradedminutesin2023forthreepercentilesareillustratedinChart6.8.
Chart 6.8: Degraded minutes (2023)
Number of degraded minutes per month
400
Median household degraded minutes 2023
350
90 percentile household
300
99th percentile household
250
200
150
100
50
0
5
15
25
35
45
55
65
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75
85
95
Chart6.8showsthat:
forthemedianhousehold(thetealcolourline)achieving10Mbpsmeansthatthis
householdwillexperiencedegradationforaround55minutesamonth;and
lookingatthemostdemandinghouseholds(the99thpercentile)achieving20Mbps
willseedegradedperformanceforaround60minutesamonth.
TheshapeofthecurveillustratedinChart6.8hasanumberofinterestingimplications.
Theslopeofthecurve(basicallyverticalupto10Mbpsforthemedian,orto20Mbps
orsoforthemoredemandinghouseholds)fitswithageneralintuitionthatweneed
broadband:indeedhouseholdsdo,ifbroadbandisdefinedasfasterspeedsthanare
currentlyavailabletomostAustralianhouseholdsandifdegradedminutesaretofall
toalowerlevel.
Buttheslopealsoshowsthattheincrementalgainfromsay25Mbpsto50Mbpsisa
lotsmallerthanthegainupto15Mbpsor20Mbps.Thismaybeonewayof
reconcilingthedifferentviewsaboutrequirementsforspeed;itisamatterofbeing
veryclearwhatismeantbyhighspeedbroadband.
Asonewayofusingthedegradedminutesmetrictovalueincrementsinspeed,theCBA
modelassumesthateachofthesedegradedminutesrepresentsactualtimelosttothe
household.Valuingthistimelostataproportionofthewagerateprovidesanindicationof
thevalueofincrementsinspeed.18
TheresultsofdoingthisareshowninCharts6.9and6.10fordownloadsanduploads
respectively.Atlowspeeds,suchas5Mbps,speedcurrently(2013)hasasignificantimpact
onhouseholds.Atabout10Mbps,averagedacrosshouseholds,thisspeedwouldleadtoonly
around$2.70permonthincostfromdegradationofquality.By2018,thisisestimatedto
increaseto$16permonthperhouseholdandby2023to$42permonthperhousehold(given
thedemandforecastsderivedfromtheCommunicationsChambersbandwidthdemand
model).Thatis,thereisrapidgrowthintheimpactonhouseholdsatspeedsfrom5toaround
35Mbps.Athigherspeeds(>45Mbps),mosthouseholdsfacenocostfromdegradationof
qualityofservicenoworby2023.
Thesamepatternholdswithuploadspeeds.Uploadspeedsofabout4Mbpsleadtoalmost
nocostonhouseholdsevenby2023.
18Theanalysisappliesavalueof$15perhour.Thisissimilartothevaluesusedfortimetakenintransport
evaluations.
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Chart 6.9: Cost of degraded download minutes (log scale)

Average cost per premises from degradation
($/month)
1000
2013 cost
2018 cost
2023 cost
100
10
0
5
15
25
35
45
55
65
75
85
95
Note: This is based on a time cost of $15 per hour. In converting technical demand to WTP (as set out in detail in Chapter 6), the 4 minutes excluded
adjustment is not used. Rather the CBA model attaches a cost to all minutes of usage not covered by available bandwidth.
Data source: Communications Chambers; The CIE.
Chart 6.10: Cost of degraded upload minutes (log scale)

Average cost per premises from degradation
($/month)
1000
2013 cost
2018 cost
2023 cost
100
10
0
0
8
10
12
Upload speed (Mbps)
14
16
18
20
Note: This is based on a time cost of $15 per hour. In converting technical demand to WTP (as set out in detail in Chapter 6), the 4 minutes excluded
adjustment is not used. Rather the CBA model attaches a cost to all minutes of usage not covered by available bandwidth.
Thedeclineinthevalueofadditionalspeedismorerapidthantheresultsfromthechoice
modellingstudy.Thisisnotsurprising,asthetechnicalbandwidthdemandapproachapplies
anequalcosttoeachminuteofdegradedtime.Inpractice,householdsthatfacealarge
amountofdegradedtimewouldlikelyrespondbychangingtheirbehaviourtominimisethe
costsofdegradationofservicequality,suchasbynotwatchingvideosovertheinternet.
Thebenefitsperhouseholdpermonthofeachofthescenarioscanbeestimatedby
combiningthecostsofdegradedqualityofservicewiththespeedsundereachofthe
scenariosconsidered.Theaveragebenefitperhouseholdforeachofthescenariosisshownin
Table6.11.Eachofthescenariosgeneratessimilarbenefits,asthereislittlebenefitinspeeds
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abovethelevelsdeliveredbyFTTNandHFC.Thereisaslightdifferencefortheunsubsidised
rolloutscenario,asasmallsetofpeoplewithveryhighfixedlinecostswouldnotberolledout
tothesepremisesalsocurrentlyhavelowspeeds.19
Thefixedwireless/satellitebenefitsarethelargest,becausecustomersintheseareas
currentlyhavethelowestspeedsandthevalueofspeedismuchhigheratlowerinitial
speeds.Notethatthereisnodifferentiationofhouseholdsacrossdifferentregions,sothis
mayoverstatebenefitsinthenonfixedlineareaifdemandforservicesintheseareasislower
thaninthefixedlinefootprint.
Table 6.11: Current average benefits bandwidth demand approach
Benefit relative to no Benefit relative to no further
further rollout download
rollout upload
Share of premises
rolled out to
$/household in $/household in rollout/month

rollout/month
Per cent
Fixed line footprint

scenario
43.61
9.49
95.6
MTM scenario
43.71
9.50
95.6
FTTP scenario
43.72
9.51
95.6
na
na
MTM scenario
117.88
12.94
91.0
FTTP scenario
117.88
12.94
91.0
Non-fixed line footprint

scenario
Note: The shares of rollout are less than 100 per cent because some premises have already received FTTP and fixed wireless/satellite. The calculations are
based on 2013 estimates of the costs of degraded quality of service. We apply an escalation of these costs over time as set out in later sections.
Source: The CIE.
Thegainssetoutaboveareforinternetusinghouseholds.Ashareofpremisesthatconnectto
ahighspeedbroadbandservicewillnotbeinternetusers,andwillonlyusethenetworkfor
voice(orothernoninternet)services.20AccordingtothemostrecentABSsurvey,83percent
ofhouseholdsusetheinternet(ABS2014).TheestimatedaverageWTPperhouseholdin
Table6.11arethereforescaleddownaccordingly.
Uptake of highspeed broadband
ActualdataontakeupandpricesoftheNBNtodatecanbeusedtoestimatethegainsthat
consumersareimplicitlyallowingforinmakingtheirchoices.Indoingthis,thetakeupdata
19Notethattherolloutdecisionreflectstheaveragerevenueavailableratherthanallowingforanunsubsidised
rollouttochargedifferentlyindifferentareas.
20Thisisbecausealternativeservicesareassumedtobemadeunavailable.
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maysufferfromissuesofselectionbiasasthosewiththehighestvaluefromadditionalspeed
havetakenuptheNBNearly,whilethosewhoplacelittleornovalueonhigherspeedsareyet
totakeupNBNplans.
TheAustraliantakeupratesofthehighestspeedsaresubstantiallyhigherthanthoseinother
countrieswherehighspeedshavebeenavailableforlonger,suggestingsuchselectioneffects
(Table6.12).InformationprovidedbyCartesian(acommunicationsconsultingcompany)
indicatesthatpricepremiumsforaplanwith100Mbpsdownloadspeedrangefrom$4.61to
$16.60permonth,abovethenexthighestspeedplan(10to70Mbps).Atthisprice
difference,thetakeupofthe100Mbpsdownloadspeediscloseto10percentformost
countriesexceptSweden,whereitisabove25percent.Incomparison,23percentofNBN
fixedlineplanstakenuphavebeenforthe100Mbpsdownloadspeed,witharetailprice
premiumforthistowardstheupperendofpricingpremiumsinothercountries.
Table 6.12: Price premiums and uptake for 100 Mbps plans
100 Mbps pricing premium
100 Mbps uptake in the market
$/month (US PPP)
Per cent
Sweden
$4.61 (10 to 100)
>25 (2013)
The Netherlands
$9.71 (50 to 100)
7 (2013)
Lithuania
$5.33 (10 to 100)
10 (2012)
Belgium
$16.60 (70 to 100)
13 (2013)
Portugal
$6.00 (30 to 100)
11 (2013)
$A
NBN Co to date
$9.60 (50 to 100)
23 (2014)
Source: Cartesian 2014, Ultra-fast broadband study: Investigating demand and benefits, prepared for Corning, May; NBN Co.
Uptakeinformationcanbeusedtoprovidealowerboundestimateoftheamountconsumers
arewillingtopayforhigherspeedsthisisobservedinhowmuchmoretheyactuallydopay
forhigherspeeds.Inordertoestimatethetotalconsumergainforhigherspeeds,thisuptake
informationneedstobecombinedwithinformationabouttheslopeofthedemandcurvefor
speeduptakeinformationaloneisnotsufficientforthiscalculation.
Lower bound estimate of gains from higher speeds
TheaverageretailpricesforeachspeedtierplanofferedbyNBNCoareshowninTable6.13.
Thesehavebeencalculatedthrough:
analysingthepricesof232plansofferedbyretailersonNBNCoinfrastructureagainst
theattributesinthatplan(theprovider,download/uploadspeeds,datalimitsand
inclusionofvoiceservices);
applyingtheproviderspecificestimatetothetakeupofNBNCoplansacross
providerstodate;and
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specifyingadatalimitof100GB/monthandnoinclusionofvoiceservices.
ThepricepremiumsforhigherspeedplansarealsoshowninTable6.13relativetothebasic
NBNCoplan.Thesemeasuretheadditionalpriceforhigheruploadanddownloadspeedswith
otherfactorsheldconstant.21
Anycustomerwhochoosesahigherspeedplanmustvaluethisatleastashighlyasthe
additionalpricetheyhavetopay.Forexample,tochoosea100/40planovera12/1plan,a
consumermustperceiveavaluefortheadditionalspeedofatleast$26permonth.
Table 6.13: Price premiums for higher speed plans
Retail price
Share of fixed line NBN

customers
Price premium over basic

NBN plan
$/month
per cent
$/month
12/1
65.7
42
0.0
25/5
74.1
29
8.4
25/10
75.1
9.4
50/20
82.1
16.4
100/40
91.7
23
26.0
Note: The retail price excludes bundles that have voice inclusions and is for 100 GB/month download limit.
Source: The CIE based on NBN Co data.
Theaveragepricepremiumacrosscustomersisthesumofthepricepremiumforeachspeed
tiermultipliedbytheshareofcustomerstakingupthatspeedtier.Thismeasuresthevalueof
speedsabove12/1relativetoaspeedof12/1.Theresultofthiscalculationis$9.3per
customerthatis,customerstakinguptheNBNtodatehaveatleastbeenwillingtopayan
averagepremiumof$9.3percustomerforplansabovethemostbasicNBNplan.22Thisisa
lowerboundbecausecustomersmayhavebeenwillingtopaymorethantheyactuallypaid,
andbecauseitmeasuresthepremiumrelativetoNBNCosmostbasicplan,whichislikelyon
averagetobeanimprovementonexistingspeeds.
Total estimate of gains from higher speeds
Inordertogetanestimateofthetotalsurpluscreatedbyhigherspeedsitisnecessaryto
understand:
howmuchconsumersgainfrommovingfromtheirexistinginternetspeedstothe
lowestNBNCobundle;and
21AnexampleisTelstraofferingtoboostspeedsfrom25/5to100/40foranadditional$20permonth.
22Itisassumedthatthisisperhouseholdasservicestargetedatbusinessescustomerswerenotavailablewithin
theperiodcoveredbythetakeupdata.
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howmuchmoreconsumerswouldpaybeyondwhattheyhavepaidtoobtainservices.
Onthefirstpoint,itisnotpossibletousemarketdatatounderstandthegainsfrommoving
fromexistingavailablespeedstotheNBNspeedsbecausecontractualarrangementsforce
customersoffexistingnetworks.ThedeliveryofNBNservicesat12/1wouldbean
improvementformanyAustralianhouseholds,whereADSLaveragespeeds(ordialup)
providesspeedslowerthanthis.Forotherhouseholds,thiswouldrepresentadeclinein
speedsrelativetothosecurrentlyavailableonHFCandADSLinsomeareas.
Theanalysishereassumesthatthesurplusthatgoestoaconsumerforthe12/1planisabout
thesameasthevalueforthosetakingupa25/5planrelativetoa12/1plan.23
Consumersthattakeupaparticularspeedtiermaybewillingtopayanamountgreaterthan
theamountthattheyareactuallyrequiredtopay.Forexampleif20percentofpeoplehave
paidanadditional$10toobtaina100/40(download/upload)serviceovera50/20service,
thentheyhaveatleastbeenwillingtopaythis$10.Thetotalgainisequaltothe$10plusany
additionalamounttheywouldhavepaid.Thisadditionalamountiscalledtheconsumer
surplus.
Theconsumersurpluscanbecalculatedthroughcombiningtheinformationonpriceand
quantitywithinformationonhowresponsivetakeupistoprice.Iftakeupishighly
responsivetoprice,thenthisindicatesthatfewpeoplevaluetheservicewellabovetheprice
thattheypaid.Iftakeupisnotresponsive,thenthisindicatesthatmorepeoplevaluethe
servicewellaboveprice.Theresponsivenessoftakeuptopriceiscalledtheelasticityof
demand.
Thetotalsurplusisestimatedbycombiningthepricepremiumandtheconsumersurplusas
showninChart6.14.
ThepricepremiumpaidisshownastherectangleA,withtheverticalaxisrepresentingthe
pricepremiumoverthenexthighestplan.ThismatchesthecalculationsinTable6.13.
ThetriangleBrepresentstheconsumersurplusshownforalowelasticityinthechart.
Thistrianglebecomessmallerifthedemandcurveisflatter(thatis,moreelastic)orlargerif
thedemandcurveissteeper(thatis,lesselastic).
23AnalysisofpricingplansfortheNBNagainstnonNBNplansshowsthatthe12/1planispricedverysimilarly
tocurrentADSLplans.
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Chart 6.14: Measuring average WTP using demand curves
Price premium of higher speed services

($/month)
70
Demand - low elasticity
60
Demand - high elasticity
50
40
B
30
20
10
0
0%
20%
40%
60%
80%
Share of people taking up higher speed services
100%
120%
Note: Diagram shows demand curves as linear for presentation purposes. Demand curves estimated are constant elasticity of substitution.
Theestimatedconsumersurplusissensitivetotheassumptionsmadeaboutthe
responsivenessofpeopletohigherpricesandtheshapeofthedemandcurve(linearornot).
Thereareanumberofmeasuresofhowresponsiveconsumersaretoprices.
Thepreviousliteratureonthevalueofhighspeedbroadbandhassoughttoestimate
elasticitiesinsomecases.Forexample,Dutzetal(2009)foundthatelasticitiesfrom
dialuptobroadbandwereabout0.69in2008thatis,a10percentriseinthe
priceofbroadbandwouldleadtoa6.9percentdeclineinthenumberofpeople
choosingbroadbandversusdialupinternet.Athigherspeeds,Dutzetal(2009)found
muchhigherelasticitiesgenerallylargerthan4.Thismakessense,asanotherhigh
speedplan(suchas50/20)isaclosersubstitutetoaveryhighspeedplan(100/40)
thanisdialupinternet.Thelatterestimatesaremostrelevantforthisstudy,asfew
peoplearemovingfromdialuptobroadband
Thechoicemodellingconductedforthisstudyprovidesanunderstandingofthe
responsivenessofconsumerstohigherprices.Theresultsofthisareshownin
Chart6.15,forthe100/40planwithotherplansheldconstant.Theimpliedelasticity
ofdemandvariesintherangeof2to3.Notethatthechoicemodellingstudy
informedonegroupaboutwhatcanbeundertakenatdifferentspeedsbutdidnot
informthesecondgroup.Thegroupthatwasinformedaremorelikelytochoose
cheaperlowerspeedpackagesasthepriceofthetopplan(100Mbpsdown/40up)
increases.
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Chart 6.15: Demand curves for 100/40 plan (derived from choice modelling)
250
Uninformed
Uninformed
Cost ($/month)
200
150
100
50
0
0%
5%
10%
15%
20%
Share of market for 100/40 plan
25%
30%
Note: This keeps the prices of other NBN plans constant.

Data source: Institute for Choice; The CIE analysis.
Toestimatetheconsumersurplusandtotalsurplusfromhigherspeeds(thatis,A+Bin
Chart6.14),weuseanelasticityatthelowerendofavailableevidenceof2andalsoshow
resultsfor3.Weuseaconstantelasticityofsubstitutionform,asthismorecloselyalignswith
thewaythatpreviousestimatesandestimatesfromtheInstituteforChoicestudyare
constructed.Theseassumptionserrtowardsshowingahigherbenefitfromadditionalspeed.
TheimpliedsurpluscreatedfromthedifferentplansissetoutinTable6.16.Ahousehold
takingupthe100/40planisestimatedtohaveanaveragebenefitof$59.10permonth
relativetoaveragecurrentspeeds.Ahouseholdtakingupthe50/20planisestimatedtohave
anaveragebenefitof$39.40permonth.
TheweightedtotalbenefitperhouseholdmovingtotheNBNis$26.30permonth.
Table 6.16: Benefits from higher speed plans
Retail price
Share of fixed
line NBN
customers
Price premium
over basic NBN
plan
Price premium
over current
speed plan
Implied total
surplus per
uptake relative
to current for
those taking up
$/month
Per cent
$/month
$/month
$/household on
plan
12/1
65.7
42%
0.0
0.0
8.1
25/5
74.1
29%
8.4
8.4
24.6
25/10
75.1
1%
9.4
9.4
24.9
50/20
82.1
5%
16.4
16.4
39.4
100/40
91.7
23%
26.0
26.0
59.1
Source: The CIE.
Applyingtheseimpliedvaluestoeachscenarioisnotstraightforward,asthescenarioshave
premisesonarangeofdifferentspeeds.Theanalysismakesthesimplifyingassumptionsthat:
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theFTTPscenariogivesaccesstoallplansinthefixedfootprint;
theMTMscenariogivesaccesstoallplansexceptthe100/40planinthefixed
footprint;and
fixedwirelessandsatellitegivesaccesstothe12/1and25/5plans.
ThisislikelytounderstatethebenefitsoftheMTMscenario,giventhataround17percentof
householdswillreceiveFTTPinthisscenario.
Undertheseassumptions,thebenefitsofeachscenario,atcurrentWTPandwithimmediate
accesstonewspeeds,areshowninTable6.17.Thebenefitsperhouseholdarearound$18to
$22dependingontheelasticityassumed,fortheunsubsidisedrolloutandtheMTMscenario.
Thebenefitsarearound$22to$26perhouseholdfortheFTTPscenario.
Table 6.17: Benefits of each scenario using current take-up method
Weighted average
Elasticity of -2
Elasticity of -3
Fixed line
Fixed wireless &

satellite
Fixed line
Fixed wireless &

satellite
$/household
taking up NBN
$/household taking
up NBN
$/household taking
up NBN
$/household taking
up NBN
21.8
18.6
MTM scenario
21.8
16.7
18.6
14.7
FTTP scenario
26.3
16.7
22.0
14.7
Source: The CIE.
Changes to WTP through time

Thereissubstantialuncertaintyaroundthefuturepathofdemandforadditionalspeed.This
uncertaintyreflects:
uncertaintyaroundfuturedemandforcurrentapplications;
uncertaintyaroundthesetofapplicationsthatwillbeavailableandthathouseholds
andbusinesseswouldliketouse;and
technologicalchangestotheefficiencywithwhichinformationcanbetransported
suchascoding24.
24CommunicationsChambersassumesanannualimprovementinvideocompressionof9percentforSD,HD
and4KTV.
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Theseareinadditiontochangesintheabilitytouseparticularinfrastructuretodeliverhigher
speedsinthefuture.
TheCommunicationsChambersworkmakesastrongcasethattherewillbesubstantial
growthindemandforspeed,butthatthiswillbefocusedatmoderatelyhighspeedlevels.
Theestimatedchangesinthedegradedminutecostatparticularuploadanddownload
speedlevelsarecalculatedinCharts6.18and6.19.Atmoderatespeeds,theaverageratesof
growthinthetimecostofdegradedminutes(interpretedasWTPasoutlinedabove)arein
excessof20percentperyear.However,athigherspeeds,thesegrowthratesarezero.
Chart 6.18: Annualised change in the cost of degradation from download speeds
40%
Download speed (2013 to 2023)
Annualised change
35%
30%
25%
20%
15%
10%
5%
0%
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Download speed (average, Mbps)
Chart 6.19: Annualised change in the cost of degradation from upload speeds
80%
Upload speed (2013 to 2023)
Annualised change
70%
60%
50%
40%
30%
20%
10%
0%
1
7
8
9 10 11 12 13 14 15 16 17 18 19
PreviousworksuchasDutzetal(2009)hasalsoshowngrowthintheWTPforbroadband
throughtime.
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ForthepurposesofthisCBA,akeyissueisthechangeintheWTPatspeedsinexcessofthe
MTMscenario.Thesensitivityanalysispresentedbelowvariesdemandforspeeds(including
thehighestspeeds)fromremainingthesameovera10yearperiodtomorethantriplingover
thisperiod.
Inpresentingmainresults,theCBAresultspresentedhereusea2percentperyeargrowthin
WTP.ThislevelofWTPgrowthrepresentsgrowththatisslightlyhigherthanhistoricaland
expectedrealincomegrowthpercapita.Giventhattheefficiencyofcodingofinformationfor
keyhighbandwidthapplicationsisanticipatedtoincreaseby9percentperyear,thisimplies
ademandforhigherspeedactivitiesincreasingby11percentperyear.Giventhetechnical
bandwidthdemandresults,thismayoverstatetheadditionalbenefitsfromthehigherspeeds
deliveredbyFTTPrelativetoothertechnologies,asaCommunicationsChambersstudyfound
limitedexpectedgrowthindemandfordownloadspeedsabove50Mbpsanduploadspeeds
above10Mbps.
6.2
Business willingness to pay
Businessescanderivebenefitsfromtheuseofhighspeedbroadband.Businessescanusethe
internetforvideoconferencing,VoIP,datastorageandbackup,cloudcomputing,
collaborativeworking,elearning,electronicdeliveryofservices,orderingofproducts,
communication,providingcustomerserviceanddeliveringnewproductsamongotheruses.
Theseactivitiescanhelptolowercostsand/orincreaserevenuesandgenerallyincrease
profitability.
Theextentthatbusinessesarewillingtopayforhighspeedbroadbandserviceswilldepend
onthebenefitstheyexpecttorealise.Surveysandstudiesintheliteratureshowtheextentof
expectedbenefitsfrominternetandbroadbandservicesisaffectedbytheindustry,structure
andsizeofthebusiness(seeANU2004,LeaandKempson2012,CommerceCommissionNew
Zealand2012,APSGroupScotland2011,Castalia2008).Thosebusinessesintheservices
sector(particularlydigitalmediaservices,communicationsandpropertyservices)aremore
likelytovalueinternetservices,asarelargebusinesses,orthosewithhighturnover.Some
studiesshowedthatbusinessesinruralorprovincialcentreswerelikelytovalueinternetless
thanthoseinurbanareashoweverthisresultwasnotconsistentacrossthestudies(see
ANU2004,CommerceCommissionNewZealand2012,APSGroupScotland2011).
ThereisverylittleinformationavailableondemandforhighspeedbroadbandbyAustralian
businesses.SurveyshavebeenconductedbyAustralianIndustryGroup(AIG)(2013)andthe
ACMA(2014)whichshowthatthevastmajorityofbusinessesareconnectedtotheinternet
usingabroadbandconnection(around97percent)andmostoftheseuseaDSLconnection,
witharound1.7percentconnectedusingfibre.Theseresultsdependheavilyonthesizeof
thebusiness,with25percentoflargebusinessesusingafibreinternetconnection.Most
surveyrespondentsinbothsurveysweresatisfiedwiththeircurrentinternetconnection.The
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AIGsurveyfoundthat16percentofbusinessesdidnotexpecttobeabletodoanythingwith
theNBNthattheycouldnotalreadydo.
Businessesbenefitsfromhighspeedbroadbandarelikelytomoveinlinewithconsumers
WTPforhighspeedbroadband.Asbroadbandservicesimproveintermsofspeedand
reliability,theWTPbyhouseholdsandbusinessesarebothexpectedtoincrease.Additionally,
withgreaterdemandanduptakeofinternetservicesbyhouseholds,businesseshavegreater
opportunitiestoengagewithconsumersinthedigitalworldandwouldthereforeseegreater
valueinbeingconnectedthemselves.Asisthecaseforhouseholds,relevantinformationon
businessesWTPforhighspeedbroadbandinAustraliaislimited.Becauseofthelackof
availableinformationandtheexpectedlinkbetweenhouseholdandbusinessWTP,welookat
benchmarkingbusinessWTPagainsthouseholdWTPdata.
AstudybyLeicestershireCountyCouncil(LeaandKempson2012)usedaconsistentapproach
togaugebothhouseholdandbusinessWTPforimprovedinternetconnections.Theyfound
thattheWTPofanindividualbusinesswasapproximately167percentoftheWTPofan
individualhousehold.InAustralia,astudyconductedonbroadbandadoptionontheYorke
Peninsula(Molloyetal.2008)foundthatthepointatwhichbusinessesdetermined
broadbandtobetooexpensiveis145percentofthepriceatwhichhouseholdsconcluded
broadbandwastooexpensive.
AlcatelLucent(2012b),inestimatingthebenefitsofhighspeedbroadbandforNewZealand,
foundthataround71percentofthetotalbenefitswouldaccruetobusinesses.Thisleadstoa
muchhigherrateofbusinesstohouseholdbenefits(around245percent).Itisworthnoting,
however,thatAlcatelLucentdidnotuseaWTPapproachtoestimatebenefitsbutrather
determinedtheexpectedtime,travelandcostsavingsthatwouldberealisedfromehealth
andeeducationandexpectedcostsavingscombinedwithimprovedservicesandrevenuesto
businessesandthedairysector.ThehouseholdWTPfortheprivatebenefitsofbroadband
internetassociatedwithentertainmentandotherprivateactivitieswasnotcaptured.
ThesefiguresarelikelytooverestimatethebenefitsoftheNBNtobusinesses.Inmanycases
businesseshavethecapacitytorelocatetoareaswherethereishighspeedbroadband
alreadyavailableifitiscriticalfortheirbusiness.ErgasandRobson(2009)suggestthatthere
islittleunmetdemandforhighspeedbroadbandbybusinesses,giventhatfibrenetworks
covercapitalcitycentralbusinessdistrictsandthatbusinessparks,largeorganisations,
hospitalsandgovernmentofficeslocatedoutsidetheseareasoftenhavedirectfibre
connections.BenefitswillberealisedthroughtherolloutoftheNBNforcompanieswho
eithercannotrelocatetocentralareastoaccesshighspeedbroadband,ordontvaluethe
highspeedbroadbandenoughtojustifysuchamove.
Basedontheresultsofthosestudies,businessWTPforeachconnectionhasbeenvaluedat
150percentrelativetoeachhouseholdconnection(thatis,a50percentpremium).Toallow
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foruncertainties,arangeof100percentto200percenthasbeentestedinsensitivity
analysis.
6.3
Valuing public and external benefits
Acomprehensivelistofpotentialbenefitsfromhighspeedbroadbandisprovidedin
AppendixE.Thislistisaimedatidentifyingpublicandexternalbenefitsbutincludesprivate
benefitsthatarecommonlyincludedintheliteratureandpublicdiscussionsaboutthe
advantagesofhighspeedbroadband.
Whiletherearemanybroaddiscussionsonthenatureofthepotentialbenefitsofahigh
speedbroadbandnetworkintheliterature,thereisverylimitedinformationavailablethat
placesvaluesonthesepublicorexternalbenefits.Forexample,arecentAustralianreport25
estimatedtheprivatebenefitstoAustralianhouseholdsfromhighspeedbroadband.The
reportalsodescribedadditionalsocialbenefits(socialinclusion,equity,healthcare)and
environmentalimpacts,butdoesnotattempttoquantifythesenonprivatebenefits.
AreportfortheEuropeanSpaceAgency(PricewaterhouseCoopers2004)includeda
comprehensiveassessmentofthebenefitsofprovisionofbroadbandconnectivityacross
Europe.Thereportwasfocusedonbroadbandoflowerspeedsthanisthefocusofthisreport,
however,itisusefulbecauseitisoneofveryfewreportsthatprovidesquantitativeestimates
ofthefullrangeofbenefits,andcategorisesthebenefitsinausefulway.Ofinterestfromthis
reportistheallocationoftotalbenefitsacrossthesecategories(ratherthantheestimated
valueofthebenefits).
Thebenefitsweregroupedintothosethatare:
directbenefitstotheconsumer;
benefitstoprovidersofservicesprimarilyrealisedbygovernments;and
indirectbenefitsarisingtootherpeople.
Thepublicsectorbenefitsconsideredincluded:
onlinedeliveryofgovernmentservices(suchassocialbenefitpayments,taxreturns
andvehiclelicensing);
elearning(thatistheuseofICTinteachingandwebbasedhighereducation);and
25SeeDeloitteAccessEconomics(2013).
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ehealth(includingteleconsultations,specialistreferralsandtreatmentofdiabetes,
dermatologyandpulmonaryconditions).
Externalbenefitsconsideredincludethebenefitsfromreducedpollution,benefitstorural
populationsandbenefitsofimprovededucationallevels.
Theresultsoftheanalysisshowedthatdirectprivatebenefitsaccountedfor94percentof
thetotalbenefits.Thebenefitstothepublicsectorandtheexternalitiesaccountedfor5and1
percentrespectively.
ThisresultisfurthersupportedbyanalysiscommissionedbyCorning(Cartesian2014)in
whichthesocioeconomicbenefitsofultrafastbroadbandwereestimatedandgroupedinto
sixcategories:ework,ehealth,elearning,ecommerce,consumervideouseandcloud
computing.Mostthebenefitsincludedintheanalysiswereprivateinnature,exceptforthe
ehealthandelearningelements.Together,theseareaswereestimatedtoaccountfor
4.8percentoftotalbenefits.
DatacollatedbySandvine(2014)furtherverifiesthefindingthatmosthouseholdinternetuse
isforprivate,entertainmentpurposes.In2014realtimeentertainmentaccountedfor
47percentofinternettrafficintheAsiaPacificregionwhilefortheUSthefigurewas
59percent.Othermajortrafficcategoriesincludefilesharing,webbrowsing,social
networkingandcommunications,muchofwhichisalsolikelytobeforprivatebenefitsrather
thanfacilitatingthedeliveryofpublicservices.IntheUS,peakperioddownloadswere
dominatedbyoneentertainmentprovider,Netflix(34.2percentofdownstreamtraffic).
ThereportbyCommunicationsChambersalsoconsidersthebreakdownofdemandintouses
withprivateandpublicbenefits.Theanalysisconcludedthatthekeydriversofbandwidth
requirementsareapplicationswithprimarilyprivatebenefits.
ThetypesofbenefitsthatarehighlightedinTableE.1inAppendixEasonesthatwarrant
considerationintheCBAaremostlyassociatedwiththegovernmentprovisionofhealthand
educationservices.Thesebenefitsaligncloselywiththepublicandexternalbenefitsincluded
inthePWCandCorninganalyses.
Theaboveevidencesuggeststhatnonprivatebenefitsfromhighspeedbroadband,
particularlyextremelyhighspeedbroadband,arelikelytobelimited.Weallowfortheseby
applyingapremiumof5percentontopofprivateWTP(bothhouseholdandbusiness).
ThisapproachtakestheviewthatprivateWTPreflectsthesetofapplicationsavailableat
particularspeeds.Iftherearefewprivateapplicationsatparticularspeedsthentherearealso
likelytobefewapplicationswithpublicbenefits.
Italsotakestheviewimplicitlythatubiquitydoesnotbringadditionalpublicbenefits.For
example,itmaybearguedthatifrolloutcovers100percentofhouseholdsthenthe
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governmentmaybeabletoshiftdeliveryofservicestoamoreefficientmethod.Inourview
thisisunlikelytooccurinpractice.Governmentservicedeliveryisgenerallywellbehindthe
frontierofwhatispossibleandevenwithubiquitousaccessgovernmentswouldbelikelyto
ensuretheycandeliverservicestopeoplewhodonotusetheinternet.
6.4
Residual value
Thereisaresidualvalueoftheassetscreatedbyeachhighspeedbroadbandscenario.This
valuecouldreflectanybenefitsaccruingoutsideoftheevaluationperiodorcouldreflecta
costbasedestimateoftheassetvalue,suchasdepreciatedcapitalcosts.Asdiscussedearlier,
acostbasedestimateisused.
Theeconomiclivesandhencedepreciationratesfortheequipmentusedintherolloutof
highspeedbroadbanddiffersacrossassettypes.UnderNBNComodelling,theassetswould
befullydepreciatedby.
.Adepreciationrateof
2.5percentisappliedtoallcapitalexpenditure(capex),implyinganeconomiclifeof40years
onaveragefornewassets.Thismeansthatcapexin2015isdepreciatedbymorethanhalfby
2040.Oncediscountingisapplied,residualvaluesareasmallpartofoverallbenefits.
6.5
Disruption costs
Therehavebeenandarelikelytobefurtherdisruptioncoststohouseholdsandbusinesses
fromtherolloutofhighspeedbroadband.Thesecostscaninclude:
timeandsearchcostsforcustomersastheymovetonewserviceofferingsand
provideaccesstocontractorstoconnectnewservices;and
financialcostsbornebycustomersorretailersintherolloutforexample,customers
areresponsibleforequipmentsuchasmodemsandroutersandanyrewiringofthe
homeorbusinessconsiderednecessary.NBNCoestimatesaveragecostsforcustomer
equipmentwouldbe$80110perpremises(NBNCo2013,p82).
Thesetypesofcostsmaydifferacrosstechnologies.Forexample,therehavebeenissuesin
therolloutofFTTParoundnetworkterminationdevicesbeinglocatedindifferentareasto
existingwiringoftelecommunicationsservicesaroundahouse.
TheInstituteforChoicesurveyalsogivesaninterestinginsightintothecustomerinertiato
movingawayfromtheircurrentplan.Thechoicemodellingresultssuggestthathouseholds
wouldconsiderthemselvestobearound$16permonthworseoffbymovingawayfromtheir
currentplantoanalternativeplanwiththesamecharacteristics.Thismaybebecausethey
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understandwhattheygetwiththeircurrentplan.Thecostimpliedfromforcingpeopleto
changeishenceverylarge.
Whilethereisconsiderableuncertaintyabouttheoverallmagnitudeofdisruptioncostsitis
relativelyclearthatthesewouldbehighforFTTPandnewHFCconnectionsandlowerfor
FTTNandexistingHFCconnections.Weapplyacostof2hoursofaveragewagesforany
connectionrequiringahomevisit,a$150costifaleadinrequirestrenchingtoapremisesand
abasecostof$200perpremisestoreflectupgradingofcustomerpremisesequipmentcosts
andcustomerinertia.TheresultingdisruptioncostsaresetoutinTable6.20.
Table 6.20: Disruption costs by technology
Technology
Disruption cost per premises
Relative to FTTP
$/premises/once-off
Per cent
FTTP
329
0.0
FTTN
200
-39.2
HFC
278
-15.6
Fixed wireless/satellite
272
-17.3
Source: NBN Co, Institute for Choice, Department of Communications, CIE estimates.
6.6
Deadweight loss of taxation
Afurtherdisbenefitfromsomescenariosforrollingouthighspeedbroadbandisthe
requirementforgovernmentfundingandthedistortionsfromtaxationtoprovidethis
funding.AsdiscussedinChapter3,adeadweightlossoftaxationof24centsperdollarof
revenuerequiredisused.Thecostoftaxationismeasuredbytakingthedifferencebetween
thepresentvalueoftherevenueearnedfromusersandthefinancialcostsofNBNCo.Note
that:
financialcostsarehigherthaneconomiccosts;and
revenueisestimatedonthebasisofNBNCoforecastsofrevenueperuser,whichin
turnreflectsthepricesallowedinNBNCosSpecialAccessUndertaking.
Thereisnodeadweightlossoftaxationfromanunsubsidisedrolloutscenarioasnotax
fundingisrequired.Thisisbecausepricescanbesettoensurecostsarefullyrecovered.
6.7
Benefits over time
Thebenefitsforinvestmentscenariosaccrueovertimeasastreamofbenefitsfrom
improvementsindownloadanduploadspeeds.Thetimingoverwhichbenefitsaccruerelate
totherolloutofhighspeedbroadbandandtheuptakeofhighspeedbroadbandby
residentialandbusinesscustomers.Theuptakeofcustomersisslowerthantherolloutto
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premisesandnotallpremisespassedtakeupservices.Thetakeupassumptionsarethesame
asthoseusedfortheNBNCoStrategicReview.
Wetakeagenericapproachandallowforthesameaveragebenefitperhouseholdand
businesscustomerfromthetimetheyareanactivecustomerontheNBN.Forexample,ifthe
averagebenefitpercustomeris$20andincreasesby2percentperyear,thencustomersthat
areconnectedin2015areassumedtoreceiveabenefitof$20*1.02in2015,andthereafter
increasingby2percenteachyear.
Thenatureoftherolloutcouldimpactonthetimingofbenefitsfordifferentresidentialand
businesscustomers,asdifferentcustomersplacedifferentvaluesonanyimprovementsin
speeds.Thisisnotaccountedforintheanalysis.
TherolloutoftheFTTPscenarioisslowerthantheotherinvestmentscenarios.Thismeans
thatthebenefitsfromimprovingspeedstakelongertoeventuate.Becausefuturebenefits
havealowervaluethancurrentbenefits(theyarediscounted),thisreducesthevalueofthe
benefitsfromtheFTTPscenario,aswellasreducingitscosts.
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7.Netbenefitsofalternativeoptionsfordelivering
highspeedbroadband
ThischapterprovidestheoverallresultsoftheCBA,showingthenetbenefitsofthevarious
scenariosfordeliveringhighspeedbroadband.Theseresultsdependonawidevarietyof
assumptionsassetoutinpreviouschapterssothereisalsoextensivesensitivityanalysisto
getasenseofhowrobusttheresultsaretochangesinthoseassumptions.
Thebestwaytocomparealternativescenariosisthenetpresentvalueoftheirbenefitsless
thenetpresentvalueoftheircosts.Theresultsusingpreferredassumptionsareshownin
Table7.1.
Anunsubsidisedrolloutofhighspeedbroadbandhasnetbenefitsrelativetono
furtherrolloutof$24billion.Thisshowsthevalueofhighspeedbroadband.
TheMTMscenariohasanetcostrelativetoanunsubsidisedrolloutof$6billion.This
reflects:
o thesubstantialnetcostoffixedwirelessandsatelliterollout;and
o thehighercostofcontinuingwithFTTPfor1.5millionpremises.
TheFTTPscenariohasnetcostsof$22billioncomparedtotheunsubsidisedrollout.
Thisreflects:
o thehighcostofprovidingFTTP;
o theslowerrolloutandhenceslowerdeliveryofbenefits(aswellascosts);and
o thesubstantialnetcostoffixedwirelessandsatelliterollout.
TheMTMscenariohasnetbenefitsrelativetotheFTTPscenarioof$16billion.Thisis
comprisedoflowercosts(around$10billion)andhigherbenefits(around$6billion).
Thebenefitsarehigherbecausethisscenariodelivershigherspeedstoconsumers
earlier.
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Table 7.1: Net benefits of each scenario relative to the reference case
No further
rollout
Unsubsidised
rollout
MTM scenario
FTTP scenario
$b, present
value
$b, present
value
$b, present
value
$b, present
value
Cost relative to reference case
-17.7
7.2
17.6
-41.7
1.0
-4.7
Net benefits
-24.0
-6.1
-22.2
-2,430
-620
-2,220
Net benefit per Australian household ($)
Note: These results use a discrete choice survey to estimate benefits.

Source: The CIE.
7.1
Net benefits of fixed wireless and satellite
Deploymentoffixedwirelessandsatelliteservicesisasignificantdifferencebetweenan
unsubsidisedrolloutandtheMTMscenario.Thishasanetcostof$4.2billion(Table7.2).The
benefitsofthisdeliveryarelowbecausethesubstantialgovernmentcontributionleadstoa
largedeadweightlossoftaxationthatroughlyoffsetstheWTPforhigherspeeds
Table 7.2: Net benefits of fixed wireless and satellite
Costs and benefits
Discounted value ($b)
Costs
Capital
3.7
Opex
1.1
Total costs
4.8
Benefits
WTP
1.2
Public benefits
0.1
DWL of taxation
-1.1
Disruption costs
-0.1
Residual value
0.6
Total benefits
0.6
Net benefits
-4.2
Net benefit per additional customer connected by 2040 ($)
-6,890
Source: The CIE.
7.2
Sensitivity analysis
ThereissubstantialuncertaintyaroundanumberofassumptionsmadeinthisCBA.This
uncertaintyhasbeentestedinanumberofways.
1. Simulationsusingprobabilitydistributionsacrossassumptionshavebeenconducted
particularlytoanalysetheperformanceoftheMTMscenariorelativetotheFTTPscenario.
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In98percentofsimulations,theMTMscenariooutperformstheFTTPscenario(Chart7.3).
FortheFTTPscenariotobepreferredtendstorequireacombinationofthefollowing:
FTTNspeedstobelowerthananticipated,FTTPtocostlessthananticipated,alongtime
periodforevaluation,highergrowthinWTPforspeedandalowdiscountrate.The
constructionofprobabilitydistributionsissetoutinAppendixI.
2. ThesensitivityofresultstoalternativegrowthratesintheWTPforspeedshasalsobeen
tested,particularlythedifferencebetweenthenetbenefitsoftheMTMscenarioandthe
FTTPscenario.Thishasalsoincorporatedrealoptionconsiderationsbecause,forexample,
upgradestoFTTNcanbemadeatalaterdatedependingonhowdemandforspeed
changes,butincontrastFTTPinvestmentscloseofftherealoption.Takingaccountofthe
scopeforupgradingshowsthattheMTMscenarioispreferredatanylevelofWTPgrowth.
Counterintuitively,itismorepreferredatveryhighgrowththanathighgrowthbecauseit
givesconsumersthebenefitsofgreaterspeedsmorequickly.Thatis,atveryhighgrowth
rates,itispreferredtodeliveraninitialincrementinspeedrapidlyandthentoupgrade
againratherthanwaitalongerperiodtogettoahigherspeedlevel.Thisissimilartothe
resultinErgasandRobson,2009.
3. Changestospecificassumptionshavebeenmade,suchasthetechniquestoestimate
benefitsorthebasisofcostassumptions.Alteringtheseassumptionsdoesnotgenerally
changetherankingofinvestmentscenarioswiththeunsubsidisedrolloutbeingpreferred,
thentheMTMscenarioandthentheFTTPscenario.
Chart 7.3: Probability distribution of net benefits of the MTM scenario relative to the FTTP scenario
FTTP scenario
preferred
MTM scenario preferred (98% of simulations)
30%
25%
Probability
20%
15%
10%
FTTP is better where:

* FTTP costs are low
* discount rate is
low
* FTTN underdelivers on speed
* rapid growth in
WTP for high speeds
* long time period
for assessment
(assuming no
upgrade of MTM)
5%
Net benefits of MTM scenario relative to FTTP scenario, present value

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>$40bn
$35bn to $40bn
$30bn to $35bn
$25bn to $30bn
$20bn to $25bn
$15bn to $20bn
$10bn to $15bn
$5bn to $10bn
0 to $5bn
-$5bn to 0
-$10bn to -$5bn
Less than -$10bn
0%
7.3
Net benefits under alternative growth in WTP
Thereissubstantialuncertaintyaboutfuturedemandforspeedandfuturetechnological
changestoaccommodateapplications.ThisisparticularlyrelevantincomparingtheFTTP
scenariototheMTMscenario,whichputsinplacealessexpensivetechnologysolution(more
rapidlyrolledout)thatdoesnothavethesamespeedcapabilities.
Chart7.4showsthenetbenefitsoftheMTMscenariorelativetotheFTTPscenario,with
differentgrowthratesinWTP.FortheFTTPscenariotobepreferredtotheMTMscenario
wouldrequireWTPofspeedsgreaterthan50Mbpstogrowbymorethan250percentover
10years(ormorethan13percentperyear)andcontinuetoincreaseatthesamerate
thereafter.ThisisveryunlikelygiventhefindingsofCommunicationsChambers,whichfound
thatgrowthindemandforadditionalspeedswouldbeverylowatthesespeedlevels.
Net benefit of MTM scenraio over FTTP scenario

($b)
Chart 7.4: Net benefits of MTM scenario relative to the FTTP scenario at different growth rates in
WTP
20
Panel assumptions
for WTP growth

10
0
-10
-20
-30
-40
0%
50%
100%
150%
200%
250%
300%
10 year WTP growth
350%
400%
450%
500%
ThissubstantiallyoverstatestheperformanceoftheFTTPscenario,astheinvestment
scenarioshaveverydifferentcharacteristicsintermsoftheiroptionvalue.
TheFTTPscenariohasverylittleoptionvalue,becauseahighlevelofcostsare
incurredupfront,thereforeleavingminimaloptionstoscalebackcostsshould
bandwidthdemandhavebeenoverestimated.
TheMTMscenariohassubstantialoptionvalue,becauseithaslowersunkcoststhan
FTTPattheoutset(andmorerapiddeployment)butprovidestheflexibilitytoupgrade
shoulddemandgrowthproveextremelyrapid.
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WhatthismeansinpracticeisthatshouldWTPgrowthprovetobelow,thelossesfrom
choosingFTTPnowarelockedin.However,thescopeforsequentialupgradingmeans
implementingtheMTMscenariodoesnotresultinlossesevenifdemandgrowthgreatly
exceedsexpectations.
WehaveapproximatelymappedoutthetimingatwhichtheadditionalWTPforhigherspeeds
wouldcoverthecapitalcostsofupgradingtoFTTP.Thisassumesthatwhenupgradingfrom
FTTNtoFTTPinthefuture,20percentofthecostsofupgradingfromcurrenttechnologyto
FTTPcanbeavoidedbecauseoftheinvestmentmadeinFTTN(thatis,thefutureupgradecost
toFTTPis80percentoftheoriginalupgradecostbecausesomeFTTNinvestmentcanbe
reused).InthecaseofupgradingfromHFCtoFTTPinthefuture,itisassumedthatnocosts
ofupgradingfromcurrenttechnologytoFTTPcanbeavoided(thatis,thefutureupgradecost
toFTTPisthesameastheoriginalupgradecost).
ThetimingofupgradeislinkedtoeachpotentialincreaseinWTPover10years,asshownin
Chart7.5.VeryrapidWTPgrowthwouldleadtoupgradesbeingeconomicin2025.
Chart 7.5: Timing of upgrade to FTTP
2060
2055
Timing of upgrade
2050
Upgrade anticipated
2045
2040
2035
2030
2025
2020
0%
100%
200%
300%
10 year WTP growth
400%
500%
Thecomparisonofthetwoscenariosonceweallowforupgradetooccurisshownin
Chart7.6.
UnderanyWTPgrowthitispreferabletorollouttheMTMscenarioasthisdelivers
increasedspeedstohouseholdsandbusinessesquicklyandthereforegiveshigher
immediatebenefits.CostsfordeliveringFTTPcanthenbedelayeduntilthereis
sufficientdemand.
AtveryrapidWTPgrowth,thenetbenefitsofrollingouttheMTMscenariofirstand
thenupgradingactuallyincrease.ThisisbecausetheslowdeliveryoftheFTTP
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scenarioleadstomorebenefitsbeingforgoneintheshortterm:themorerapidthe
WTPgrowth,thegreatertheloss.
Net benefit of MTM scenario mix over FTTP

scenario ($b)
Chart 7.6: Net benefits of MTM scenario over FTTP scenario with and without upgrade
20
Panel assumptions
for WTP growth

10
0
-10
-20
-30
Net benefits of MTM with upgrade over FTTP
-40
0%
50%
100%
150%
200%
250%
300%
10 year WTP growth
350%
400%
450%
500%
OveralltheMTMscenariohassignificantlygreateroptionvaluethantheFTTPscenario.The
MTMscenarioleavesmoreoptionsforthefutureopenbecauseitavoidshighupfrontcosts
whilestillallowingthecaptureofbenefitsif,andwhen,theyemerge.Itis,inthatsense,far
morefutureproofineconomicterms:shouldfuturedemandgrowmoreslowlythan
expected,itavoidsthehighsunkcostsofhavingdeployedFTTP.Ontheotherhand,should
futuredemandgrowmorerapidlythanexpected,therapiddeploymentoftheMTMscenario
allowsmoreofthatgrowthtobesecuredearlyon,withscopetothenupgradetoensurethe
networkcansupportveryhighspeedsoncedemandreachesthoselevels.
7.4
Specific sensitivity analysis
Methods of estimating benefits

ThemethodofestimatingWTPcanmakeasubstantialdifferencetothebenefitsofhigher
speeds.Forexample,ifthetakeupapproachisusedthenthenofurtherrolloutscenario
becomespreferredtotheMTMscenario.Thisisbecausethetakeupofthehigherspeed
plansforcustomersofferedFTTPtodatehasbeenrelativelylow,andtheevidenceusedfor
thismethodsuggeststhatmanyofthosewhohavetakenupthehigherspeedplanswouldnot
dosoifpricepremiumsforthoseplansweregreaterthancurrentpremiums.Thereis
substantialuncertaintyaboutthismethodhowever,becausetherollouthasnottargeted
areaswithhigherdemandandthereisnowaytomeasurethebenefitobtainedbythose
movingtothelowestNBNCoplan,ashouseholdsareforcedtomovetotheNBN.
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TherelativerankingoftheMTMscenarioandFTTPscenarioisunaffectedbythemethodfor
estimatingbenefits.
Table 7.7: Net benefits using variations to WTP estimation approaches
No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario
$b, $b, present value

present
value
$b, present
value
$b, present
value
Base assumptions
-24.0
-6.1
-22.2
Technical bandwidth demand
-29.8
-1.0
-23.8
-4.0
-5.7
-19.8
Take up and elasticity

Source: The CIE.
Discount rates
ThenetbenefitsusingalternativediscountratesareshownTable7.8.Therankingofthe
scenariosstaysthesameinmostcases,withtheunsubsidisedrolloutscenariobeingpreferred,
thentheMTMscenario,thentheFTTPscenarioandthenthenofurtherrolloutscenario.The
exceptionisthatwithahighdiscountratenofurtherrolloutispreferredtotheFTTPscenario.
Inotherwords,ifthediscountrateissufficientlyhigh,thelossesfromFTTPdeploymentareso
largethatitisbettertofreezebroadbandavailabilityatcurrent(clearlyinadequate)levels.
Thediscountrateimpactsonboththeincrementalcostsandbenefitsofeachscenariorelative
tothereferencecase.BecausetheFTTPscenariohascostsspreadoveralongerperiodand
highereventualbenefitsthishasthefollowingimplications.
Atlowdiscountrates,boththedelayedincrementalcostsandthedelayed
incrementalbenefitsoftheFTTPscenarioaregivenmoreweightinthepresentvalue
ofnetbenefits.ThisleadstotheFTTPscenariohavingasmallernetcostrelativetothe
referencecasethanundertheNBNspecificdiscountrateof8.3percent,becausethe
increaseindiscountedbenefitsoutweighstheincreaseindiscountedcosts.
Atahighdiscountrate,theFTTPscenarioalsohasasmallernetcostrelativetothe
referencecasethanundertheNBNspecificdiscountrateof8.3percent.Inthiscase
thereasonsaredifferent.Ahigherdiscountratereducesthediscountedincremental
costsandbenefitsrelativetothereferencecase.Thereductioninthemagnitudeof
bothbenefitsandcostshastheimpactofnarrowingthegaptothereferencecase.
FortheMTMscenariotheimpactofthediscountratelargelyreflectsthefixed
wireless/satellitechanges,asthetimingoftherolloutinfixedlineareasinthisscenariois
similartotheunsubsidisedrollout.Asthediscountrateincreases,theexpenditureonfixed
wirelessandsatellitehasagreaternetcost.
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Table 7.8: Net benefits using different discount rates

No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario

present
value
$b, present
value
$b, present
value
4 per cent
-51.2
-3.2
-19.4
7 per cent
-30.1
-5.5
-22.0
8.3 per cent (base assumption)
-24.0
-6.1
-22.2
10 per cent
-17.9
-6.7
-22.1
Source: The CIE.
Variations to scenarios
AnumberofvariationsinrolloutspeedandinclusionofFTTPintheMTMscenariohavebeen
considered.Thesechangesdonotchangetherankingofscenarios.
RemovingFTTPfromtheMTMscenarioincreasesthenetbenefitsofthisscenario.The
CBAdoesnottakeaccountofthefactthattheFTTPintheMTMscenarioispartly
targetedatareaswithhigherWTP.ThereforeitmaybethecasethattheMTM
scenariounderestimatedbenefitsinbaseassumptionsandoverstatestherelativegain
inbenefitsingoingfromMTMtoFTTP.
Thespeedofdeploymentisanimportantfactorforbenefits.Iftechnologiescouldbe
rolledoutequallyrapidlywithoutanychangeincosts,thenthegapinbenefits
betweentheFTTPscenarioandtheMTMscenarionarrows,althoughtheMTM
scenarioremainspreferredbyasubstantialmargin.However,itisimplausiblethatthe
FTTPscenariocouldberolledoutasrapidlyastheMTMscenario,giventhatitinvolves
replacingtheHFCassets(whichareusedintheMTMscenario)andcopper
connectionstopremises(whichareusedinFTTNdeliveryintheMTMscenario)and
placingentirelynewconnectionsinalmostallpremises.
Table 7.9: Net benefits using variations to scenarios

No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario

present
value
$b, present
value
$b, present
value
Base assumptions
-24.0
-6.1
-22.2
FTTP removed from MTM scenario
-24.0
-4.7
-22.2
FTTP scenario sped-up to match MTM scenario
-24.0
-6.1
-20.3
MTM scenario slowed down to match FTTP

scenario
-24.0
-12.4
-22.2
Source: The CIE.
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Alternative cost estimates

ThesensitivityofresultstotheuseofNBNCocostassumptionsorincreasedFTTPcapital
costs(alignedtowhathasoccurredtodate)andlowerMTMscenariooverheadshasbeen
tested.Thisdoesnotchangetherankingofinvestmentscenarios.
Table 7.10: Net benefits using alternative cost estimates
No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario

present
value
$b, present
value
$b, present
value
Base assumptions
-24.0
-6.1
-22.2
NBN Co costs
-24.3
-5.2
-17.1
Increased FTTP capex and reduced MTM

overheads
-24.0
-6.4
-26.3
Source: The CIE.
Other sensitivities
IfFTTNfailstodeliveranticipatedspeedsthenthisnarrowsthegapbetweentheFTTP
scenarioandotherinvestmentscenariosbutdoesnotreversetherankings.
Alongertimeperiodbyitselfdoesnotmakesubstantialdifferencestotheanalysis.
Table 7.11: Net benefits using alternative cost estimates
No further
rollout
Unsubsidised
rollout
MTM
scenario
FTTP
scenario

present
value
$b, present
value
$b, present
value
Base assumptions
-24.0
-6.1
-22.2
Pessimistic FTTN speeds
-17.3
-4.9
-15.5
Evaluation period from 2015 to 2054
-30.4
-5.8
-21.7
Source: The CIE.
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AppendixAGovernmentinvolvementinhighspeed
broadbanddeployment
The limited rationale for government involvement
TheFederalGovernmenthastakenontheresponsibilitytodelivertheNBN.Thisextentof
governmentinvolvementisextremelyunusualinternationally,asgovernmentsinthe
advancedeconomiesnowgenerallyrelyontheprivatesectortotaketheleadinupgrading
thetelecommunicationsnetwork.
Ofcourse,governmentinvolvementininfrastructuredeliverymaybewarrantedwherethere
aremarketfailuresthatpreventtheoptimaloutcomefrombeingachievedthroughprivate
investment.Threefeaturesoftelecommunicationsinfrastructuremight,butdonot
necessarily,warrantgovernmentinvolvementindeliveringhighspeedbroadband:
thenaturalmonopolycharacteristicsofsometelecommunicationsinfrastructure;
socialequityorequalityconcerns;and
externalitiesfromtheuseofhighspeedbroadband.
Noneofthesereasonsnecessitategovernmentdeliveryofservicesasunderthecurrent
NBNComodel.
Thesepotentialmarketfailuresindeliveryofhighspeedbroadbandcanbeaddressed
throughmeansotherthangovernmentownershipanddeliveryofservices.
Inefficienciesinconstructionandoperation,andalackofincentivesforthose
inefficienciestoberedressed,areoftenquotedasreasonswhygovernmentsshould
notdeliverpublicinfrastructure(ProductivityCommission2014).
Natural monopoly
Anaturalmonopolyformsbecauseanygivenlevelofoutputismostcheaplyproducedbya
singlefirm(ratherthantwoormorefirms).Thisisusuallythecasewherethereareveryhigh
fixedcostsbutlowmarginalcosts.Theseconditionscanariseinthecaseof
telecommunicationscustomeraccessnetworks,wheretherearesignificantcostsassociated
withnetworkestablishmentbutlowmarginalcostsoncethenetworkisinplace.Left
unregulated,naturalmonopoliescanleadtoexcessiveprices.
Naturalmonopolyconcernsaretypicallyaddressedthroughrequiringthirdpartyaccessand
regulationofpricesorrevenue.Infrastructureareasthatarecurrentlypriceregulatedin
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Australiaincludethecopperaccessnetwork(regulatedbytheACCC),electricityandgas
distributionnetworks(regulatedbytheAustralianEnergyRegulator)andwaterinfrastructure
(regulatedbystatebasedregulators).
Naturalmonopolyconcernsdonotjustifygovernmentdeliveryofinfrastructure.
Social equity
Equitableaccesshaslongbeenoneofthemainreasonswhygovernments,ratherthanthe
privatesector,provideinfrastructure.Marketsmaynotprovideequitableaccesstoabasic
qualityofservice(forexample,water,sewerage,roads,railandtelecommunications)to
groupsthatarelessabletopayoraremorecostlytosupply(suchasruralcommunities).As
such,governmentshaveoftentakenaleadroleinparticularsectorstoensurebasicservices
areprovided(ProductivityCommission2014).
UnsubsidisedbroadbandnetworksareunlikelytobemadeavailabletoallAustralian
households.Withoutgovernmentintervention,householdsinruralandremoteareasin
particularmaynotbeprovidedaccesstohighspeedbroadband,becausethecostof
deliveringtheservicestolessdenselypopulatedareasexceedstheexpectedrevenuesfrom
providingtheservice;orthelevelofserviceprovidedmaydiffertothatprovidedin
metropolitanareas.
Universalservice,thatis,theprinciplethatallcitizensshouldbeprovidedreasonableand
affordableaccesstocertainservices,inthepasthasbeenappliedtovoicetelephonyservices.
Thereisanincreasingtrendtoincludehighspeedinternetservicesintheapplicationof
universalservice.IntheUnitedStates,theTelecommunicationsActof1996wasexpandedto
includereasonableandaffordableaccesstohighspeedinternetforallconsumers(FCC2014).
Twentyothercountrieshavemadebroadbandorinternetaccessaright(abasiclegalright,a
citizensrightorconstitutionalright),includingFinland,France,SpainandSwitzerland
(BroadbandCommissionforDigitalDevelopment2013).
TheNBNpolicyobjectiveincludesensuringallAustralianshaveaccesstoveryfastbroadband
assoonaspossible,ataffordableprices(TurnbullandCormann2014).CurrentlyinAustralia
theuniversalserviceobligationsrequirestandardtelephoneservicesbereasonablyaccessible
toallAustraliansregardlessofwheretheyliveorcarryonbusiness.
AchievinguniversalaccesstobroadbandinAustraliawillneedsomegovernmentinvolvement.
Again,thisdoesnotnecessarilyrequiregovernmentdeliveryofservices.Forexample,the
government,viaanindustrylevy,hasprovidedasubsidyforTelstratoprovideservicesinhigh
costareas,ratherthanseekingtodelivertheseservicesitself.
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Akeydriverofthecostsofmeetinguniversalaccessrequirementsistheminimumlevelof
services.Forexample,ahigherminimumlevelofservice(suchasspeedorreliability)willlead
toahighersubsidyforhighercostdeliveryareasthanwouldotherwisebethecase.
Externalities
Therealisationofpositiveexternalitiesisoftencitedasajustificationforgovernment
investmentandinvolvementinprovidinghighspeedbroadbandtocommunities.Thetypesof
externalitiesthatmayarisethroughaccesstoanduseofhighspeedbroadbandare
summarisedinChapter6andAppendixEofthisreport.Theexternalitiesaregenerally
associatedwithimprovingtheoutcomes,orloweringthecost,ofeducationandhealth
services.
Theexistenceofexternalitiesmayindicatethatthelevelofinvestmentinhighspeed
broadbandisinefficientlylowbecausethebenefitsoftheseexternalitiesarenotreflectedin
marketbaseddecisions.Subsidiesdirectedtotheprovisionofbroadbandservicescanassist
incorrectingforthismarketfailure,butthisshouldonlybedonewherejustified.Theanalysis
inthisreportsuggestthatthebenefitsoftheseexternalitiesarelikelytobesignificantlylower
thantheprivatebenefitsthatindividualsareexpectedtogainfromusinghighspeed
broadband,indicatingtheextentofanymarketfailureasaresultofexternalitiesisnotlikely
tobegreat.
The recent history of government involvement

InitssubmissiontotheHouseStandingCommitteeonInfrastructureandCommunicationsin
2011,thethenDepartmentofBroadbandCommunicationsandtheDigitalEconomy(2011)
describedthepotentialbenefitsofahighspeedbroadbandnetworkinAustralia.
ImplementationoftheNBNin2009soughttorealisethesebenefitsbyprovidingall
Australianswithaccesstoworldclasshighspeedbroadband(DBCDE2011).TheNBNwill
createopportunitiesforbusiness,governmentsandconsumerstousetheNBNto:
expandbusinessopportunities;
improveandextendthereachofservicedelivery;
helpaddresssignificantpublicpolicychallenges;and
geteasierandmoreconvenientaccesstoagreaterrangeofservices.
Australiasgeographymeansthatinvestmentintelecommunicationsinfrastructureoutside
themajormetropolitancentreshaslaggedthatofthecities.Underthebeliefthatthemarket
wouldnotmakethenecessaryinvestmentthatwouldprovideaubiquitoushighspeedand
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highcapacitybroadbandplatformthroughoutthecountryandthereforeserveasastimulus
forinvestmentandinnovationinservicesandapplications,thegovernmentestablished
NBNCotoinvestinthisinfrastructure.
PriortotheestablishmentofNBNCo,Telstrawasvirtuallyamonopolyprovideroffixedline
infrastructure(withlimitedcompetitionfromOptusandTransactinselectedregions).The
retailsectorwasdominatedbyfourcompanies(Telstra,Optus,iiNetandTPGTelecom).Inits
200809telecommunicationsreporttheACCCsuggestedthatthemarketwasreachinga
naturallimitwithcommercialandtechnologicalelementsrestrictingcompetitioninregional
areas(NBNCo2013).
InApril2009,thethenGovernmentannouncedthecreationofawholesaleonly,openaccess
communicationsnetworkaimedatdeliveringhighspeedbroadbandandtelephonyservices
tothenation.TheGovernmentformedNBNCotocarryouttheproject,referredtoasthe
NBN.
TheproductsquotedasprovidedundertheNBNaredescribedasacombinedpackageofpeak
informationrates(PIRs)fordownloadsanduploads.26Theentrylevelserviceis
12Mbps/1Mbps(download/upload).Retailserviceproviders(RSPs)sellproductsto
householdandbusinesscustomersthatareunderpinnedbytheNBNproducts.TheRSPmay
choosetoofferproductsthat,inadditiontothePIRs,specifydownloadlimitsandpricesand
maybebundledwithotherservices(suchasIPTVorVOIPservices).NBNCocurrentlyplansto
offerservicesatauniformnationalwholesaleprice,onthebasisthatthiswillgiveevery
communityinregionalAustraliatheopportunitytogetfaireraccesstoaffordablehighspeed
broadband.
NBNCobeganbuildingthebroadbandinfrastructure,usingaFTTPmodel,withtrialsin2009
andthenfirstreleasesitesin2010and2011.Rollouttoregionalandruralareasusingfixed
wirelesstechnologystartedin2011andinterimsatelliteserviceswereprovidedtoother
remotecustomersinJuly2011.
NBNCoreleasesweeklysummariesofnetworkrollout,whichsetouttheprogressof
establishingthenetworkincludingthenumberofpremisespassed,serviceable27and
activated.ThisissummarisedinTableA.1below.
26Thepeakinformationrateisthetheoreticalmaximumspeedanendusermayachieve.Thepeakinformation
ratediffersfromthecommittedinformationratewhichisaguaranteedamountofbandwidthmadeavailable
toanenduser.
27Serviceablepremisesdifferfrompremisespassedonlyinbrownfieldsiteswherefibrepassesthepremisesbut
thepremisesisnotyetconnectedtothenetworkwithaleadintotheproperty.
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Table A.1: NBN deployment progress, 30 June 2014

Premises passed
Premises serviceable
Premises activated
Number of premises
Brownfields
381,146
281,294
105,211
Greenfields
111,116
111,116
45,916
Fixed wireless
112,208
112,208
16,553
48,000
48,000
42,948
652,470
552,618
210,628
Satellite
Total
Note: Activated refers to premises connected and subscribing to a service over the NBN; premises passed are those where there is a lead passed the
property, serviceable premises are those where there is a lead into the property and would be able to be connected.
Source: NBN Co 2014.
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AppendixBInternetinAustralia
Internet access connections
TheinternetisnowapartofeverydaylifeforamajorityofAustralians.In2013around
80percentofAustralianadultslivedinhomeswithinternetaccess,74percentlivedin
homeswithbroadbandservices,62percentusedtheinternetviaamobilehandsetand
64percenthaveasmartphone(ACMA2013).
AustraliansaccesstheinternetthroughfixedlineservicesdeliveredthroughADSL,fibre,
cable,satellite,fixedwirelessanddialupandthroughmobileservicestomobilephone
handsets,tablets,dongles,USBmodemsanddatacards.Intermsofthenumberof
connections,internetthroughmobilehandsetsarethemostprominentwith19.64million
subscriptionsinJune2013comparedwith6.21millionfixedlineconnectionsand6.15million
mobilebroadbandsubscriptions(seeChartB.1).IntheyearfromJune2012toJune2013the
shareofconnectionsthatarefixedwireless,fibreandADSLhaveincreasedandthe
proportionofinternetconnectionsusingdialuphasfallen.
However,intermsofdatadownloads,fixedlineservicesaremuchmoreprominent.The
averagedatadownloadedonafixedlineis25timesgreaterthanthatdownloadedtoa
wirelessdevice(fixedwireless,satellite,dongles,datacardsandtabletsimcardsseeChart
B.2)and108timesgreaterthanthatdownloadedtomobilephonehandsets(ACMA2013).
Chart B.1: Internet subscribers by technology type, Australia, June 2013
Data source: ACMA 2013.
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Chart B.2: Volume of data downloaded by connection type, Australia
Note: Wireless broadband includes dongle, USB modems, data cards and satellite and excludes downloads via mobile phone handsets.
Thechoiceconsumersmakebetweenalternativetechnologiesandserviceprovidersmay
dependonservicerequirements(suchasspeed,reliabilityandalwaysoncharacteristics),
price,and/orotherservicesprovidedinconjunctionwiththeinternetservice.AnACMA
commissionedsurveyfoundthatwhenchoosinginternetserviceproviders,Australian
consumersplacethehighestimportanceonreliability(ChartB.3).Thismaynot,however,
indicatethatspeedorotherservicecharacteristicsareunimportantiftheyarecommon
acrossserviceproviders.
Chart B.3: Most important factor in selecting an ISP, Australia, May 2013
SinceSeptember2006,therehasbeenageneralincreasingtrendintheuseofhigherspeed
fixedlineinternetservicesinAustralia(ChartB.4).InSeptember2006,over80percentof
connectionshadanadvertisedspeedof1.5Mbpsorless.ByJune2013just5percentof
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connectionshadanadvertisedspeedof1.5Mbpsandover60percenthadadvertisedspeeds
of8Mbpsormore.
Chart B.4: Proportion of subscriptions in different internet speed brackets, Australia
Data source: ABS 2013.
TheDepartmentofCommunicationshasrecentlyreleaseddetailedinformationonthetypeof
internetserviceavailableindifferentareasofAustralia.TheMyBroadbandwebsite
(www.communications.gov.au/mybroadband)offersdetailedinformationonthetypeof
internetinfrastructureavailableindifferentareasofAustraliaandincludesaspeedtestto
capturerealworlduserexperienceofdownloadanduploadspeeds.Usingthisinformation
andhavingregardtotheOoklaNetIndexandtheAkamaiStateoftheInternetreport,the
estimatedaveragedownloadspeedsanduploadspeedscurrentlyavailableinAustraliaareset
outinChartsB.5andB.6.Theseestimatesreflectaverageavailabledownloadandupload
speeds.Inparticular,premisesthatcouldimmediatelyaccesstheHFCnetworkareallocated
theavailablespeedsofHFC,eveniftheyarenotcurrentlyusingHFCfortheirbroadband.
Itisimportanttonotethatinternetspeedsareaffectedbyabroadrangeoffactorsassetout
inBoxB.7andtherearelimiteddetaileddatasourcestoindicateaveragedownloadspeeds.
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Chart B.5: Average Australian download speeds 2014

45%
Share of premises
Percentage of premises
40%
35%
30%
25%
20%
15%
10%
5%
0%
0-5
5-10
10-15
15-20
20-25
25-50
50-100
>100
Note: This chart illustrates the estimated distribution of broadband download speeds by attributing an average download speed to each Australian premises
based on the highest performing fixed technology platform available at each premises.
Data source: MyBroadband datacube Version 3 and speed test results (as at 29 April 2014); Ookla Net Index; Akamai State of the Internet Report 1st
Quarter 2014; The CIE.
Chart B.6: Average Australian upload speeds 2014

80%
Share of premises
Percentage of premises
70%
60%
50%
40%
30%
20%
10%
0%
0-1
1-2
2-5
5-10
10-20
20-30
Upload speed (average, Mbps)
30-40
40-50
>50
Note: This chart illustrates the estimated distribution of broadband upload speeds by attributing an average upload speed to each Australian premises
based on the highest performing fixed technology platform available at each premises.
Data source: MyBroadband datacube Version 3 and ADSL speed test results (as at 29 April 2014); Ookla Net Index; Akamai State of the Internet Report 1st
Quarter 2014; The CIE.
ACMAhaspreviouslycollateddataonthesatisfactionwithspeedacrossAustralian
households.Forfixedlineservices,11percentofpeoplesurveyedreportedbeingdissatisfied
withtheirspeedandafurther6percentwereverydissatisfied.Incomparison,22percent
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wereverysatisfiedand36percentweresatisfied.28NBNCohasalsofoundthat83percentof
householdssurveyedaresatisfiedwiththeircurrentspeed.29
Box B.7: Understanding broadband speeds
Themostcommonmetricforthequalityofbroadbandinternetservicesis
speed,however,therearedifferencesinthewayspeedcanbedefinedand
measured.
Capacityisthetotaltrafficcarryingcapabilityofalinkinanetwork.Where
linksinanetworkpathhavedifferingcapacitiestheendtoendcapacityofa
pathistheminimumlinkcapacityalongthepath.Capacityismeasuredbythe
amountoftrafficthelinkcancarryoveraparticulartimeintervalfor
examplemegabitspersecond(Mbps).
Availablebandwidthishowmuchcapacityisunusedinalinkorpath.Aswith
capacity,theavailablebandwidthofapathistheminimumavailable
bandwidthofasetoflinks.Ifthetotalcapacityofalinkis100Mbpsandpeak
usagewas45Mbpsthentheavailablebandwidthwouldbe55Mbps.
Bulktransfercapacity(BTC)isameasureoftheamountofdatathatcanbe
transferredalonganetworkpathwithacongestionawaretransportprotocol
(forexampleTCP).Itreferstothespeedatwhichasteadyflowofdatacanbe
maintained.Itisaffectedbythenumberofcompetingflows,settingsof
networkprotocolsandendsystemproperties.Overheaddata(metadataand
headers)arenotincludedinthedatameasuredandthereforeBTCmaybe
lowerthanotherspeedmeasures.
Speedmeasurementscanbeusedtocomparedeliveredspeedswithspeeds
advertisedbyISPs,andtoassessthequalityofabroadbandnetwork.
However,therearemanyfactorsthataffectspeedsdeliveredtotheenduser.
Understandingthesefactorsandthedifferencesinmethodologiesfor
measuringspeedsisimportanttomakingvalidinferencesfrommeasurement
data.
Anumberoforganisationsmeasureandpublishdataonthespeedof
broadbandconnections30.Thespeedmeasuredisclosesttothebulktransfer
28ACMAResearch,unpublished2013.
29NBNCo2014,unpublishedresearch.
30Forexample:Speedtest.net;Akamai;ComScore;MLabs;GooglesYoutubeservice.
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capacitydescribedabove.Despitethesetestsusingthesamedefinitionof
speed,theresultsofthesetestsvarysignificantly.Differencescanbe
explainedbydifferencesintestingmethodologiesincluding:
thedistancetothetestingserver(latency);
thenumberofTCPconnectionsusedtorunthetest;and
filteringofsamplemeasurements.
Otherfactorsthataffectspeedsexperiencedbytheenduserinclude:
endusersnetworkconfiguration(eghomewificapacity);
congestiononthehomenetworkorlocalnetwork;
operatingsystemandcomputerhardwareoftheuser;
serverperformance;and
TCPtuningandpathperformance.
Source: Bauer et al. 2010.
ConnectionspeedsinAustraliahavebeenincreasingaccordingtoanumberofdifferent
measures.AccordingtoAkamai,connectionspeedshaveincreasedfrom2Mbpsin2007to
almost6Mbpsin2013.AccordingtoOoklaspeedtestdata,downloadspeedshaveincreased
frombelow5Mbpsin2008to14Mbpsin2014(ChartB.8).Atthesametime,averageupload
speedshaveincreasedfrom0.5Mbpstoalmost3Mbps.
Chart B.8: Australian speed trends from Ookla
16
Download
Upload
Speed (Mbps)
14
12
10
8
6
4
2
0
1/01/2008
Data source: Ookla test data.
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1/01/2010
1/01/2012
1/01/2014
Australian speeds in comparison to international speeds

DatapublishedbyAkamai(2014)showsthataverageglobalconnectionspeedsincreasedby
29percentoverayeartoreach3.6MbpsinSeptember2013.Averagespeedsvaryfrom
countrytocountry.
SouthKoreahadanaverageconnectionspeedof22.1Mbps.
UShadanaveragespeedof9.8Mbps.
ThelowestaverageconnectionspeedsreportedwereinLibya(0.6Mbps)and
Cameroon(0.8Mbps).
AverageconnectionspeedsinAustraliawere5.5Mbpsinthesameperiod(anincrease
of28percentcomparedwiththepreviousyear).
Internet use
Around78percentofinternetsubscriptionsarebyhouseholdsandtheremainingare
connectionssubscribedbybusinessandgovernment.Theproportionofconnections
attributedtobusinessandgovernmenthasincreasedoverthepast7years.
Use of internet by businesses
AsurveyofmediumandlargebusinessesconductedbyAlcatelLucent(2012a)foundthatthe
majorityofbusinessesbelievedthatdigitalparticipationhasbeenpositivefortheir
productivity,efficiency,profitabilityandgrowth.Participationinthedigitaleconomyhasbeen
throughprovidingfastaccesstoinformation,remoteworkingandbettercommunications.
Thevastmajorityofbusinessesuseemailandbroadbandinternetaccess,andthemajority
alsomakeuseofonlinefilesharing,intranetandmobileinternet.Expectationswerethat
businesseswouldengagemoreinonlinecommunicationsinthefutureandthat
improvementsinnationalbroadbandinfrastructurewouldincreaseactivityinthedigital
economy.
Household internet use
DesktopPCsandlaptopsarethemostcommondevicesusedforaccessingtheinternet,
however,portabledevicessuchasphonesandtabletsarebecomingincreasinglypopular
(ChartB.9).Amajorityofpeople(62percent)areaccessingtheinternetthroughthreeor
moredevices,andtheuseofmultipledevicesappearstobecorrelatedwithage,withyounger
userstendingtousemoredevicestoaccesstheinternet(ChartB.10).
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Chart B.9: Devices used to access the internet from home, Australia
Chart B. 10: Number of devices used to access the internet, Australia, six months to May 2013 (by
age of users)
Demandforinternetservicesisderivedfromthedemandforapplicationsthatmakeuseof
theinternet.StreamedentertainmentmaterialisbecomingincreasinglypopularinAustralia
aswellasglobally.ChartB.11showshowthenumberofpeopleaccessingvarioustypesof
streamedentertainmenthaschangedsince2009.Thereisaclearincreasingtrendinthe
numberofpeopleaccessingvideoandmusiccontentonline.Videocontentgenerallyrequires
higherspeeds,orbandwidth,thanotheronlinecontent.
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Chart B.11: Digital media activities undertaken by online Australians during June
FigureB.12providessomeexamplesofthebandwidthrequiredforvariousonlineservices,
with4KTVhavingthegreatestrequirements.Theserequirementsareexpectedtofallsharply
ascodingtechnologyallowsmoreinformationtobetransmittedoveragivenamountof
bandwidth.
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Figure B.12: Current bandwidth requirements for various internet services
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Expected future developments

Thenumberofpeopleaccessinginternetservicesandassociatedapplicationsisexpectedto
continuetoincreaseovertime.TheCiscoVNIServiceAdoptionForecast(Cisco2013)
estimatesthatby2017onlinevideowillbethemosthighlyadoptedservice,growingfrom
1.1billionusersto2billionworldwideby2017.DigitalTVuseisforecasttoincreaseby
8.2percentayearto2017to1.4billionhouseholds,andvideosondemandserviceswillgrow
by9.4percentayearto256millionsubscribersworldwideby2017.
Enablingtheincreaseindemandforinternetservicesistheincreasedpenetrationofinternet
enableddevices.Cisco(2013)forecaststhattheaveragenumberofdevicesperhouseholdwill
increasefrom4.65globallyin2012to7.09in2017.AlcatelLucentBellLabs(2013)predicts
internettrafficdemandwillincreaseintheUSby370percentbetween2012and2017.This
increaseintrafficisexpectedtobedrivenbyIPvideoanddatacentre/cloudtraffic.
Thedevelopmentofhighbandwidthrichapplicationsareexpectedtofollowwhenhighspeed
broadbandreachesanadequatelevelofpenetrationtosustainabusinesscaseforthat
application(DBCDE2011).
Takeup of NBN
Initialchoicesmadebyconsumers(andtheirretailers)suggestmoderatedemandforhigher
speedpackages.Thisreflectsarelativelysmallnumberofcustomers(lessthan100,000)that
hadtakenupNBNplansasatDecember2013,whichwasthedatausedintheCBA
calculations(notingthatitwastheshareofusersoneachplanthatwasusednotthe
aggregatenumberofcustomers).Italsodoesnottakeaccountofselectionbiasissuesfor
example,itwouldbeexpectedthathouseholdsandbusinesseswithapreferenceforhigher
speedswouldtakeuptheNBNwhereavailablefirstandotherhouseholdswouldmovetothe
NBNwhenalternativeserviceswouldnotbeavailable.Todate,aroundonefifthofcustomers
havechosenthehighestspeedpackageof100Mbpsdownand40Mbpsup.Themajorityof
customersareconnectedtoeither12/1or25/5plans.Notethatthedecisionsoftheretailers
havedrivensignificantchangesinuptakeacrossspeedplans.Telstrainitiallymigrated
customersautomaticallytothe100/40planandnowmigratescustomersautomaticallytothe
25/5plan.
NBNCohasalsoprovidedinformationoncustomersthathavechangedtheirpackagefrom
theinitialpackagetheywereonwiththeNBNfromMay2013toMay2014.Overthisperiod,
around5percentofpremisesincreasedthespeedoftheirNBNCoplanand2percent
reducedthespeedoftheirNBNCoplan.
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Chart B.13: Take-up of NBN Co speed bands
Note: In December 2011 some of the premises that had previously taken up 100/40 switched plans, leading to a negative overall uptake for 100/40 for
that month.
Data source: The CIE calculations based on data provided by NBN Co.
ThetakeupoftheNBNtodatereflectsthepricesbeingchargedinthemarket,whicharea
combinationofNBNCowholesalepricesandadditionalretailerprices.Usingdetailsonthe
plansavailableandthetakeupofplansacrossthedifferentretailers,theaverageretailprices
fora100GB/monthdatalimitareshowninTableB.14.
Table B.14: Take-up and pricing of the NBN
Speed band
Take-up of fibre
connected
premises (to
December 2013)
NBN Co wholesale Average retail price

price (excluding no voice service
CVC)
Average retail
price voice
service includeda
$/month
$/month
$/month
12/1
42.3%
24.0
65.7
75.5
25/5
29.2%
27.0
74.1
83.9
25/10
0.8%
30.0
75.1
84.9
50/20
5.0%
34.0
82.1
91.9
100/40
22.8%
38.0
91.7
101.5
a The bundle includes a voice service. There are different levels of voice service included, such as free local calls, national calls or mobile calls. This is the
cost across plans with different levels of voice services included.
Note: Average retail prices reported for a 100GB/month limit. This is based on a weighted average across retailers plans reflecting a hedonic regression of
plans against characteristics and a retailer specific premium. The retailer specific premium is then aggregated according to take-up of NBN plans to date
across retailers.
Source: NBN Co provided data; The CIE analysis.
109of196
AppendixCTechnologiesforhighspeedbroadband
Network technology summary
Broadbandcanbedeliveredtohouseholdsandbusinessesthroughvariousdifferent
technologies.TableC.1providesabriefsummaryoftheprimarytechnologyoptionsandsome
oftheadvantagesanddisadvantagesassociatedwitheach.
Table C.1: Broadband technology options
Broadband Technology
Description
Factors impacting end-user experience
ADSL (Asymmetric Digital A technology designed to give basic

Subscriber Line)
broadband performance over copper
telephone lines, allowing more data to be
sent than with dial-up internet. Download
data speeds for ADSL are up to 8 Mbps
downstream.
ADSL2+
Limitations of the selected technology

associated with its technical standard
(8 Mbps for ADSL)
Service plan
Copper line length
Signal interference
Quality of the copper line
ISPs network and backhaul

provisioning
Home wiring
End-user equipment & software
An enhancement to ADSL that uses a wider

frequency range to achieve substantially
faster speeds, but only over relatively short
distances. ADSL2+ speeds reach up to
24 Mbps downstream and up to 1.4 Mbps

upstream.
FTTN (fibre to the node) FTTN describes the installation of optical

fibre from a point of interconnect (or
exchange) to a distribution point (a node or
street cabinet) in a neighbourhood that
serves a few hundred customers within a
radius of about 1 km. The connections
from the node to the customer premises
use one of the xDSL standards. The only
Australian FTTN network delivered at scale
is in the ACT. This network offers
downstream speeds of up to 60 Mbps.
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(24 Mbps for ADSL2+)
Service plan
Copper line length
Signal interference

provisioning
Home wiring

(VDSL or VDSL2)
Service plan
Copper line length
Signal interference

provisioning
Home wiring
Broadband Technology
Description
Factors impacting end-user experience
FTTP (fibre to the

premises)
FTTP describes the installation of optical

fibre from a point of interconnect all the
way to a premises (residential or business).
A common FTTP technology that is
employed in residential scenarios is GPON
gigabit passive optical network (selected
by NBN Co). GPON delivers 2.5 Gbps
downstream and 1.2 Gbps upstream
shared between a maximum of 32
premises in the NBN FTTP deployment.

(GPON, 10GPON)
Service plan
Contention (the number of premises

served by an optical node)

provisioning
HFC (Hybrid Fibre

Coaxial Cable)
Fixed Wireless
Satellite
Mobile broadband
HFC is a network utilising both optical fibre

and coaxial cable for the delivery of Pay TV,
internet and voice services. Speeds of up
to 100 Mbps downstream and 2 Mbps
upstream are possible on the Australian

HFC networks but speeds can vary
depending on usage on the network.
Broadband services similar to mobile

broadband however using fixed receiving
equipment, for example antennas mounted
on roofs. Fixed wireless is a shared
medium however generally provides a
more consistent and reliable service
(compared to mobile) due to reception
advantages and controlled subscriber
numbers.
Service plan
served by an optical node)

provisioning

(WiMAX, Wi-Fi, WCDMA, LTE)

served by a sector or base station)
Service plan
Backhaul capacity at cell site
Broadband services delivered using a
geostationary satellite and dishes installed

at customer premises. Satellite is a shared
medium and also introduces significant
latency (delay) which can impact some

applications. Satellite is an expensive
technology which is generally used in areas

where other technologies are not available.
Broadband services delivered by mobile

networks, such as 3G or 4G networks,
offering mobility and flexibility for users of
handheld and laptop devices. Mobile
networks are shared networks such that
when multiple users are accessing the
network at the same time the speed
performance will reduce.

(DOCSIS 2.0 or 3.0)
Limitations of the customer premises

equipment and available satellite
bandwidth
Service plan
served by a spot beam)
Rain-induced service degradation
(rain-fade)
Latency

(GSM, WCDMA, LTE)
Service plan
Cell site congestion/usage
Backhaul capacity at cell site
Interference
Signal coverage (in-building,

topography)
Source: based on ISPreview.co.uk.
TherolloutplansfortheNBNarefocusedonacombinationofFTTP,FTTN,HFC,fixedwireless
andsatellite.EachofthesetechnologieshasthecapacitytodeliverfasterspeedsthanADSL
andADSL2+(whicharecurrentlythemostcommontypesofconnections).However,eachof
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thesefivedeliverymodeshasdifferentattributeswhichmakethemmoresuitablefor
differentapplications.TableC.2showscurrentperformanceofeachtechnology,it
upgradabilityandsometradeoffswithitsdeployment.Forexample,akeytradeoffis
betweenhighinitialdeploymentcostsandlowongoingmaintenancecostsassociatedwith
FTTPcomparedwithlowerinitialcostsbuthigherongoingcostsassociatedwithFTTN.
Table C.2: NBN technologies
Technology
Current Performance
Upgradability
Comments
FTTP
NBN Co offers up to 100 Mbps

Substantial potential by
services using GPON with a split changing electronics at either
ratio of 32:1
end. NBN Co could deliver
2.5Gbps services to selected
customers today.
High initial deployment costs but

low ongoing maintenance costs
and low costs to continually
upgrade the network over the
next 30-50 years.
FTTN
~50 Mbps (for premises 500m

from the node and using
vectoring)
There are limited opportunities

to upgrade FTTN that do not
involve installing significant
additional fibre infrastructure
(see Chart C3).
Without modifying the FTTN

network layout, can get up to
~100 Mbps for premises within
100m from the node.
Higher operational cost than

FTTP over medium to long term.
HFC
100 Mbps a
Can be upgraded to speeds of

1 Gbps+ via node splitting
(reducing the number of users
who share capacity) and
upgrading the network and
customer premises equipment
to newer HFC standards. Tradeoff for higher broadband speeds
may mean fewer TV channels
can be delivered.
A shared medium technology

with all users on a particular
cable sharing the available
bandwidth. For example, if 50
people are sharing a 100 Mbps
connection then each will
receive around 2 Mbps.
Fixed
wireless
25 Mbps
Technologies are constantly

improving; speeds of up to
1Gbps theoretically possible
with the optimal set up.
Is a shared medium technology

with all users on a particular
wireless segment sharing the
available bandwidth. If
congestion is a problem then
additional spectrum is required
or the installation of additional
towers. Available spectrum is
limited.
Satellite
25 Mbps
Nil, upgrading capability will

involve launching additional
satellites.
A last choice technology but has

an important role to play in rural
and remote Australia where no
other options are available.
a This speed reflects average conditions and assumes the maximum available plan.
Source: Analysys Mason and Tech4i2 2013.
Upgrading technologies
Oneconsiderationininvestinginnetworkinfrastructureishowsuitabletheinfrastructureis
goingtobeinthefuture.AsnotedinTableC.2,someoftherelevanttechnologieshavethe
capacitytobeupgradedtocopewithgreaterdemandforbandwidth.
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Thereareanumberofpotentialtechnologiesthatmaybeabletoimprovethespeeds
obtainableonFTTNnetworks.Thesetechnologiesincreasespeedstodifferentextents
dependingonthedistanceofthepremisesfromthefibrenode.Vectoringandpairbonding
aretechnologiesthatarecurrentlyavailable,althoughnotwidelyusedasyet.PhantomMode
DSLandG.fastareexpectedtobeavailableinupto5yearstime.Rolloutofthese
technologiesmaybelimitedbyqualityandavailabilityofcopperlines.Someupgradesare
onlypossibleforpremisesclosetothenode;othersrequirenewinfrastructureinvestmentor
areonlyviableifthereisexistingsparecapacityinthenetwork.
Asanexampleofhowtechnologieshavedevelopedrecently,ChartC.3(fromAlcatelLucent)
showsthespeedspossibleunderalternativetechnologyoptionsbefore2012andin2014.It
showsthatjust2yearsagoVDSLtechnologywasnotcapableofspeedsover100Mbpsbut
nowwithG.fasttechnologiesVDSLisexpectedtobeabletodeliverspeedsequivalenttoFTTP
networks.
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Chart C.3: Broadband technology options pre 2012 and 2014

PRE-2012
2014
Data source: Alcatel-Lucent 2014.
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AppendixDPreviousanalysisofthecostsandbenefitsof
highspeedbroadband
TherehavebeenanumberofpaststudiesinAustraliaandoverseasonthecostsandbenefits
oftheinternet,orchangestotheinternet.Paststudieshavevariedintermsoftheirapproach,
objectives,comprehensivenessofanalysis,andthetechnologyandregionbeinganalysed.
Mostofthestudiesreviewedandsummarisedherefocusedonthebenefitsofhighspeed
internet.
WecategorisestudiesintothosethatconsiderWTPforhigherinternetspeedsandalternative
approaches.
Willingness to pay for speeds

WTPseekstomeasurethevaluethathouseholdsorbusinessesplaceonadditionalinternet
speedstothosecurrentlyavailable.Themethodsthathavebeenusedintheliteraturetoseek
toidentifythisvalueinclude:
choicemodellingthistechniqueaskshouseholds(orbusinesses)tochooseamongst
alternativepossibleinternetplansandthenusesthistoidentifythevaluethatpeople
placeonparticularattributes;and
analysisofmarketdatathistechniqueusesobservedbehaviour(priceanduptake)
toinferthevaluethatconsumersplaceonparticularinternetoptions.
Twostudies,Dutzetal.(2009)andRosstonetal.(2010),arecomparabletothecurrentstudy,
althoughwithsomelimitations.Theseareexplainedmorefullybelow.Afurthersetofstudies
setoutinAttachmentFarenotconsideredtohavesubstantialrelevanceforthisstudy.
Dutz et al
ThestudybyDutzetal(2009)usedbothmarketeconometricsandasimplisticstated
preference(survey)approachtoestimatetheWTPforinternetandbroadbandatarangeof
speeds.Someofthestatedpreferenceresultsfromthisstudyarerelevantforanalysisofthe
impactofhighspeedbroadbandintheCBAbeingundertakenhere.TheDutzetalstudyfound
thattheaverageincreaseinWTPfromshiftingfromcurrent(in2009)broadbandinternet
accesstointernetwithspeedsof50MbpsofUS$31.40permonth.Adjustingthisfigurefor
exchangeratesandinflationwouldyieldavalueofaroundA$33.30permonth.
Notethattheincrementalvalueofshiftingfrom5Mbpsto50Mbpswasmuchlowerandis
alsorelevantforourstudy.ThisfoundaWTPofUS$7.20(A$7.60)foranincreaseinspeeds
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from5Mbpsto50Mbps.Therearenofiguresinthisstudythatreflectthedifference
betweenWTPfor50Mbpsand100Mbpsdownloadspeeds.
Notethatthesevaluesareperhouseholdchoosingbroadband(excludingthosechoosingno
internetordialup).
Whileagenerallythoroughstudy,thereare,however,severallimitationstothestudywhen
tryingtoapplyittoAustraliatoday.
Thesampleperiodis2005to2008,aperiodofslowtransformationfromdialupto
broadbandintheUS.Inthelatestyearofthestudy,only69percentofthesample,
hadabroadbandconnection,11percenthaddialupand20percentstillhadno
internetconnection.ThisisincontrasttothecurrentsituationinAustralia.
Thedataforthestatisticalanalysiscontainednoexplicitspeedinformation,onlya
proxyprovidedbythealternativetechnologies.Thereisnoinformationaboutthe
speedsofthealternativebroadbandtechnologies.
Thehouseholdusesfortheinternetreporteddonotcoveranyusesthatrequirehigh
bandwidth.Theymostlyinvolvedwebbrowsing.Therewasnoreporteduseofvideo.
ThismayreflectadifferenceincabletelevisionavailabilityintheUS.
Thereisnowirelessbroadbandoption(againinsharpcontrasttoAustralianusage).
ThestatedpreferenceinstrumentusedbyDutzetalwasverysimpleanddidnotallowa
preciselinkbetweenWTPandspeed.
Rosston et al
Rosstonetal2010lookedatthevalueofspeed,reliabilityandcostaswellassomeadditional
services(abilitytoconnectwirelesslyawayfromthehome,downloadhighdefinitionmovies,
prioritisesomedownloads,interactwithhealthspecialistsandplacefreevideocalls).The
studyfoundthatspeedandreliabilitywereimportantcharacteristicsandconsumerswere
willingtopayanadditional$20permonthforreliableserviceand$45permonthforan
improvementfromslowtofastspeeds.
Rosstonetalusedchoiceexperimentstoestimatehouseholdpreferences.Intheirreport,
speedwascharacterisedas:
slowsimilartodialup,downloadsanduploadsareslow;
fasthighspeedconnectionwithdownloadsanduploadsmuchfasterthandialup;
goodformusic,photosharingandwatchingsomevideos;and
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veryfasthighendinternet,blazingfastdownloadsanduploads;greatforgaming,
HDmoviesandinstanttransferoflargefiles.
Unfortunately,thestudydidnotuseprecisedefinitionsofspeed.Itisalsoimportanttonote
thatthestudywasdeterminedbytheOfficeofManagementandBudget(OMB)intheUSnot
tomeetthestandardsofOMBssurveyguidanceandshouldnotbeusedtoinferaccurate
nationallyrepresentativeestimates.
Forcomparisonwiththerelevantquestionofshiftingfromcurrentlyavailableaverage
internetspeedsinAustraliatoNBNinternet,wewouldbelookingatashiftprimarilyfromfast
toveryfast,althoughinsomecasesfromslowtoveryfast.Thestudyresultsshowa
representative,internetusinghouseholdiswillingtopay:
US$45(A$48)permonthforanimprovementinspeedfromslowtofast;
US$48(A$51)permonthforanimprovementfromslowtoveryfast,orapproximately
1.21percentoftheaveragemonthlywage;and
US$3($A3.2)permonthforanimprovementfromfasttoveryfast.
Notethattheseestimatesareperinternetusinghousehold.
Theseresultssuggestadecliningvalueforadditionalspeed.
Other approaches to assessing the benefits of broadband

DeloitteAccessEconomics(2013)adoptedanillustrativeapproachtoapproximatingthevalue
ofhighspeedinternetforAustralians.Theyselected10differenttypicalpeopleor
householdsandestimatedthepotentialbenefitshighspeedbroadbandmayprovideeachof
thesehouseholds.Theseestimatesincludedthevalueoftimesavedbyreducedtravelto
work,shops,andaccessingservices,reducedtransportcostsandimprovedhealthand
educationoutcomes.Italsotookintoaccounttheexpectedcostsassociatedwiththeuseof
broadbandandrealisingthevariousbenefitsdescribed.Theanalysisalsoincluded
governmentcostsavingsthatcouldberealisedbyincreasedonlineservicedelivery.
AlcatelLucentsBellLabsestimatedthebenefitsfromhighspeedbroadbandinNewZealand.
TheyusedtwoapproachesanassessmentoftheimpactonGDPfrominvestmentinthe
infrastructure,andtheconsumersurplusfromtheapplicationsthatcanberealisedthrough
theuseofthenetwork.ThecontributionofinfrastructureinvestmenttoGDPwasestimated
tobe$5.5billion(NewZealanddollarsat2010prices)over20years(with85percentofthe
benefitstoberealisedinthefirst6years).Theincreaseinconsumersurplusfromtherollout
ofthenetworkwasestimatedtobe$32.8billionover20years(AlcatelLucent2012b).This
consumersurplusisacombinationoflowercosts,reducedtimeandreducedtravelexpenses
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associatedwithhealthandeducation,savingsinbusinessesassociatedwith
telecommunicationsandinfrastructure,increasedrevenuesandservicesthroughnewand
improvedproductsandimprovementsindairyfarmproductivity.
TheGovernmentofSouthAustraliacommissionedastudyintothebenefitsfrombroadband
adoptionontheYorkePeninsula,SA(Molloyetal.2008).Theyusedatelephonesurveyof
businessandresidentialpremisesandultimatelyestimatedthetotalannualbenefitsfrom
broadbandadoptioninthePeninsula,realisedonthePeninsulaandinSouthAustralia.The
presentvalueof5yearsofbenefitswascalculatedtobe$21.4m(ofwhich$15misto
businessesand$6.4mtoresidentialhouseholds).Theseestimatesincludebothdirectbenefits
(consumersurplus,networkeffectsandproducersurplus)andindirect(incomeeffectsand
multipliereffects)benefits.
In2004PricewaterhouseCoopers,withOvumandFrontierEconomics,conductedaCBAon
broadbandconnectivityinEuropefortheEuropeanSpaceAgencyandtheEuropean
Commission(PricewaterhouseCoopers2004).Theysoughttoidentifythecostsandbenefits
associatedwiththeexpectedincreaseinbroadbandconnectivityacrossEurope.Theyused
twoassumptionsaroundtheexpectedrateoftakeupofservices.Theyconsideredarangeof
technologyoptionsforeachregionwhichincludedcombinationsofADSL,fibre,HFC,wireless
andsatellite.Therewasnotargetspeed,ratherthestudysoughttoidentifytheservicesthat
werelikelytobeprovidedbycommercialoperatorsbetween2004and2013,andthese
rangedfrom512kbpstoover10Mbps.Thebenefitsestimatedincludeddirectbenefitsto
consumers,networkexternalitiesandotherexternaleffects.Directbenefitswereestimated
basedonthepricepaidforinternetsubscriptions(anunderestimateoftheprivatebenefits).
Benefitstosuppliersofpublicservices(forexamplehealthandeducation)andexternal
benefits(suchasthereductioninexternalcostsassociatedwithtransportinfrastructure,
congestion,accidentsandpollution)wereestimatedbasedoncasestudies.Theresults
estimatednetbenefitsof141Eurospersubscriberin2013andabenefitcostratioof1.55
overtheperiodfrom2004to2013.Theratioforjusttheruralareaswaslowerthanthetotal,
at1.13.
AnalysysMasonandTech4i2(2013)completedastudyfortheEuropeanCommissionDG
CommunicationsNetworks,ContentandTechnologythattookacomprehensivelookatthe
currenttakeupofhighspeedbroadbandinEurope,theexpectedrolloutandtakeupto2020,
andthevalueofbenefitsofhighspeedbroadband.Theyusedtwoapproachesforestimating
thebenefitsinputoutputanalysisandconsumersurplusestimation(regressionanalysiswas
ruledoutduetoalackofhistoricaldata).Consumersurpluswasestimatedbasedonthe
expecteddeclineinpricesandtheconsumersurplusthatresults.Theestimateofconsumer
surpluswassignificantlylessthanthetotalvalueofinvestmentintheinfrastructurerequired,
althoughitisnotedthattheconsumersurplusestimateisalowerbound.Usingtheinput
outputapproach,ascenariowithoutgovernmentinterventionestimatedthebenefitcost
ratioforhighspeedbroadbandtobe2.37(or2.72withmajorgovernmentinvestment).
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Summary of previous choice modelling studies

Hayes(2011)providesacomprehensivesummaryofchoicemodellingpapersrelevantto
broadbandinternet.HissummaryisreproducedinTableD.1.Mostofthesestudiesaredated,
anddonotapplydirectlytoAustralia.Healsoprovidesasummaryofothercontingent
valuationpapersrelevanttobroadbandinternet.ThissummaryisreproducedinTableD.2.
Table D.1: Selected choice modelling papers
Source
Product(s)
Country
Timeframe
Features or characteristics
Rosston, Savage &

Waldman - 2010
Broadband
internet
USA
2009
Online survey respondents were asked several

times to choose between hypothetical bundles
of broadband access, emphasising different
elements such as speed, reliability, portability,
cost.
Savage & Waldman 2005
Broadband
internet
USA
2002
Survey respondents were asked questions on

availability of internet access options and
choice questions on broadband.
Savage & Waldman 2004
Internet access
USA
2003
Survey respondents given choice experiments

with attributes of internet access including
speed and being always on.
Greenstein &
McDevitt - 2010
Broadband over
dialup
USA
NA
Uses adoption information together with

Savage and Waldman - 2004
Ida & Horiguchi, 2008
Public services
over FTTH
Japan
2006
Focused on WTP for public services provided

by FTTH in rural areas.
Ida & Sato - 2006
Broadband
services
including ADSL,
Cable and FTTH
Japan
2003
Survey respondents were asked to state their

choice of service, choosing among ADSL,
Cable and FTTH.
Kim - 2005
Mobile
Korea
telecommunications
2002
Survey respondents, who already subscribed

to an International Mobile Technology (IMT2000) service, were asked to choose between
hypothetical bundles of service with different
qualities (global roaming, video telephony, etc)
Madden & Simpson 1997
Broadband
internet
Australia
1995
Survey respondents were asked to choose

between several services, and asked to
choose from different broadband subscription
bundles.
Ido & Kuroda - 2009
Mobile
telephone
services
Japan
2004
Revealed preference with respect to 2G

versus 3G, elasticities for email, web and
movies on the phone.
Ida & Kuroda - 2006
Dialup, ISDN,
ADSL, CaTV and
FTTH
Japan
2003
Revealed preference. Survey respondents,

who all had access to all five internet
alternatives, were asked what type of internet
they had chosen as well as demographic
details.
Ida & Sakahira 2008
FTTH
Japan
2005
Revealed preference, exploring determinants

of staying and switching between broadband
technologies in Japan.
Cardona, Schwarz,
Yurtoglu & Zulehner 2009
DSL, cable
mobile and
broadband
Austria
2006
Revealed preference. Demand estimation for

market definition purposes. choosing among
ADSL, Cable and FTTH.
Source: Hayes 2011.
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Table D.2: Selected contingent valuation studies

Source
Product(s)
Country
Timeframe
Features or characteristics
Yoo & Moon 2006
Portable/wireless
internet
Korea
2003
Respondents stated their choices in hypothetical

markets for different service qualities at certain
prices with their present service as an outside
option
Rappoport,
Alleman &
Taylor - 2004
Wireless access to
the internet
USA
2003
Survey respondents were asked about their WTP

per month for wireless internet access.
Byun, Bae &

Kim - 2006
Digital multimedia
broadcasting
Korea
2003
Survey respondents were asked whether they

would be willing to pay several different sums for
monthly access to DMB, using the DoubleBounded Dichotomous Choice method.
Rappoport,
Taylor &
Alleman 2006
VoIP
USA
2004
Survey respondents were asked for their

maximum WTP per month for the ability to make
local and long distance calls via the internet if they
had internet, or if not, their maximum WTP for the
service if internet connection cost them $20.
Yoo - 2002
Cable television
Korea
1998
Survey respondents were asked their WTP for

cable television in Double Bounded Dichotomous
Choice format.
Source: Hayes 2011.
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AppendixEActivitieswithbenefitsoutsideofprivate
benefits
Types of benefits
Thefollowingtableisasubstantiallistofdirectbenefitsthatcouldresultfromtherolloutof
highspeedinternet,recognisingthatnewapplicationsprovidingbenefitswillalwaysbe
arising.Thetablehasseparatesectionsbasedonwhetherthebenefitsareprivateorpublic.
Thefirstsectionlistsbenefitsthatpredominantlyareprivateinnature.Theyarisefrom
activitiesbyprivateindividualsorbusinesses.Asaresultoftheseactivitiestheremaybesome
externalitiesthatissomeindirectimpactonothersinthecommunityorthesocietyatlarge.
Thesepotentialexternalitiesarelistedinthefinalcolumnofthetable.Thesearemostlyin
relationtohealth,education,environmentandgeneralsocietalwellbeingoutcomes
traditionalareasofgovernmentaction.
Thesecondsectionlistsdirectpublicbenefits.Theseareapplicationsrelatedtothedeliveryof
publicservicessuchashealthandeducation.Theseapplicationsmayenabletheprovisionof
newservicesorimproveexistingservicesthroughreducedcostsorbetteroutcomes.
Applicationsthatresultinneworbetterservicesalsocontributetopositiveexternalities
associatedwithimprovedhealth,educationandsocietalwellbeing.
Positiveexternalitiesthatmayberealisedthroughtheuseofbroadbandapplicationsinclude:
improvededucation:improvementsineducationleadtoincreasedproductivity,only
partofthisiscapturedprivatelythroughhigherwages;
generalenvironmentalbenefits;
healthbenefits;
publicsafety;
reducedpollution;
reducedtrafficandassociatedcosts:costsincludethoseassociatedwith
infrastructure,congestion,accidents,noiseandairpollution;and
socialinclusionbenefits.
Whilethislistislong,mostofthosebenefitslisteddonowarrantseparateconsiderationin
thisCBA.Towarrantconsiderationasanadditionalbenefit,thebenefitshould:
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beforhouseholdorsmallbusinessuse.ThisCBAisonlyconcernedwiththerolloutof
highspeedinternetservicestohouseholdsandbusinessesusingtheNBN;
notalreadybeincorporatedintoprivateWTP.Privatebenefitsarealreadycapturedin
theWTPestimateandthereforeshouldnotbedoublecounted;and
differbetweenthescenariosbeingconsideredintheCBA.Wherethebenefitis
expectedtoberealisedunderallscenariosthereisnoinsighttobemadebyanalysing
thebenefit.
Thebenefitsthatarerelevantforfurtherconsideration(thatis,theymeettheabovecriteria)
arehighlightedinthetable.Notethatallthosehighlightedareonlyrelevantforcomparing
thenofurtherrolloutorunsubsidisedrolloutscenarioswiththeMTMscenarioandFTTP
scenario(andnotbetweentheMTMscenarioandFTTPscenario).Mostofthebenefitsthat
wouldberealisedunderthelattertwoscenarioswouldbeinruralorregionalareaswhere
currentinternetspeedsareverylow.
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Table E.1: Direct benefits from high-speed internet

Area of benefit
Application
Description of
application and
potential socioeconomic impact
Nature of network
use
Required
bandwidth
(Mbps)
Would needs be met under

rollout scenarios:
1. No rollout
2. Unsubsidised rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Commerce/economy
SmartAgriFood EU
initiative to increase
efficiency of farming
Efficient farming
meets consumers
demands better:
available at the right
place in the right time,
at reasonable cost,
with less impact on
the environment
Data transfer for

precision farming,
product storage and
conservation, low
bandwidth
requirements
1. partly
2. partly
3. fully
4. fully
Commerce/economy
Cloud computing
(business)
Resulting increase in
IT efficiencies creates
opportunity to create a
new generation of
products and services
Symmetric data
2
services - using online
applications, real time
backup; Require
2 Mbps+, maximum
10ms latency
1. partly
2. partly
3. fully
4. fully
Commerce/economy
Send complex
information
electronically
Reduced costs,
increases
organisational
efficiency
Web browsing, social

media, video
streaming and
uploads, document
downloads and
uploads
1. partly
2. partly
3. fully
4. fully
Commerce/economy
General increased
access to information
General productivity
improvements from
increased access to
information, more
efficient markets,
accelerates spread of
ideas and innovation
Web browsing, social

media, video
streaming, document
downloads
1. partly
2. partly
3. fully
4. fully
PRIVATE BENEFITS
123of196
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Commerce/economy
Online banking business
Aids SMEs in dealing

with suppliers and
reduces costs
Web browsing
1. partly
2. partly
3. fully
4. fully
Commerce/economy
Online banking households
Addresses financial
exclusion for rural
communities
Web browsing
1. partly
2. partly
3. fully
4. fully
Commerce/economy
Open Food Network
An e-commerce
Web browsing, file
system that will
uploads and
reduce cost of food
downloads
businesses, improve
market access for
farmers, increase
supply of fresh
produce to consumers
1. partly
2. partly
3. fully
4. fully
Crime and public

safety
CCTV remote
storage of video data
Reduces crime and

community safety by
acting as a deterrent
to burglaries on
business
Symmetric use of
multiple video
streaming, video
generally not HD
1. partly
2. partly
3. fully
4. fully
B, G
Improves public safety
Crime and public

safety
Disaster response
receive information
and communication
Warning systems and

communication with
and between affected
people
Web browsing and

social media
1. partly
2. partly
3. fully
4. fully
H, G
Improves public safety
Culture
Collaborative
musicianship
Allows for remote

musical collaboration
Real time high fidelity

services; requires
120 Mbps up and
down, and latency of
less than 25ms
120
1. no
2. no
3. no
4. no
H, G
124of196
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Education and skills
Online courses
(further education
from home)
Provides education
with flexibility and
affordability which
helps for those that
also need to work
Web browsing, video

streaming
1. partly
2. partly
3. fully
4. fully
Benefits of improved
education
Remote musical
tuition
Provides access to
expert tuition through
video conferencing
services
Video conferencing
12
1. partly
2. partly
3. fully
4. fully
Employment
Homeshoring mainly Potentially leads to

call centre employees increased
working from home
employment in home
territory as businesses
move to homeshoring
instead of overseas
outsourcing; cost
savings for
businesses
Web-based networks
to connect employees
at home to business
servers
1. partly
2. partly
3. fully
4. fully
H, B
Reduced traffic and

associated costs
Employment
Telework
12
1. partly
2. partly
3. fully
4. fully
H, B
Reduced traffic and

associated costs
125of196
Geographically
Video conferencing,
dispersed workforce VPNs, and VoIP
more jobs for rural
services
and regional
communities, and
people with
disabilities, increased
productivity and worklife balance
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Employment
1080p telepresence
Creates a similar
feeling to a face to
face meeting has
cost and
environmental
benefits due to
reduced travel as well
as potential business
advantages
High-definition video
conferencing,
symmetric; requires
24 Mbps+ and
maximum 50ms
latency
24
1. partly
2. partly
3. fully
4. fully
H, B
Reduced traffic and

associated costs
Environment
Instant Mobility EU
initiative to provide
real-time travel
information in urban
areas
Environmental and
time-saving impacts
provides information
to individuals about
urban travel and
generate most
efficient travel
route/method
Asymmetric data
transfer
1. fully
2. fully
3. fully
4. fully
Reduced traffic and

associated costs
Environment
Smart grids/intelligent Connecting buildings

buildings
to the grid so that
energy consumption
can be automatically
managed. The US
Department of Energy
estimates that robust
use of the smart grid
could equate to
eliminating fuel and
greenhouse gas
emissions from 53
million cars
1. partly
2. partly
3. fully
4. fully
H, B
Reduced pollution
126of196
Symmetric data
1
transfer services
(between building and
grid/utility provider);
low bandwidth
requirements but
reliable and
widespread network
access
Area of benefit
Application
Description of
application and
Nature of network
use
Equality and inclusion
New services for

digitally excluded
possibly delivered by
mobile
New services could

provide access to job
opportunities, training,
government and local
authority services to
more people
Talking books
Increased access to
talking books for
people with print
impairments
Access to Electronic
Media for the Hearing
and Vision Impaired
(eg DTV4ALL in EU)
127of196

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Low quality IPTV, video 5

conferencing - likely to
be small devices eg
tablets
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Streaming or
download of talking
book files
12
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Applications to aid
IPTV (combined with
people with vision and terrestrial services)
hearing impairments eg signing, subtitling,
audio descriptions,
clean audio
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
TV-based videophone
Make video calls

accessible to those
that are not computer
literate (eg elderly) social inclusion and
health care benefits
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Video Relay Services
Allows sign language

Video conferencing
users to make and
receive phone calls
with voice telephone
users through use of a
VRS centre and an
interpreter
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Video services via

broadband delivered
to the TV
Required
bandwidth
(Mbps)
Area of benefit
Application
Description of
application and
Video Remote Sign

Interpreting
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Allows sign language

Video conferencing
users to communicate
with hearing people
through use of an
interpreter connected
via video conferencing
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Service centre for

deaf-blind people
People who are deaf- Combination of text,

blind are able to ask
video and audio
the service centre for communication
help with tasks at
home - using a
combination of
speech, video and text
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Communication for
people with
intellectual
impairments
People with
Video conferencing
intellectual
impairments may find
ordinary telephones
difficult to use and
understand, video
allows them to see the
person they are
speaking to
24
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
Education in sign
language
Distance education in
sign language
24
1. partly
2. partly
3. fully
4. fully
H, G
Social inclusion
benefits
128of196
Nature of network
use
Video conferencing,
downloading video
files
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Health and care
Online health
education
Ability to access this

information will allow
individuals to manage
their health more
effectively and save
money on healthcare;
likely to lead to
reduction in sick days
Asymmetric,
streaming video
1. partly
2. partly
3. fully
4. fully
Health benefits
Well being
High-definition video
VoIP services
Improves quality of life Video conferencing,

by keeping
1.5 Mbps+ (Skype),
friends/family
connected, saves
individuals money as
these services are
generally free
1.5
1. partly
2. partly
3. fully
4. fully
Well being
Cloud computing
(residential)
Improves quality of life

by saving consumers
time providing easy
access to media
content
Likely to be mainly
asymmetric services
such as video/music
streaming, although
some symmetric
services such as data
back-up; Require
2 Mbps+, low latency
1. partly
2. partly
3. fully
4. fully
Well being
Social inclusion
Marginalised people
are able to have a
voice and engage in
community through
blogs and social
media
Blogging and social

media
1. partly
2. partly
3. fully
4. fully
Social inclusion
benefits
129of196
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Crime and public

safety
Safe City EU
initiative using M2M
communication to
create intelligent
infrastructure
More effective crime

and incident
management creates
a safer urban
environment
Asymmetric data (eg

1
from intelligent traffic
lights), multiple uplink
video from CCTV; low
bandwidth
requirements
1. partly
2. partly
3. fully
4. fully
Public safety
Crime and public

safety
Remote video witness

statements
Witnesses can choose Video conferencing

to appear on video
from a location closer
to their home or
because they prefer
not to face the
accused in person
1. partly
2. partly
3. fully
4. fully
Crime and public

safety
Disaster response to
co-ordinate response
efforts, disseminate
safety information,
and provide outlets for
citizens to report
problems and needs
Benefits from greater

connectivity, eg
between health
centres and utility
providers; greater
resilience to threats
such as infectious
outbreaks,
bioterrorism and
attacks to the energy
grid. Also improves
emergency services
response
5 (dedicated
1. partly
private network) 2. partly
3. fully
4. fully
Public safety
PUBLIC BENEFITS
130of196
Web-based networks,
streaming video, realtime mapping, etc.
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Culture
WADEYE IPTV
To archive and serve

cultural video content
to remote indigenous
populations, enabling
content to be
accessed by future
generations
IPTV and remote

storage
12
1. partly
2. partly
3. fully
4. fully
H, G
Access to education
resources
Greater access to
information (outside
the classroom),
improves the quality
of offline education
Download e-books,
tests and videos
1. partly
2. partly
3. fully
4. fully
H, G
education
Online learning and

education resources
in class
Deployment of
innovative services,
applications and
content enhances
education and
professional skills
development,
increases business
productivity and spurs
economic growth
Teaching resources
including high-quality
video, primarily
asymmetric
streaming/one-tomany
1. partly
2. partly
3. fully
4. fully
education
Teacher professional
development
Teachers outside
Video conferencing
metropolitan areas
and online interactive
unable to access
activities
professional learning
can receive
development
opportunities through
virtual training. New
teachers in remote
areas improves
educational outcomes
1. partly
2. partly
3. fully
4. fully
H, G
education
131of196
Area of benefit
Application
Description of
application and
Fieldlabs using new

technology to increase
research and
development
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Transfer of knowledge Videoconferencing,

between corporations symmetric data
and universities to
sharing
increase R&D activity
and productivity
12
1. partly
2. partly
3. fully
4. fully
Virtual reality
experiences
Interactive lesson
plans and simulated
experiences
Symmetric data for

high quality VR video
218
1. no
2. no
3. no
4. no
education
Interactive virtual
reality experiences
Immersive and
interactive VR for
educational purposes
Symmetric data for

high quality VR video
960
1. no
2. no
3. no
4. no
education
School for the air
Satellite broadband
used to deliver
services to remote
students, and those
with disabilities who
might otherwise find
access to education
difficult
Speeds of at least
2-24
2 Mbps needed to
fully harness elearning benefits;
high-definition
streaming video, highdefinition
videoconferencing to
give sense of
presence
1. partly
2. partly
3. fully
4. fully
education
Environment
Increase awareness of Increased awareness

environmental issues of environmental
issues leads to
positive
environmental
outcomes
Social media, web

browsing, video
streaming
1. partly
2. partly
3. fully
4. fully
Environmental
benefits
132of196
Nature of network
use
Area of benefit
Application
Description of
application and
Caring for the elderly

remote monitoring
so that the elderly are
able to stay in their
own homes for longer
Governance
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Will save individuals

Symmetric data
and authorities money services; low
in terms of carers and bandwidths
will improve quality of
life for the elderly and
their families
3 must be
reliable
connection
1. partly
2. partly
3. fully
4. fully
H, G
Social inclusion
benefits
Participatory sensing
Management and
monitoring of noise
pollution by local
government in urban
areas - reduces
government costs
1. fully
2. fully
3. fully
4. fully
Governance
Online government
services
Includes electronic tax Web browsing and

returns, procurement, applications
trade and customs
processes
1. partly
2. partly
3. fully
4. fully
H, G
Reduced traffic and

associated costs
Health and care
SIMPill
Device on medication Simple messaging

packets detects when services
opened and reports
when medications are
not taken to improve
treatment
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
Health and care
Telehealth monitoring
Monitoring and
reporting of health
data and
measurements
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
133of196
Nature of network
use
Low bandwidth data

transfer from remote
noise sensors
Data transfer, not in

real time
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Health and care
Emergency alarms for

disabled
Alert systems that can

be activated by
disabled people to call
for help, allowing
them to be more
independent
Low bandwidth
connection for
sending alert
messages
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
Health and care
Electronic health
records records
distribution
Cost reductions from

more automated
clinical systems
Symmetric data
2
most research implies
this is low bandwidth
such as insurance
records
1. partly
2. partly
3. fully
4. fully
Health and care
SeeCare IPTV
Improve health
literacy of the
population with
positive health
outcomes
Use of television to
reach people without
computer skills
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Health information
Patients and health

workers can access
information online.
Improvements in
health outcomes
where patients take
preventative
measures and
improve treatment
behaviours
Web browsing
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
134of196
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Health and care
Aged care services
Services for older

people that enable
reduced social
isolation, in home
health care,
telehealth, passive
health monitoring,
falls detection
Web browsing, video

conferencing, remote
sensing
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
Health and care
Viewing of medical
imaging
Ability for specialists

File transfers
to examine medical
imaging conducted at
remote local hospitals
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Communication and
information sharing
Electronic information Emails and document

flows between care
storage and sharing
providers to improve
planning, coordination
and decision making
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Training and support
Training for health

professionals,
especially in remote
areas
Video conferencing
and online interactive
activities
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Remote key-hole
surgery
Surgery performed
remotely - removes
the need for patients
to travel to large cities
to see surgeons,
requires equipment in
remote locations
Secure reliable
network with low
latency, surgical
apparatus controlled
remotely
10
1. partly
2. partly
3. fully
4. fully
Health benefits
135of196
Area of benefit
Application
Description of
application and
Nature of network
use
Required
bandwidth
(Mbps)

rollout scenarios:
1. No rollout
3. Multi-technology
4. FTTP
Connection required
at household (H),
business (B) and/or
government (G)
premises
Externalities
Health and care
Teledentistry
Provides access to
specialist health
services connects
specialists with
regional clinicians
Video conferencing
24
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Telerehabilitation
Enable sufferers of
Chronic Obstructive
Pulmonary Disease
(COPD) to undertake
remote respiratory
rehabilitation in their
own homes
Integrating
24
videoconferencing
and a wireless smart
app for pulse oximetry
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
Health and care
Telestroke
Connect regional
hospitals to
specialists, qualified
stroke neurologists to
prescribe drugs to
treat stroke
Video conferencing
24
1. partly
2. partly
3. fully
4. fully
Health benefits
Health and care
Telehealth consultations
Remote consultations
and examination of
patients, reducing
time and cost of travel
Requires stable, high

quality connection
with symmetrical
bandwidth for video
conferencing
10+
1. partly
2. partly
3. fully
4. fully
H, G
Health benefits
Well being
Hear Me Out
Online activities to
promote social
inclusion and
participation for
hearing impaired
young people
Video conferencing
and interactive online
activities
24
1. partly
2. partly
3. fully
4. fully
H, G
Social inclusion
benefits
Source: The CIE based on: PricewaterhouseCoopers 2004; Hayes 2011; Slater et al. 2010; Analysys Mason and Tech4i2, 2013; Institute for a Broadband Enabled Economy 2014; Deloitte 2014; Access Economics 2009.
136of196
AppendixFReviewofcostestimatesmadebyNBNCo
Overview
DuringthecourseofNBNCosStrategicReview,NBNCoanditsconsultantsproduceda
numberoffinancialmodelstoestimatenetworkdeploymentandmaintenancecostsusing
differenttechnologyoptions.Thepanelhasdrawnonthosemodelstoestimatecoststhatare
relevantforuseintheCBA.
ThepanelnotesthatthepurposeoftheCBAdiffersfromthatoftheStrategicReview,which
hasimplicationsforthemethodologyusedtoestimatecosts.WhiletheStrategicReviewcost
modellingexaminedthefinancialcoststoNBNCoofdeploying,operatingandmaintainingthe
NBN,theCBAconsiderstheeconomiccostsassociatedwiththoseactivities.Asisdiscussedin
moredetailbelow,theeconomiccostsaretheunderlyingresourcecostsassociatedwiththe
NBN.
InordertodeterminerelevantcostsforuseintheCBAthepanelhasconductedareviewof
NBNCoscostestimates,whichhasinvolved:
conductingahighlevelcomparativereviewoftheoutputofthecostmodelsagainst
relevantbenchmarks;
conductingadetailedreviewofcalculationscontainedwithinthecostmodelsto
understandthekeycostdrivers,makeanyappropriateadjustmentstoassumptionsor
calculations,andidentifyparametersforsensitivityanalysis;and
convertingthefinancialcostsproducedbytheNBNComodelsintoeconomiccosts.
Asidefromtheadjustmentsrequiredtoestimateeconomiccosts,ratherthanfinancialcosts,
thepanelhasconsidereditappropriatetomakeanumberofrefinementstothemodel.The
panelnotesthattheStrategicReviewmodellingassessedtheissueofwhetheraMulti
TechnologyMix(MTM)networkwouldbelesscostlythancontinuingwithanFTTPonlyfixed
network.Thatmodellingshowedthatevenwhenareasonablyconservativeapproachwas
taken31,theMTMnetworkscenariowaslesscostlythantheFTTPscenario.
31Inparticular,acautiousapproachseemstohavebeentakeninrespectofFTTNsoastoerronthesideof
overstatingcosts,whereasamoreoptimisticapproachwastakenfortheFTTPmodellingintermsofachieving
efficiencies.
137of196
Thecostmodellingrefinementsthatthepanelhasconsidereditappropriatetoadoptrelate
primarilyto:
Productivityfactors:theStrategicReviewassumedverysubstantialproductivitygains
duringtheNBNconstructionphaseforalltechnologies.Thesewereparticularlyhigh
forFTTP,incorporatinglargeproductivitygainsthatwereinadditiontotheefficiencies
achievablefromtheRadicallyRedesignedFTTPnetwork.Thepanelconsideredthatthe
productivitygainsforalltechnologieswereveryambitiousandasaresult,conducted
ananalysisusinganalternativesetofproductivityfactorsthataremoreconsistent
withinternationalestimatesofnationwidenetworkdeployment.
Indirectoperatingcosts:corporateoverheadassumptionsintheStrategicReview
modelwerelargelysetatthelevelspreviouslyadoptedintheCorporatePlanandwere
modelledbasedonanFTTPscenario.Thebulkofthedetailedmodellinginthe
StrategicReviewfocussedonthetechnologymodelsthatestimatethenetworkcosts,
ratherthanonscrutinisingcorporateoverheadcosts.Thislikelyreflectsthatakey
focusoftheStrategicReviewwasonthedifferenceindeploymentcostsbetweenan
FTTPonlynetworkandanMTMnetwork.Whilethematterofwhetherindirectcosts
varybetweenthetechnologyscenariosmaynothavebeencrucialtotheassessment
ofthemattersatissueintheStrategicReview,thepanelconsidersthatitispotentially
materialtotheCBAandsohasfurtherexaminedthesecosts.Thepanelhasconcluded
thatitisappropriatetoconductasensitivityinwhichindirectcostsvarybetween
technologyscenariosaccordingtothelevelofaccumulatedcapex.
Projectmanagementanddesigncosts:projectmanagementcostsintheStrategic
ReviewmodelwerealsoheldconstantfortheFTTPandMTMscenarios.Althoughthe
MTMscenariowouldinvolvesomeadditionalcomplexityinmanagingthedeployment
ofmultipletechnologies,thetotalamountofnetworkconstructionundertheMTMis
substantiallylessthanintheFTTPscenario.Thepanelhasconcludedthatitis
appropriatetoconductasensitivityinwhichprojectmanagementanddesigncosts
wouldbereducedfortheMTMscenario.Thishasbeendonebyassumingthecosts
varyinproportiontothelevelofaccumulatedcapex.
Opexassumptions(powerandtruckroll):powercostsintheFTTNtechnologymodel
weresetatthestandardrateasadvertisedonanenergysupplierswebsite.Thepanel
considereditlikelythatanentitythesizeofNBNCowouldreceiveavolumediscount
offstandardratesandhasadjustedthiscostaccordingly.Withregardtotruckrollcosts
(thatis,thecostoftechnicianvisitstoaddressnetworkfaults),thepanelconsidered
thattheassumptionoftechnicianhoursforeachtruckrollfortheFTTPnetwork(as
comparedwithhoursforFTTNtechniciancallouts)wasunderstatedandrevisedthis
upwards.
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Otherminorauditmatters:inourreviewoftheStrategicReviewmodelsweidentified
somecorrectionstobemadetoformulas.Wenotethatthesechangeshadarelatively
minorimpactontheresultsofthemodel.
InwhatfollowswefirstbrieflydescribethemodellingframeworkusedbyNBNCo32.Wethen
discussthefindingsofourhighlevelcomparativereviewofthemodelresults,thedetailed
reviewofthemodelcalculationsandidentifytheadjustmentsandsensitivityanalysesthatwe
considerappropriate.
NBN Co modelling framework

AnumberoftechnologyspecificmodelswerepreparedforNBNCobyitsconsultantsfor
FTTP,FTTN,HFCandFixedWireless/Satellite(FWS)servicesaspartoftheStrategicReview.
ResultsfromthesemodelsfeedintoNBNCosCorporateModel,whichcombinestechnology
specificcostswithcoststhatarecommontoalltechnologies,suchastransitcosts,systems
costs,andothergeneraloverheadcosts.Acopyofeachofthetechnologymodelsandthe
CorporateModelwereprovidedonaconfidentialbasis.
ThetechnologymodelswereconstructedbyNBNCosexternalconsultants(BCG)withinput
fromNBNCo.Themodelscontaindetailedbottomupassessmentsofthecapexrequiredfor
networkdeployment,ongoingoperatingexpenditure(opex),andtheongoingCapexof
replacementsandcapacityupgrades.Costsareestimatedusingindividualequipmentcosts,
estimatesofthequantityofequipmentrequiredandhoursoflabournecessaryfornetwork
deployment.
ForFTTPandFTTN,thetechnologymodelscoverthenetworkfromthecustomerpremisesup
to,butnotincluding,theFibreAccessNode(FAN)seeChartF.1belowforadiagram
demonstratingthecomponentsmodelledforFTTP.Costsaremodelledforindividual
DistributionAreas(DAs)basedoninformationregardingthenumberofpremises33and
networkdistancesforeachDA.34
32ForfurtherdetailseeNBNCo(2013).
33Theinformationusedsplitsoutthenumberofpremisesbytheamountthataresingledwellingunitsversus
multipledwellingunits.
34Inparticular,thedistancesbetweenthepillarandpremises,andbetweenthepillarsandtheFAN.
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Chart F.1: FTTP costs modelled in the Strategic Review
TheFTTPmodelassumesthatsomeofthenetworkisaerialusingexistingpoles,someuses
Telstrasexistingundergroundnetworkandthattheremainderrequiresconstructionof
completelynewnetworkinfrastructure.ThespecificassumptionsusedintheFTTPmodel
regardingtheuseofTelstrasexistingundergroundleadinconduitsandductsanduseof
aerialnetworkarecontainedbelowinTableF.2.
Table F.2: FTTP model assumptions on aerial, existing underground and new underground network
Lead-ins
Local network
Distribution network
Shared network
Per cent
Per cent
Per cent
Per cent
Share of aerial network
Share of existing underground network
Share of new underground network
Source: Link Economics, based on NBN Co cost models.
FortheHFCtechnologymodel,thecostsincludedarefromtheCableModemTermination
System(CMTS),includingCMTScosts,tothecustomerdrop.Keycostsmodelledrelateto:
fillingintheHFCcoveragefootprint;
leadinsforpremisesthatdonotyethaveone;
CPE(customerpremisesequipment)upgradesforexistingHFCsubscribers;
providingbatterybackups;and
ongoingcapacityexpansionasusageincreases.
TheCorporateModelincludesanumberoftechnologymixoptionsthatwereevaluatedinthe
StrategicReview.ThetwotechnologyscenariosthatwehavereliedonfortheCBAanalysis
are:(1)TheRadicallyRedesignedFTTPscenario(referredtofromhereonastheFTTP
Scenario);and(2)TheOptimisedMultiTechnologyMixscenariowhichincludesamixofFTTP,
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FTTNandHFCwithintheprimaryfixedlinefootprint(referredtofromhereonastheMTM
scenario).
.
InboththeFTTPscenarioandtheMTMscenario,the7percentofcustomersoutsidethe
primaryfixedlinefootprintareservedusingfixedwirelessservices,satelliteservicesor,fora
smallproportionofcustomers,FTTN.TheFWSmodelincludesthecostsofprovidingservices
toapproximatelycustomersoutsidetheprimaryfixedlinenetwork,butprovides
coveragetoatotalofcustomers.
DuetothenatureofFWSservices,theFWSmodelincludesboththecustomerconnectionand
transitcosts.Fixedwirelessservicesareprovidedusing2,300Hzspectrumandrequirealine
ofsightbetweentheBTSandthesubscriber.Approximately2,500fixedwirelesssitesplus
additionalrepeatertowersareassumedtobedeployedbytheendof2019.Backhaulcostsin
thefixedwirelesscomponentoftheFWSmodelincludemicrowavecosts,fibrespursandthe
FAN.
InthesatellitecomponentoftheFWSmodel,weutilisedcostresultsfromthescenarioin
whichtwosatellitesaredeployed(ratherthanthree),andasatellitethroughputof200kbps.
Highlevel comparative review of Corporate Model Outputs

TheCorporateModel(unadjusted)producestotalnominalopexof$fortheFTTP
scenarioand$fortheMTMscenariofortheperiod2015to2040.Nominalcapexforthe
sameperiodis$and$,respectivelyfortheFTTPandMTMscenarios.
Withregardtoopex,ascanbeseenfromTableF.3,asignificantproportion,around
percent,isaccountedforbypaymentstoTelstraandOptus.Thosepaymentscover
theuseofassets(forexample,darkfibreforthetransitnetwork,andtheleaseofductsinthe
localnetwork)aswellasdisconnectionpaymentstopartieswhencustomersaremigratedto
theNBN(forexample,thePSAApaymentstoTelstra).Asisdiscussedinmoredetailbelow,
thebulkofthesepaymentswouldbeexcludedfromtheCBAastheyaretransfersratherthan
resourcecostincurredasaresultofdeployingtheNBN.However,thesecostsarerelevantto
determiningtheamountofgovernmentfundingrequiredwhichisutilisedintheCBAto
calculatethedeadweightlossoftaxation.Oneobservationthatcanbemadeisthatthese
costsremainroughlyconstantbetweentheFTTPandtheMTMscenarios.Thisreflectsthe
financialcommitmentsincludedinthecontracts.
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TheCorporateModel(unadjusted)producestotalnominalopexof$fortheFTTP
scenarioand$fortheMTMscenariofortheperiod2015to2040.Nominalcapexfor
thesameperiodis$and$,respectivelyfortheFTTPandMTMscenarios.
Table F.3: NBN Co forecast Operating Expenditure (total nominal cost 2015-2040)
FTTP scenario
MTM scenario
$m
$m
Rollout opex
HFC Payments - Optus
PSAA Payments - Telstra
Fixed wireless and satellite opex
Reimbursement of RSP ATAs
Duct lease costs
Transit network opex
Outsourced O&M opex
OSS/BSS increment to Corporate Plan
Indirect opex
Network operations
Contingency opex
Total opex
100.0
100
Source: Link Economics based on data provided by NBN Co.
Asidefromthecostitemsthatarelargelytransfers,indirectopexisthesinglelargestcost
itemaccountingforpercentoftotalopex.Thebulkoftheindirectopexisaccounted
forbysalariesandwages(percentofindirectopex).Othersignificantcomponentsof
indirectopexincludeITandtelecommunicationscostswhichaccountforpercentand
Facilities,Office,SecurityandFleetcostswhichaccountforpercentindirectopex.
Technologyspecificopexforthefixednetworktechnologiesaccountforpercentoftotal
opexfortheFTTPscenarioandaroundpercentfortheMTMscenario,whilefixedwireless
andsatelliteopexisapproximatelypercentofopex.
Fixednetworkcapex(totalnominalovertheperiod2015to2040)is$billionforthe
FTTPscenarioand$billionfortheMTMscenario.35Capexforareasoutsideofthefixed
networkfootprinttotals$billion,howeverasthisincludesbackhaulitisnotcomparablewith
thefixednetworkcosts.
35Thisincludesconstructioncapex,replacementcapex,transitnetworkcapexandgreenfieldsnetwork
deploymentcosts.
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Table F.4: NBN Co forecast Capital Expenditure (total nominal cost 2015-2040)
FTTP scenario
MTM scenario
$m
Per cent
$m
Per cent
Construction capex
Replacement capex
Contingency capex
Transit network capex
Lead-in-Conduit shortfall capex
Common capex
Project management and design
Reserves and other capex
Fixed wireless and satellite capex
OSS/BSS increment to Corporate Plan
Greenfields capex
Total capex
100.0
100.0
International comparisons
TheNBNCoFTTPbottomuptechnologymodelestimatesanaverageconstructioncapexcost
of$perpremisespassed(seeTableF.5).36TheNBNCoCorporatemodelassumesthat
labourproductivitygains
.Giventhattheaveragelabourinflationrateisapproximately
3.5percent,
.
Table F.5: NBN Co FTTP cost estimate
Capex cost build
Annual post-build
capex cost
Annual opex cost
$/premises passed
$/premises
$/premises
Average
Median
36TheFTTPbuildcostsrelatetotheaccessnetworkonlyanddonotincludepaymentsforuseofducts,butdo
includepaymentsforleadinconduits.
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Chart F.6: NBN Co estimates of FTTP build costs per premises passed (real 2014 dollars)
3 000
2 500
Commercialinconfidence
2 000
1 500
1 000
BCG bottom-up estimate

Adjusted estimate to assume that labour efficiencies offset labour inflation
Adjusted estimate to incorporate further productivity efficiencies
500
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
TheStrategicReviewbrieflydiscussesinternationalbenchmarksandNBNCosfindingthat
thecostofrollingoutanewFTTPnetworkincountriesmostcomparabletoAustraliaranges
from$1,1001,300perpremises.37Thoseinternationalbenchmarksarethebasisofthe
productivityadjustmentsappliedbyNBNCo.
AdifficultywithinternationalcomparisonsofcostsisthatFTTPdeploymentsinother
countrieshavebeenprimarilyonacommercialbasis.Thatis,networkdeploymenthasbeen
confinedtoareasthatarecommerciallyviable.Asaresult,internationalbenchmarksofFTTP
deploymentcostswouldgenerallybelowerthanthecostsofwidescaledeployment.Thisis
clearfromastudycommissionedbytheEuropeanCommission(preparedAnalysysMasonand
Tech4i22013)whichmodelledthecostsofcommercialandfullcoverage.Ascanbeseen
fromChartF.7,averagebuildcostsoffullcoveragenetworksaresubstantiallyhigherthan
averagebuildcostsofcommercialdeployment.Thisisparticularlythecaseforcountriesthat
havelowpopulationdensities,moreakintoAustralia,suchastheNordiccountrieswherefull
coveragecostsareatleastthreetimesthecostsofcommercialdeployment.
37StrategicReview,p.13.
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Chart F.7: European Commission FTTP costs per premises for commercial deployment and full
coverage Western Europe
Source: European Commission (2013), The Socio-Economic Impact of Bandwidth, p. 213.
ComparisonoftheNBNCoFTTPcostestimatesshowsthatthebottomupcostestimateof
A$is
.
AnotherinternationalbenchmarkrelatingtoawidescaledeploymentofFTTPisthatof
NewZealand.InFY2013Chorus,NewZealandslargestnetworkproviderofFTTPservices,
incurredacostperpremisespassed(CPPP)ofNZ$3,048(A$2,824)fornewbuilds,witha
blendedcostofNZ$2,935(A$2,720)whenexistingBroadbandOverFibrepremisesandnew
subdivisionsaretakenintoaccount.Inaddition,thecustomerconnectioncostsexperienced
byChorushavebeenNZ$1,700(A$1,575)forstandardconnections.Thisimpliesatotalcost
ofaround$A4,295atpresent.Overthelongerterm,Chorusisaimingtoreduceconnection
coststoNZ$900NZ$1,100(A$835A$1,020)perpremises(inrealdollars).38Chorus
longtermtargetfortheCPPPappearstobearoundA$1,390,withforecastcostreductions
primarilyattributedtohavingdeployednetworkinthehighercostareasintheearlieryearsof
thebuildasaresultofcommitmentstodeploytoprioritypremiseszones.39Evenwiththese
38ChorusHalfYearResult,FY14Forsixmonthsending31December2013,p.21.Availableat:
http://www.chorus.co.nz/file/42884/InvestorPresentation.pdf
39Chorus(21May2014),InstitutionalInvestorPresentation.Availableat:
https://www.nzx.com/files/attachments/194167.pdf
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longertermcostreductions,ChorustotalcostpercustomerconnectedisaroundA$2,320.
.Costscanbeexpectedtovaryacrosscountriesfora
rangeofreasons,includingforexample,duetodifferencesintheextenttowhichtheexisting
ductnetworkandleadinconduitscanbeused.However,it
.
WithregardtoFTTN,NBNCosbottomuptechnologymodelestimatesabuildcostof
$perpremises(seeTableF.8).
Table F.8: NBN Co FTTN cost estimate
Capex cost build
($/premises passed)
Annual post-build capex

cost ($/premises)
Annual opex cost

($/premises)
$/premises passed
$/premises
$/premises
Average
Median
ApplicationoftheNBNCosFTTNproductivityfactorsresultsin
theFTTNbuildcostinreal2014termsrangingfromaround$perpremisesinthefirst
yearofdeployment(2016)to$perpremisesinthefinalyearofdeployment(2020),with
aweightedaverageovertimeof$.
Chart F.9: NBN Co estimates of FTTN build costs per premises passed (real 2014 dollars)
700
600
500
400
300
BCG bottom-up estimate

Adjusted estimate to assume that labour efficiencies offset labour inflation
200
Adjusted estimate to incorporate further productivity efficiencies
100
0
2016
2017
2018
2019
2020
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ComparingthesecostswiththosefromtheanalysiscommissionedbytheEuropean
CommissionshowsthattheNBNCoestimateof
.Afterapplicationoftheproductivityefficiencies,theNBNCo2020
estimateof
.
Chart F.10: European Commission FTTN costs per premises for commercial deployment and full
coverage Western Europe
Source: European Commission (2013).
Bottomup review of models

OurreviewoftheNBNComodelsfocussedprimarilyon:
1. reviewingtheoverallmethodology;
2. gainingadetailedunderstandingofthewayinwhichthemodelworkssoastoensure
thatweareabletocorrectlyextracttherelevantinformation;
3. identifyingcriticalassumptionsthatarehaveasignificantdegreeofuncertaintyand
havepotentialtomateriallyimpactthequantumofcosts;and
4. auditingthecalculationstoidentifyanyinadvertenterrors.
Wenotethetechnicalassumptionsmadeinthetechnologymodelswerethesubjectof
detailedreviewandscrutinybyNBNCosexternalconsultantsusingNBNCosowncost
informationandinternationalbenchmarking.Asaresultwehavelargelyadoptedthose
assumptionsinourcostmodelling.
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Inwhatfollowswediscussthekeyfindingsofourreviewandimplicationsforadjustmentsto
themodel.
Productivity assumptions FTTP
Asdiscussedabove,theNBNCoCorporateModelassumes
.
Chart F.11: NBN Co and revised FTTP productivity factors
1.60
1.40
1.20
1.00
0.80
0.60
0.40
FTTP - NBN Co
FTTP - Revised
0.20
FY2024HY1
FY2023HY2
FY2023HY1
FY2022HY2
FY2022HY1
FY2021HY2
FY2021HY1
FY2020HY2
FY2020HY1
FY2019HY2
FY2019HY1
FY2018HY2
FY2018HY1
FY2017HY2
FY2017HY1
FY2016HY2
FY2016HY1
FY2015HY2
FY2015HY1
0.00
Productivity HFC and FTTN

ForFTTNandHFCweadoptproductivityfactorsthataresimilartotheNBNCoestimates
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Chart F.12: NBN Co and revised FTTP productivity factors

1.40
1.20
1.00
0.80
0.60
0.40
FTTN - NBN Co
FTTN and HFC - Revised
HFC - NBN Co
0.20
FY2020HY1
FY2019HY2
FY2019HY1
FY2018HY2
FY2018HY1
FY2017HY2
FY2017HY1
FY2016HY2
FY2016HY1
0.00
Indirect costs and project management costs

AshighlightedaboveinthediscussionofNBNCosopexforecasts,theIndirectOpexincluded
intheNBNCocostmodelis
.
ItiscommonintelecommunicationscostmodellingforIndirectOpexcoststobedirectly
relatedtothelevelofcapexanddirectopex.Thisisimplementedthroughtheuseofan
overheadmarkup.Whilethereissomevariationwithininternationalcostmodelsofthe
percentagemarkupusedtoestimateoverheadcosts,theapproachofapplyingamarkupis
commonreflectingageneralconsensusthatthereisarelationshipbetweentheoverallsizeof
theinvestmentandoperations,andthelevelofoverheads.40
40Forexample,theACCCcalculatedoverheadsthroughamarkupinitsTotalServiceLongRunIncremental
Cost(TSLRIC)modelthatwasusedtosetpricesforfixednetworkaccessservices.TheTSLRICmodel
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Inlightoftheabovediscussion,thepanelconsidersitappropriatetocarryoutasensitivity
analysison
.
Financial commitments under existing contracts
ThereareanumberofminimumpurchasearrangementsintheagreementswithTelstra
includingforductsandleadinconduits.Theminimumfinancialcommitmentshavebeen
incorporatedintotheNBNCocorporatecostmodel.
.
Thebulkofthecostofthefinancialcommitmentsisnotaneconomiccost(asitisinsteada
transfer)andsoisprimarilyrelevantforthecalculationoffundingratherthanforthe
estimationofthecostbasetobeincludedintheCBA.
Replacement capex
EachofthetechnologymodelsforFTTN,FTTPandHFCcalculatea
estimatedoverheadsusingbothamarkuponcapexandamarkuponopex,of1.97percentand
59.77percent,respectively.IntheUStheBCPMmodelusedinthecontextofUniversalServiceModelling,
businessoverheadsarederivedbyapplyingamarkupof10.4percentforcommoncostsinthebasecase
scenario.(DOCKETNO.UT980311(a)forUniversalServiceTenthSupplementalOrder,OrderEstablishing
Costs.BeforetheWashingtonUtilitiesandTransportationCommissionIntheMatterofDeterminingCosts,
OrderEstablishingCosts,para.263).CostmodellingconsultantsWIKhavefoundintheirbenchmarking
analysis,thatitiscommontouseanoverheadmarkupofaround10percentontotalcapexandopex.
(WiKConsult(March2013),EstimatingtheCostofGEA),p.28.
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Asaresult,
wehaveadjustedthereplacementcapexestimatestoreflectthetimeprofileofasset
lifetimes.
Opex power costs
Apowercostofc/kWhwasusedintheFTTNmodel.ThisissourcedtotheOriginEnergy
websiteandappearstobeastandardrate.AlargecustomersuchasNBNCowouldtypically
beofferedsomeformofvolumediscount.Intheabsenceofinformationastowhatdiscount
NBNisprovidedwith,thepanelhasassumeadiscountofpercentwhichislikelyonthe
conservativeside(thatis,ahigherdiscountmaywellbeachievedbysuchalargecustomer).
Opex truckroll
TheFTTPmodelassumesthatwhenafaultoccursandatechnicianissenttorestorethefault
thatonlyhoursoftechniciantimeisrequired.Incomparison,theFTTNmodelutilises
theassumptionthathoursoftechniciantimeisrequiredforeachFTTNfaultthatrequires
atruckroll(thatis,atechnicianvisit).
Inclusion of GST
Opex materials costs
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Converting financial costs into economic costs

Approach
Financialcostsaredifferenttoeconomiccosts.Economiccostsmeasuretheincremental
resourcecostsassociatedwithanewactivity.Incontrast,financialcostsarethecostsincurred
byNBNCo(inthiscase).ToadjustfinancialcostinformationprovidedbyNBNCotoeconomic
costswehavedonethefollowing.
RemovedtransfersfromNBNCotootherorganisationsundereachscenario.Transfers
include,forexample,paymentstoTelstrafortheuseofexistingassets.
AddedcostsincurredoutsideofNBNCoundereachscenario.
RemovedcostsavoidedbecauseofNBNCosexistenceundereachscenario.For
example,aFTTPnetworkwouldavoidmaintenancecostsassociatedwiththecopper
network.
Transfers
CoststoNBNCothataretransferstootherpartiesfortheuseofexistinginfrastructureare
notincludedintheassessmentofcostsfortheCBA.41Thetransferswehaveidentifiedinour
reviewoftheNBNComodelsandremovedfromthecostassessmentareasfollows:
themajorityofHFCpaymentstoOptus;
themajorityofPSAA(persubscriberaddressamount)paymentstoTelstra;
themajorityofductleasecosts;
spectrumusedintheprovisionoffixedwirelessservices;
colocationleasesfortheprovisionoffixedwirelessservices;
groundleasesintheFWSmodel;
approximatelyhalfoftransitopexcosts,whichcoverarangeofservicesincluding
DarkFibre,RackSpaces,ReservationFeesandManagedBackhaulServices;
41However,itisnotedthattransfersarerelevanttothecalculationofthetotalamountofgovernmentfunding
whichisusedseparatelyintheCBAmodel.
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polerentalcharges;
LIC(LeadInConduit)ChargesaonceoffchargeperLICisappliedintheFTTP
TechnologyModel;and
LICShortfallPaymentthispaymentreflectscontractualcommitmentstopurchasea
minimumnumberofLICs.
Whiletheremaybesomeothertransfersinadditiontothoselistedaboveweexpecttheseto
berelativelysmall,suchthattheywouldnothaveamaterialeffectonthemodelresults.
Someoftheseitemsidentifiedabovearenotpuretransfersbecauseadegreeofmaintenance
and/orinvestmentwouldberequiredinordertoprovidetheservice.Inrespectofduct
leases,wehaveestimatedthecostofongoingmaintenancebyusingtheopex/capexratio
adoptedbytheACCCinitsLRICCoreandAccessModel.42Usingthatratioallowsustoderive
that99.8%oftheductleasecostswouldbecapex,andweassumethattheentiretyofthat
capexisatransfer.
Fortransitpayments,werefertoinformationpublishedbyTelstrainitsexplanation
memorandum43(theTelstraEM)todeterminethatareasonableassumptionofthe
percentagetransferis75percent.WithregardtoPSAApayments,wereliedonthe
informationdisclosedintheTelstraEMregardingcustomermigrationcoststodeterminethat
areasonableassumptionofthepercentagetransferis95percent.Thesamepercentage
transferwasappliedtotheOptusHFCpayments.
TheFTTNmodeldoesnotincludeanyadditionalpaymentstoTelstrawithregardtotheuseof
subloops(thatis,thecopperloopbetweenthecustomerpremisesandthenode)thatwould
berequiredtoprovideFTTNservices.Weallowforanadditionalcosttomaintainpartsofthe
coppernetworkusedforFTTNcomparedtoareaswhereHFCorFTTPisused.Thisisreflected
asasmalleravoidedcostfromreducedcoppercostsfortheMTMscenario.
Avoided costs
AsaresultofthemigrationofcustomerstotheNBN,thecostsofmaintainingpartsofthe
existingcustomeraccessnetworkwillbeavoided.Tocalculatetheavoidedcostsof
maintainingthecoppernetworkweusedinformationcontainedintheACCCTSLRICmodelfor
fixedservices.Weidentifiedforeachassetrelatedtotheaccessnetworkwhetheritwouldbe
42CoreandAccessModelpreparedbyAnalysysMasonfortheACCCin2008.
43TelstraCorporationLimited,FortheResolutionUnderItem2attheAnnualGeneralMeetingon18October
2011:ExplanatoryMemorandumTelstrasParticipationintheRolloutoftheNationalBroadbandNetwork.
Availableat:http://www.telstra.com.au/abouttelstra/download/document/ExplanatoryMemorandum.pdf
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avoidedundereachoftheFTTPandMTMscenarios.Wethensummedthenetworkopexand
associatedbusinessoverheadsforeachavoidedassettoestimatethetotalavoidedcosts
associatedwiththecoppernetworkandappliedthesereductionsovertime.Itisassumed
that(whererelevant)thecostsofcopperareavoided2yearsafterapremisesispassed.This
maybeanunderestimateinsomecasesifcopperservicesarecontinuedbecause,for
example,specialservicescannotbeprovideoveranothertechnologyplatform.
UndertheNBN,broadbandserviceproviderswillavoidthecostsofusingtheirownDSL
equipment.Wehavecalculatedtheavoidedcostperlineasthedifferencebetweenthe
regulatedpricesforwholesaleADSLandforUnbundledLocalLoop.Thisgivesanestimateof
$7.64persubscriberpermonth,whichequatesto$3.69perpremisespassedpermonth.This
avoidedcostisallocatedovertimeaspremisesarepassedbytheNBN.
AppendixGInternationalbroadbandstrategies
International Broadband Strategies
Theimportanceofbroadbandinternetineconomicandsocialdevelopmenthasbeen
recognisedbymanycountries.AreportbytheBroadbandCommissionforDigital
Development(2013)foundthatinmid2013134differentcountrieshadsomeformof
broadbandplaninplacerangingfromaspirationaltargetstodetailedplansfortherolloutof
networkinfrastructure.
Particularsofnineselectedgovernmentpolicies(plusAustralia),alongwithdetailsofthe
networkdeploymentandregulatoryenvironment,aresummarisedinthetablesbelow.Of
thesesummarisedplans,mostaimtoprovideatleastbasicbroadbandspeedstomost
(90100percent)householdsby2020.Mostoftheplansalsotargetspeedsof100Mbpsforat
leastsomeofthenetwork.WiththeexceptionofSingapore,allthesummarisedplans
proposeacombinationofpublicandprivatefundstoachievethenetworkrolloutandmostdo
notspecifyatechnology.Themechanismofprovidingthepublicfundingincludelowcost
loans,taxsubsidies,directsubsidiesandregulatedwholesaleaccesstoexistinginfrastructure.
Twoclearexamplesofalternativeapproachestoregulatingthebroadbandsectorarethatof
theUSandEurope.Afteraninitialperiodofrequiringincumbentnetworkproviderstoshare
theirnetworksthroughlocalloopunbundlingandwholesaleaccess,theUSregulators
switchedtoaregulatoryregimethatencouragedfacilitiesbasedcompetition(ratherthan
servicebasedcompetition).Europeangovernments,however,continuetofavourtheservice
basedcompetitionapproach.Yoo(2014)soughttouseempiricaldatafromtheUSandEurope
toassesswhichregulatoryapproachwasmoresuccessfulatincreasingadoptionand
deploymentofbroadbandtechnologies.Hefoundthat,comparedtoEurope,agreater
percentageofUShouseholdshadaccesstohighspeedbroadbandservices(wherehighspeed
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wasdefinedasspeedsofatleast25Mbps).Thisresultheldforbothurbanandruralareas.
ThelevelofinvestmentinbuildingandupgradingnetworkswasalsohigherintheUSandUS
broadbandwasfoundtobemoreexpensive(althoughUSusersalsoconsumedsignificantly
morebandwidththanEuropeanusers).HeconcludesthattheUShasfaredbetterthan
EuropeinextendingbroadbandaccessandthattheUSregulatoryapproachcontributedto
thisresult.Yoonotedthatcablenetworkswereinitiallydeployedtoprovidemultichannel
videoservicesandthereforebroadbandcoveragemaybeapathdependentoutcomeof
differentforcesratherthanaproductoftheregulatoryapproaches.Heargues,however,that
servicebasedcompetitionalsohasastatisticallysignificantnegativeimpactonbroadband
coverageprovidedthroughVDSLandFTTP(excludingcableservices).
AreviewofinternationalbroadbandplansbytheBerkmanCenterforInternetandSocietyat
HarvardUniversity(2010)concludedthatmanybroadbandpolicytargetsadopteddual
targets,withuniversalaccesstofirstgenerationbroadbandtechnologiesandincrease
availabilityofnextgenerationtechnologiestoasignificantportionofthepopulation.
Commercial deployment of highspeed broadband

Inadditiontogovernmentplanstoencourageandinvestinhighspeedbroadband,thereare
anumberofexamplesofprivatecompaniesinvestinginhighspeedbroadbandnetworksin
selectedmetroareas.Thisinvestmentsuggeststhatcompaniesexpecttheretobereasonable
demandforhighspeedbroadbandthatwouldenablethemtomakeareturnontheirinitial
investmentinthenetwork.Italsoshowsthatthelevelofcoverageprovidedunder
commercialdeploymentwouldnotbeuniform.Inlessdensegeographicareas,serviceswould
bedeliveredinadifferentwayandtoadifferentstandardofservice.
Someexamplesofcommercialnetworkdeploymentsinclude:
a1GbpsFTTPnetworkintwocitiesintheUSlaunchedbyGoogle;
a300MbpsFTTPnetworkinAustin,TexasbyAT&T;
aFTTPnetworkwithminimumspeedsof100MbpsinFrancebyNumericable;
a100MbpsFTTPnetworkinItalybyFastWeb;
planstobuilda1Gbpsnetworkin3citiesintheUKbySkyandTalkTalk;
planstobuilda1GbpsnetworkinSpainbyVodafoneandOrange;and
a200MbpsFTTPnetworkinBrazilbyTelefonicaandVivo.
Inmarketswherethereishighspeedbroadbandavailable(eitherfullycommercialor
governmentsupported)atareasonableprice,adoptionofhighspeedserviceshasbeeninthe
155of196
rangeof7to25percentoftotalbroadbandsubscribers.InSwedena100Mbpsserviceis
availableataprice12percenthigherthana10Mbpsserviceanduptakeofthehighspeed
serviceamongbroadbandsubscribersisgreaterthan25percent.IntheNetherlandsa
100Mbpsservicesisavailableata21percentpremium(comparedtoa50Mbpsservice)and
hasuptakeof7percent.
156of196
Table G.1: International broadband strategies government policy and funding

Country
Fixed-line
Fixed-line
Broadband
Broadband
Subscriptions Subscription
s - % of
Households
Broadband Plan
Broadband Target Coverage/Speed Target

Public/Private
Plan
Technology
Launch
Year
Funding Model
United Kingdom 22.1 million
84%
Britain's Superfast Broadband

Future - Broadband Delivery
Program
2010
2015 - 2 Mbps+ to
Technology
100%; 24 Mbps+ to 90% neutral
2017 - >24 Mbps to
95%
Government:
1.1 billion
Private: BT
Openreach 2.5
billion
Gap funded investment model: 1/3

Government, 1/3 municipal level or
European Union, 1/3 private. Public
Private Partnerships at municipal
level. Regional development
incentives.
Germany
28 million
70%
Federal Government's
Broadband Strategy
ICT Strategy of the German
Federal Government: Digital
Germany 2015
2009/10
2010 - 1 Mbps+ to
Technology
100%
neutral
2014 - 50 Mbps+ to
75%
2020 - 50 Mbps to
100%; 100 Mbps to 50%
Government:
4.5 billion
Private:
Deutsche
Telekom 6
billion by 2020
Market driven approach using digital

dividend (spectrum auction) and
self-incentivised partnerships. Public
Private Partnerships at municipal
level. High-tech start-up fund to
provide technologically orientated
companies with start-up capital
(involves investors in Public Private
Partnership). European Investment
Bank provides loans (long-term
repayment periods and low interest
rates) of up to 50% of broadband
project size.
New Zealand
1.3 million
77%
Ultra Fast Broadband (UFB)

Rural Broadband Initiative (RBI)
2010
2015 - 5 Mbps to 86%

of rural households;
FTTP to schools,
hospitals and 90% of
businesses
2020 - >100 Mbps to
over 75%
Government:
NZ$1.7 billion
Private: Partner
companies
contribute in
support funds
and assets
Gap funded investment model: 1/2

NZ Government, 1/2 private.
Government entity (Crown Fibre
Holdings (CFH)) provides funds to
local fibre companies (Public Private
Partnership). Intention to privatise
CFH.
157of196
FTTN +
FTTP; fibre
and
wireless to
rural areas
Country
Fixed-line
Fixed-line
Broadband
Broadband
s - % of
Households
Broadband Plan

Public/Private
Plan
Technology
Launch
Year
Funding Model
Singapore
2 million
100%
Next Generation Nationwide

Broadband Network (NGNBN)
2006
2010 - 100 Mbps to

1Gbps to 60% of
residential and nonresidential buildings
2012 100 Mbps to
1Gbps to 95% homes
and offices
2013 - universal service
obligation (100%
coverage)
FTTP
Government:
S$1 billion
Public Private Partnerships at

national level. Government funded
with intention of privatising.
France
24 million
89%
National Ultra-Fast Broadband

Program
2013
2017 - 50% of
population with access
to superfast broadband
Technology
neutral
Government +
municipality: 6
billion
Private +
municipality: 6
billion
Private: 6
billion
Municipality expenses will be funded

by tax-free, regulated deposits
through the state bank. Private
funding in densely populated areas
(1/3); private and municipality
funding in moderately densely
populated areas (1/3); government
and municipality funding in rural
areas (1/3).
Technology
neutral
Government:
66 million
EU: 25 million
Municipalities:
41 million
Private: 34% of
costs by
operator
Public Private Partnerships between

EU, government, municipality and
network operators. Municipalities
apply for grants, regulator evaluates
plans, government adopts the plans
for state subsidies.
2022 - 100% of
population with access
to high-speed broadband
Finland
158of196
1.6 million
66%
National Plan of Action for

Improving the Infrastructure of
the Information Society and
Broadband 2015 Project
2008
2010 - 1 Mbps+ to
100%
2015 - 100 Mbps to
99% of premises within
2km of an optical fibre
or cable network
Country
Fixed-line
Fixed-line
Broadband
Broadband
s - % of
Households
Broadband Plan

Public/Private
Plan
Technology
Launch
Year
Funding Model
South Korea
18 million
99%
Broadband Convergence
Network (BCN)
Ultra Broadband Convergence
Network (UBCN)
BCN - 2003 2010 - BCN - 50-100

UBCN Mbps to 10 million fixed
2007
line households and 10
million wireless
subscribers
2013 - UBCN - 100
Mbps to 14 million fixed
line households +
200,000 1 Gbps lines
2020 - commercial
services upgraded to
10 Gbps
Sweden
3.1 million
87%
Broadband Strategy for Sweden 2009
United States
91 million
72%
National Broadband Plan

Connect America Fund (Rural)
Australia
5.8 million
67%
National Broadband Network
159of196
BCN: Fixed
Line FTTx
and 4G
wireless
UBCN: Fibre
and 4G/LTE
BCN (to 2005):

government
seed funding of
US$806 million
Private: US$32
billion
UBCN:
Proposed total
investment of
US$24.6 billion
(government
funds of
US$1.19 billion)
from 20092013
Low-rate government backed loans

to FTTx operators with speeds
>50Mbps in rural areas.
Government matched investment in
areas with <50 households.
2015 - 100 Mbps to

40% households and
businesses
2020 - 100 Mbps to
90% households and
businesses
Technology
neutral
Government:
SEK250 million
(from 20102012)
Government funded Rural

Development Program.
2010/11
2015 - 100 million

homes have access to
50 Mbps/20 Mbps
2020 - 100 million
homes have access to
100 Mbps/50 Mbps
Rural - 18 million people
to have 4 Mbps/1 Mbps
Technology
neutral
Government:
Connect
America Fund US$45 billion
over 10 years
Regional development incentives.

Connect America Fund - Public
Private Partnership. Government
funds come from a surcharge on
consumer and business monthly
phone bill. Companies must bid to
win grants from the fund and also
contribute their own funding.
2009
2015 - up to 25 Mbps to
7% of premises
2021 - up to 1 Gbps to
93% of premises
FTTP (93%)
Fixed
Wireless/
Satellite
(7%)
Government:
Government funding via government
A$30.4 billion + entity (NBN Co) with intention of
private debt
privatising.
Country
Fixed-line
Fixed-line
Broadband
Broadband
s - % of
Households
Broadband Plan

Public/Private
Plan
Technology
Launch
Year
Funding Model
Australia
(Coalition)
5.8 million
National Broadband Network
2013
Government funding via government

entity (NBN Co) with intention of
privatising.
67%
2016 - 25 Mbps+ to
100%
2019 - 50 Mbps+ to
90% of fixed line
footprint
Technology Government:
neutral
A$29.5 billion
(substantial cap
use of
FTTN)
Source: Supplied by NBN Co.
Table G.2: International broadband strategies network deployment

Country
Fixed Broadband Lines by

Technology
Fibre
FTTx Homes
Architecture Passed %
Deployed
DSL
HFC
FTTx
United
Kingdom
80%
15%
25% FTTP
75% FTTN
Germany
81%
17%
New Zealand
89%
Singapore
France
160of196
FTTx Subscriptions
as % of Fixed
Broadband
Subscriptions
Average
Advertised
Download Speed;
Max Connection
Speed
Upgrade Paths
1%
7%
Avg: 49 Mbps
Max: 102 Mbps
FTTP on demand; 1 Gbps product being tested over FTTP. Testing

vectoring technology.
37% FTTP
63% FTTN
3%
1%
Avg: 25 Mbps
Max: 102 Mbps
FTTP on demand; VDSL2 vectoring technology to double data rates;

integrating fixed and mobile networks based on Internet Protocol.
7%
FTTN
(mainly) +
FTTP
14%
1%
Avg: 31 Mbps
Max: 102 Mbps
28%
42%
100% FTTP
99%
28%
n/a
Focus on developing next-gen fibre-based applications and demand for

networked content and services. Expanding high-speed 4G mobile
network (150Mbps nationwide).
89%
7%
FTTP
(mainly) +
VDSL2
24%
2%
Avg: 52 Mbps
Max: 102 Mbps
Cable upgrade to DOCSIS 3.0. Copper upgrade to support VDSL2.
Country
Fixed Broadband Lines by

Technology
Fibre
FTTx Homes
Architecture Passed %
Deployed
FTTx Subscriptions
as % of Fixed
Broadband
Subscriptions
Average
Advertised
Download Speed;
Max Connection
Speed
DSL
HFC
FTTx
Finland
64%
33%
FTTP
(mainly)
South Korea
12%
27%
Sweden
45%
United States
Upgrade Paths
n/a
2%
Avg: 53 Mbps
Max: 350 Mbps
40% FTTP
60% FTTN
94%
63%
Avg: 68 Mbps
Max: 100 Mbps
Advancing 4G network, incorporating mobile WiMAX and LTE

technologies. Cable upgrade to DOCSIS 3.0.
19%
44% FTTx
(FTTP +
FTTN)
n/a
32%
Avg: 136 Mbps

Max: 1 Gbps
TeliaSonera: Upgraded copper to VDSL2 or FTTP. Rural areas:

government assisted fibre network to within a few kms, with users to
pay for final fibre connection.
Com Hem: cable Euro DOCSIS 3.0 upgrade.
30%
55%
66% FTTP
34% FTTN
17%
8%
Avg: 45 Mbps
Max: 300 Mbps
AT&T: copper to FTTN (U-verse). Verizon: copper to FTTH. Century Link:

FTTH trial. Comcast: upgraded to DOCSIS 3.0. Time Warner Cable:
upgraded to DOCSIS 3.0.
Australia
82%
15%
100% FTTP
5%
2%
Avg: 36 Mbps
Max: 102 Mbps
FTTP designs upgradeable to >1 Gbps (PON) and >10 Gbps (PtP).
Australia
(Coalition)
82%
15%
FTTN
(mainly)
+ FTTP
5%
2%
Avg: 36 Mbps
Max: 102 Mbps
All FTTN designs upgradeable; FTTP on demand; co-funded FTTP

deployment.
161of196
Table G.3: International broadband strategies regulatory environment and market structure
Country
Competition a
United
Kingdom
Access Regulation
Regulated
Infrastructure
Incumbent
Operator/s
Ownership
(fibre/copper
networks)
Retail Fixed
Broadband
Market Share
(main providers)
Facilities and service Functional separation of

based competition
retail and infrastructure
arms of incumbent
operator.
Copper: Regulated prices for local loop

unbundling and wholesale line rental
services.
Fibre: Incumbent operator (BT
Openreach) sets rates (w/regulatory
oversight) for fibre infrastructure on
equivalent basis.
Copper
Fibre
BT Openreach;
Kingston
Communications
(Hull area)
Copper/Fibre - BT
Openreach
Cable - Virgin Media
BT (30%)
Virgin Media
(21%)
Sky (19%)
Cable/Telco
Duopoly
Germany
Facilities (mainly)
and service based
competition
No current
functional/structural
separation requirements
for copper/fibre
infrastructure operators.
Copper: Regulated prices of carriers

Copper
with substantial market power (SMP)
Fibre
through unbundling of incumbent's local
loops and third-party access prices to
networks.
Fibre: Access prices for access
providers with SMP are required to be
submitted to the Regulator for approval.
Deutsche Telekom
(15% owned by
German
Government)
Copper/Fibre Deutsche Telekom

Cable - Kabel
Deutschland
Deutsche Telekom
(44.6%)
Kabel
Deutschland
(11.2%)
New Zealand
Facilities and service Deployed wholesale only

based competition
fibre network operators.
Structural separation of
retail and infrastructure
arms of incumbent
operator.
Copper: Regulator determines prices for Copper

supply of designated services. Specified Fibre
services are limited to non-price terms
and conditions.
Fibre: Rates to access fibre network are
set by government entity (Crown Fibre)
and contractually agreed with local fibre
companies.
Chorus and others
Copper - Chorus and Telecom NZ (49%)

others
TelstraClear (16%)
UFB Fibre - Chorus
Vodafone (13%)
and other fibre
companies ie Enable
Networks, WEL
Networks,
Northpower
RBI Wireless Chorus, Vodafone
162of196
Functional/Structural
Separation
Country
Competition a
Separation
Access Regulation
Regulated
Infrastructure
Incumbent
Operator/s
Ownership
(fibre/copper
networks)
Retail Fixed
Broadband
Market Share
(main providers)
Singapore
Service and content

based competition
Deployed a structurally
separated, wholesale
network operator.
Structural separation
between passive and active
infrastructure providers.
Functional separation
between active
infrastructure providers
and retail service providers.
Copper/Fibre: Carriers with SMP are

required to submit proposed retail and
wholesale access prices to the
Regulator for approval.
Copper
Fibre
SingTel
Copper - SingTel
Fibre - Opennet
(passive
infrastructure),
Nucleus Connect
(active
infrastructure)
SingTel (41.5%)
Starhub (33.4%)
France
Facilities based
competition
No current
for copper/fibre
Copper: Regulator can rule on reciprocal Copper

pricing terms applied to traffic routing
between an operator and an enterprise
providing online communications
service to the public.
Fibre: not yet defined.
France Telecom
(now Orange) (part
owned by
Government)
Copper/Fibre Orange
Orange (41%)
Finland
Facilities and service No current

based competition
for copper/fibre
Copper: Carriers with SMP are required Copper

to submit proposed retail and wholesale Fibre
access prices to the Regulator for
approval.
Fibre: State aid recipients required to
provide access to active and passive
network with non-discriminatory and
reasonable terms for 10 years after last
payment of aid.
TeliaSonera
Copper/Fibre TeliaSonera
Elisa Corporation
(34%) TeliaSonera
(29%)
Finnet Group
(14%)
DNA (13%)
South Korea
Facilities, service
and content based
competition
Copper/Fibre: Carriers with SMP are

Copper
required to submit proposed retail and Fibre
wholesale access prices to the
Regulator for approval. For cases where
the revised rates lower prices, only
notification to the Regulator is required.
Korea Telecom
Copper/Fibre - KT
Cable - SK
Broadband
KT (43.4%)
SK Broadband
(15.9%)
LG Uplus (15.5%);
SK Telecom
(8.2%)
163of196
No current
for copper/fibre
Country
Competition a
Sweden
Separation
Access Regulation
Regulated
Infrastructure
Incumbent
Operator/s
Ownership
(fibre/copper
networks)
Retail Fixed
Broadband
Market Share
(main providers)
Facilities and content Vertical functional

based competition
separation.
Copper/Fibre: Regulator has specified

TeliaSonera must supply wholesale
bitstream access; access to copper
(LLU) and fibre (dark fibre) using costbased (LRIC) pricing on an equivalent,
non-discriminatory basis.
Copper
Fibre
TeliaSonera
(37.3% owned by
the Government)
Copper/Fibre TeliaSonera
Fibre - Tele2 , Stokab
Cable - Com Hem
Municipalities own
some local fibre
networks
TeliaSonera
(38.5%)
Tele2 (7.6%)
Telenor Sweden
(17.8%) Com Hem
(17.7%)
United States
Facilities based
competition
No current
for copper/fibre
Copper: Federal agency (regulates

interstate and international telecoms)
has established national pricing
principles. State agencies (regulate
intra-state telecoms) can regulate rates
and services for incumbent local
exchange carriers that have not elected
to use incentive regulation.
Copper
AT&T, Verizon,
CenturyLink
Copper/Fibre - AT&T
Fibre - Verizon
Cable - Comcast;
Time Warner Cable;
Cox
Comcast (22%)
AT&T (18%)
Time Warner
Cable (13%)
Verizon (10%)
Cable/Telco
Duopoly
Australia
Service and content

based competition
Deploying a structurally
separated wholesale
network operator.
Copper - Regulated prices for local loop

unbundling and other regulated
services.
Fibre - Regulator authorises pricing
framework. Uniform national wholesale
pricing requirement, non-discriminatory
access.
Copper
Fibre
Telstra
Copper/Cable Telstra
Cable - Optus
Fibre - NBN Co
Telstra (45.9%)
Optus (17.4%)
iiNet (14.4%)
Australia
(Coalition)
Facilities, service
and content based
competition
Deploying a structurally
separated wholesale
network operator.
Copper - Regulated prices for local loop

unbundling and other regulated
services.
Fibre - Regulator authorises pricing
framework. Uniform national wholesale
price caps, non-discriminatory access.
Copper
Fibre
Telstra
Copper/Cable Telstra
Cable - Optus
Fibre - NBN Co
a Facilities based competition: service providers deliver broadband access over different infrastructure; Service based competition - service providers deliver broadband access over the same infrastructure; Content based
competition - operators provide different content (for example exclusive TV programs).
Note: SMP: Significant Market Power.
164of196
AppendixHChoicemodellinganalysis
Thisappendixreportsonthedetailsofthechoicemodellinganalysisundertakenbythe
InstituteforChoice(I4C).ThisappendixwaspreparedbyI4CwiththeassistanceoftheCIE.
Themainalternativetostatedpreference(SP)techniques(suchaschoicemodelling)is
revealedpreference.Revealedpreference(RP)usesactualuptakedecisionstomeasurethe
valueconsumersplaceonalternativeoptions.AsRPdataisbydefinitiondatacollectedon
choicesmadeinrealmarkets,itislimitedtocollectingdataonlyoncurrentlyexisting
alternativeswithinthosemarkets.InthecaseofhighspeedbroadbandinAustralia,thereis
limitedrevealedpreferencedatafromwhichtodraw.Further,thepanelconsideredthat
revealedpreferencedatacouldnotprovideinformationonthedifferencebetweenwhat
householdsarewillingtopayforhigherspeedsandwhattheyactuallypay,asthisisnot
observable.
Reflectingthesereasons,thepaneldeterminedthatDiscreteChoicemodellingrepresentsan
importantapproachtoquantifythebenefitsofincreasesininternetspeeds.
DiscreteChoicemodellingbasedonDiscreteChoiceExperiments(DCEs)requires
decisionmakerstoselecttheirpreferredoptionfromasetofcompetingalternatives
(whichcollectivelyformchoicetasks).
Respondentsareshownmultiplechoicetasks,overwhichthefeaturesofthe
alternativesaresystematicallyvaried,allowingforadeterminationofhoweachofthe
featuresimpactsuponthepreferencesofasampledpopulation.
DCEswerefirstdevelopedinthe1930s(Thurstone1931)allowingforcomparisonsof
twoalternatives,andlaterextendedtomultinomialchoicesinthe1980s(Louviere
andHensher1982andLouviereandWoodworth1983).
DCEsarenowusedbymanyfieldstounderstandandmodelthetradeoffsand
preferencesrevealedbythechoicesthatpeoplemake.
Theyarewidelyusedformodellingandforecastingthedemandfornew
products/servicesand/orchangestoexistingproducts/services.
ThepanelcommissionedI4Ctoundertakethestudy.I4Careworldexpertsinstudyinghuman
decisionmakingandchoicebehaviour.
_____________________________________________________________________________
165of196
Objectives
Thekeyobjectiveofthechoicemodellingprojectistounderstandthepreferencesandlikely
demandforhighspeedbroadbandinAustraliaandtherebytoinformestimatesoftheWTP
foralternativebroadbandspeeds.
Sample Methodology
Aquantitativeonlinesurvey(2530minutes)wasconductedwithinternetusers
Australiawide.
Respondentswererandomlysplitintotwogroups:
2 uninformed:respondentswhowerenotshownanyadditionalinformation
3 informed:respondentswhowereshowninformationfromCommunication
Chambersonthecurrenttechnicalbandwidthrequiredfordifferenttypesof
internetactivities.Theimagethatwasshowntorespondentsinthesurveyis
displayedinChartH.1.
DatawascollectedinApril/May2014fromasampleof3,312people.
Thesamplewasstratifiedbystate,locationandinformationgroup(uninformedand
informed).TableH.2showsthefinalnumbersachievedbyquotasegment.
166of196
Chart H.1: Internet bandwidth requirements by activity
167of196
Table H.2: Survey sample

Uninformed
Informed
Metro
Rural
Metro
Rural
Total
NSW
169
159
142
141
611
VIC
160
126
160
141
587
QLD
185
148
154
140
627
SA
172
81
177
86
516
WA
166
79
157
72
474
ACT
88
76
178
TAS
73
67
37
70
247
NT
25
22
11
14
72
1,038
691
914
669
3,312
State
Total
Themajorityofthesamplewassourcedfromthreeonlinepanelprovidersasshownhere.
NineRewards(n=1734)
Pureprofile(n=614)
IView(n=493)
Onlinepanelsareacosteffectiveandefficientwaytorecruitrespondentsforonlineprojects.
Additionalrecruitment(telephonerecruitmenttoonlinecompletion)wasundertakento
compareandcontrastthequalityandrepresentativenessoftheonlinepaneldata.
IView(n=471)
Survey structure
Current internet plan and usage
Approximately10minutestocomplete.
Containedbackgroundquestionstoestablishtherespondentscurrentinternetplan
andusagebehaviour(definedthestatusquoalternativeforthechoicemodelling
task).
Inthissectionrespondentswereaskediftheyknewtheircurrentdownload/upload
speed.Iftheywerenotsuretheyweredirectedtoanonlinespeedtestfor
confirmation.
168of196
Information on Speed
Itwasclearthatitwouldbedifficultforrespondentstounderstandspeedswithout
examples(forexample,howdotheyinterprethowthesespeedswillimpacttheir
lives?).
Thissectioncontainedexamplesusedtovisuallydisplaythetimeitwouldtaketodo
variousfamiliartasksontheinternetunderdifferentspeedconditions.Examplesare
showninChartsH.3andH.4.
Approximately23minutestoview.
Chart H.3: Example 1 of speed information shown to respondents
169of196
Chart H.4: Example 2 of speed information shown to respondents
Choice Task
Thechoicetaskswerepresentedinthefollowingway.
Thefixedbroadbandmarketasetoffourpossibleoptionsincludingthecurrent
planoftherespondent(thestatusquo)andthreealternativefixedbroadband
options.Ifthestatusquooptionwaschosenthentherespondentwasaskedtochoose
againbetweenthethreealternativeoptions.
Thefixedandmobilebroadbandmarketasetofsixpossibleoptionsincludingthe
currentplanoftherespondent(thestatusquo),threealternativefixedbroadband
optionsandtwomobilebroadbandoptions.Ifthestatusquooptionwaschosenthen
therespondentwasaskedtochooseagainbetweenthefivealternativeoptions.
Fixed broadband market

Theinitialtaskcontainedastatusquo(currentbroadbandplan)andthreehypothetical
alternativebroadbandchoices(scenarios)(exampleChartH.5).
170of196
Thetaskwasdesignedtoshowcomparisonbundleplansinasimilarwaytohowthey
arepresentedinthemarket(forexample,throughinternetsites,brochures,etc.).
Eachparticipantcompleted4scenarios.
171of196
Chart H.5: Example of choice task
Fixed and mobile broadband market

Respondentswereaskedtocompleteasecondtaskwhichincludedmobilebroadband
options.
172of196
Thetaskwasdesignedtoshowcomparisonbundleplansinasimilarwaytohowthey
arepresentedinthemarket(forexample,throughinternetsites,brochures,etc.).
Eachparticipantcompleted4scenarios.Resultsforthismodelarenotshowninthis
report.
Eachscenariocontainedastatusquo(currentbroadbandplan),threehypothetical
fixedbroadbandplans,plusamobiledongleandmobilesmartphoneplan(see
ChartH.6).
Chart H.6: Example including mobile options
173of196
Design
FocusgroupswereconductedtoinformtheappropriatefeaturestoincludeintheDCE.
ThecombinationsoflevelsofeachfeatureintheDCEweredesignedusingthelatest
experimentaltechniquesdevelopedbyRoseandBliemer(2009)andimplementedinNGene,
thesoftwaredevelopedbyRose,Bliemer,CollinsandHensher.
ADefficientdesignwasusedtostructurethechoiceexperiment.
Model Background
ChoiceexperimentsarebasedonRandomUtilityTheory(RUT).RUTisderivedfromthework
ofThurstone(1927)andstatesthatdecisionmakerscomparethealternativegoodsand
serviceswithinamarket,whetherrealorhypothetical,andselectsthebundleofattributesor
goodsthatyieldthemaximumutility(thatis,therespondentisautilitymaximiser).
RUTassumestheexistenceofanerrortermresultingfromtheanalystbeingunableto
observethetruechoiceprocessesoftheindividualrespondentsbeingmodelledandhence
theyapply(poor)approximationsoftheseprocesses(seeMcFadden1974andManksi1977).
Fromapsychologicalperspective,theerrortermmayalsorepresenterrorsonbehalfof
decisionmakers.
RUTproposesthatoverallutility
canbewrittenasthesumoftheobservable
44
component ,
,expressedasafunctionoftheattributespresentedandarandomor
asshowninthefollowingequation
unexplainedcomponent,
U nsj Vnsj nsj .
where:
U nsj istheoverallutilityofalternativejbyrespondentninchoicesituations,
Vnsj istheobservedorexplainedcomponentofutility(foralternativejbyrespondentnin
choicesets),
nsj arerandomlydistributederrortermswhichvaryoverthepopulationofrespondents.
44
Otherwisereferredtoasthesystematiccomponent.
174of196
Thesystematiccomponentofutilityistypicallyassumedtobealinearrelationshipof
observedfeaturelevels,x,ofeachalternativejandtheircorrespondingweights
(parameters), , suchthat
U nsj k xnsjk nsj ,

k 1
where k representsthemarginalutilityorparameterweightassociatedwithfeaturek.
Therandomerrorterms, nsj areunobservedbytheanalyst,andthereforeassumptionsare

madeabouttheformofthesetermsassociatedwitheachalternative,j.
Themostcommonassumptionisthattheyareindependentlyandidenticallydistributed(IID)
extremevaluetype1(EV1).Thisassumptionisusedextensivelyindiscretechoicemodelling
andleadstotheformulationofalllogitmodels(McFadden1974).
ThesimplestdiscretechoicemodeliscalledtheMultinomialLogitmodel(MNL).Assumptions
oftheMNLmodel:
errorsareIID;
independenceofobservedchoices(thatis,allobservationsaretreatedas
independenteveniftheyarefromthesamerespondent);and
homogeneityofpreferences(thatis,allrespondentshavethesamepreferencesor
parameterweights).
Modelling approach for this study

Moreadvanceddiscretechoicemodelsallowfortherelaxationofoneormoreofthe
assumptionsunderlyingtheMNLmodel.Inthisstudy,wemadeuseofalatentclassmodel
(LCM)toanalysethedata.
TheLCMallowsforpreferenceheterogeneity(thatis,differentrespondentscanhave
differentmarginalutilityorparameterweightsforeachofthefeatures),whichishandledvia
discretedistributions.Thesediscretedistributionsarereferredtoasclasses.
Accordingtothemodel,eachindividualresidesuptoaprobabilityineachlatent
class,c.
Inestimatingthemodel,thereexistafixednumberofclasses,C,wherethenumberof
classesisdefinedaprioribytheanalyst.
175of196
Estimatesconsistoftheclassspecificparametersandforeachrespondent,asetof
probabilitiesdefinedovertheclasses.
Withineachclass,theparametersandchoiceprobabilitiesareassumedtobe
generatedbyMultinomialLogit(MNL)models.
TheLCMrelaxessomeoralloftheassumptionsoftheMNLmodel
IIDrelaxedviadifferentclasses.
Independenceofobservedchoicesthroughtheclassificationofpseudoindividuals
inestimationofthepaneleffectstoallowfordifferenceswithinindividuals.
Homogeneityofpreferencesthroughthedifferentparameterweightsbyclass.
Model Results
Alatentclassmodelwithtwoclasseswasestimated.Variousdatatransformationswere
testedforbestdatafit(includinglogandsquaretransformations).
Forpriceandspeedfeaturestheinclusionofthesquareseemedtofitthedatabest
(thatis,quadratic,linearplusthesquare).
Fordataplan,thelogtransformationfitthedatabest.
Previousliteraturehasshownrespondentstendtoevaluatethestatusquooptiondifferently
tothehypotheticalalternatives(forexample,seeHessandRose2009forareviewofthe
literature).
Forexample,theymaychoosethestatusquodisproportionatelytotheother
alternatives.Thiscanbeaddressedusingalternativespecificconstantsforthestatus
quowhichcaptureunobservedeffects.
Preferencesforthestatusquoattributesmayalsobedifferent.
Levelsforthestatusquoarenotcontrolledbyadesignandaredifferenttolevelrange
fortheotheralternatives.
Combiningtheparametersinthepresenceofdifferenceswouldleadtoaggregation
bias.
Thereforeseparateparameterswereestimatedforthestatusquoandnewplans
(NBN)alternatives.
176of196
Modelestimationwasconductedatthebrandlevel,althoughbrandpredictions/sharesare
notshowninthefinalresults.Theconstantsinthemodelincluded:
Brandeffect:Theeffectthebrandhasonchoiceacrossallalternatives(statusquoand
new).
Statusquoeffect:Theeffecttherespondentscurrentbrandhasontheirchoiceofthe
statusquoalternative.
Loyaltyeffect:Theeffecttherespondentscurrentbrandhasontheirchoiceofthe
newalternatives.
Inthechoiceset,iftherespondentchosethestatusquotheywereaskedafollowupquestion
whichforcedthemtochoosefromthehypotheticalalternatives.
Theresultsfortheforcedchoicemodel(whererespondentsareforcedtochooseanonstatus
quoalternative)arenotpresentedinthisreportbutwerenotmarkedlydifferenttothe
resultsinthecurrentmodelforthenewalternatives(whichincludesthestatusquo).
ThemodelresultsfortheuniformedandinformedmarketareshowninTablesH.7andH.8.
Themodelfitresultsillustratethatbothmodelsprovideasuperiorfittoaconstantonly
model.
177of196
Uninformed Model Results

Table H.7: Uninformed model results
Model Fit
Loglikelihood(c):8,367
Loglikelihood():6,018
Rhosquared:0.28
Numberofrespondents:1,729
Numberofchoiceobservations:6,916
178of196
Informed Model Results

Table H.8: Informed model results
Model Fit
Loglikelihood(c):5,314.
Loglikelihood():7,453
Rhosquared:0.29
Numberofrespondents:1,583
Numberofchoiceobservations:6,332
179of196
Latent class assignment

Usingthelatentclassmodel,sociodemographicscanbeaddedtotestwhethertheyinfluence
theclassassignmentmodel.Thefollowingsociodemographicsweretested:
age;
gender;
householdincome;
state;
location(metro/rural);and
currentbundleplan.
IntheuninformedmodelClass1weremorelikelytobe(comparedtoclass2):
onbundleplans;
middleaged;and
lowerhouseholdincomes.
IntheinformedmodelClass1weremorelikelytobe(comparedtoclass2):
older.
Attribute importance
Inchoicemodels,theparameterscannotbedirectlycomparedbecausethevariablestheyare
relatedtoarepresentedondifferentscales,meaningtheparametersalsoreflectdifferent
scales(forexample,therangeofthepriceattributeisdifferenttothebinarypayTVattribute).
Theimportanceoftheattributescanbeassessedthroughcomparingtwoidenticalplans,
changingoneattributeatatimeandrecordingthechangeinmarketshare.TableH.9presents
thechangeinmarketshareafterchangingthelevelsforeachattribute(extremesofthe
design).
Inbothmodelsandacrossbothclassesthemostimportantattributeswere:
o price;
o data;and
180of196
o downloadspeed.
Uploadspeedwasonlyimportanttooneclassineachmodel.
Thereweresomefurtherdifferencesbetweentheclassesonlessimportantattributes
suchascontract,datarestrictions,payTVandmobiles.
Table H.9: Attribute importance

Attribute
Initial attribute
value
Final attribute
value
Total
Class 1
Class 2
Change in
Change in
Change in
market share market share market share
Per cent
Per cent
Per cent
Uninformed Attribute Importance

Contract
Contract
No contract
12
100
15
11
20
40
11
20
1000
31
31
31
Restrictions
No restrictions
Monthly price
$45
$185
48
48
48
Home phone
Not included
Included
11
10
11
Pay TV
Not available
Available
-5
Mobile
Not available
Available
WiFi modem
Not included
Included
Contract
No contract
12
100
16
11
22
40
17
20
1000
32
40
25
Restrictions
No restrictions
Monthly price
$45
$185
44
46
46
Home phone
Not included
Included
10
Pay TV
Not available
Available
Mobile
Not available
Available
WiFi modem
Not included
Included
Download speed (mbps)

Upload speed (mbps)
Data plan (GB)
Data restrictions
Informed Attribute Importance

Contract
Download speed
Upload speed
Data plan
Data restrictions
Outputs of the choice modelling

TheoutputsofthechoicemodellingusedintheCBAaretheresponsivenessofdemandto
higherprices(usedinthetakeupmethod)andtheMWTPforspeed(usedinthediscrete
choicemethod).
181of196
Predictedmarketuptake(demand)iscalculatedusingthemodelprobabilitiesand
changingthepricesofalternativespeedoffers.
MWTPmeasurestheamountthatthemonthlypricecouldbechangedbythatwould
leaveaconsumerindifferentbetweentwoplanswithdifferentattributes.For
example,aconsumermightbeindifferentbetweenaplanwithapriceof$50per
monthandadownloadspeedof10Mbpsandapriceof$60permonthanda
downloadspeedof20Mbps.ThemarginalWTPfortheadditional10Mbpsinthis
casewouldbe$10permonth.
o MWTPcandifferdependingontheinitialleveloftheattributesofapersons
plan.ForexamplearespondentmayhaveaMWTPof$1perMbpsofadditional
downloadspeedatadownloadspeedof10MbpsbutaMWTPof$0.5per
Mbpsofadditionaldownloadspeedatadownloadspeedof20Mbps.
o MWTPiscalculatedastheratioofthechangeinmarginalutilityofattributekto
thechangeinmarginalutilityforacostattribute.
o MWTPdescribeshowmuchthecostwouldberequiredtochangegivena
changeinafeature,suchthatthechangeintotalutilitywillbezero.Ittherefore
calculatedusingthederivativesofpriceandthefeatureofinterest.
o InthisstudytheMWTPiscalculatedusingratioofthepriceandspeed
coefficients(holdingeverythingelseconstant)andisameasureoftheWTPfor
anadditionalunitofspeed(Mbps).
Ifpriceandthefeatureenterintoutilityinalinearfashion,then
Giventhenonlineartransformationsofthedatahowever,theMWTPisnottheratioofthe
twoparameters.Inthisinstance,
Formulaforquadratic(Price/pricesquaredandSpeed/Speedsquared)
2
2
182of196
^
^
Box H.10: Example of calculating MWTP
TheMWTPforarespondentwitha5Mbpsdownloadspeed,whopays
$50permonthwouldbe(assumingthequadraticformulaabove):
0.02211 2
0.00011 5
0.00728 2
8.88 05 $50
0.0210
0.0162
$1.30
Thismeanstherespondentiswillingtopay$1.30foranadditionalunitof
speed(Mbps)
TheMWTPoutputsareshowninChapter6.
Thechoicemodellingcanalsobeusedtocalculateconsumersurplus.Consumersurplusisthe
monetaryrepresentationoftheoutcomeinutilityfromachoicesituation.
Differentscenarioscanbeevaluatedbycomparingachangeinconsumersurplus.The
formulaforconsumersurplusisdisplayedintheequationbelow(Train,2009).
ThechangeinconsumersurplusisoftenreferredtointheliteratureasTotalWTP
(TWTP).Inthisstudyconsumersurplusiscalculatedasthechangebetweenthe
currentmarket(statusquo)andtheavailabilityofnewhighspeedbroadbandmarket.
Consumersurplusiscalculatedforeveryparticipantusingthelatentclassparameters,
classprobabilitiesandthedata Xs forthestatusquoandthenewNBNplans.
1
2
isthederivativeofutilitywithrespecttothepriceattributetaken
The 2

attheaveragepricelevel.
Tocomparetheconsumersurpluscarehastobetakenbecausetheconsumersurplusreflects
thenumberofoptionsoffered.Themarketoffershundredsofdifferentoffers,whilealimited
numbercanbepracticallyconsideredwithinthechoiceframework.Themainimplicationof
thisisthattheconsumersurplusmeasureshouldbecomparedwiththesamenumberof
optionsunderdifferentattributesfortheoptions.
InthisstudythefocushasbeenontheMWTPforadditionaluploadanddownloadspeeds.
183of196
TheMWTPandtheconsumersurplusarerelatedbutarenotnecessarilythesame.
Thechangeintheconsumersurplusfromanincrementalchangeindownloadspeedis
equaltotheMWTPfortheincrementalchangeindownloadspeed,inthecasethat
thenumberofplansavailableremainsunchangedandthepriceisnotchanged.45
Alsonotethatconsumersurplusdoesnotcapturethetotalwelfareimpactsof
changestothebroadbandplansavailablewhenpricesarechangedthetotal
(private)welfareimpactsarethesumofthegainstoconsumersandthegainsto
producers.Thegainstoproducers,termedproducersurplusarecapturedthrough
higherpricesforhigherspeedplans.
TheMWTPdoesconceptuallycapturetheentiregaintowelfareitdoesnotspecify
howthisisdistributedbetweenconsumersandproducers.Potentiallyitoverstates
gainstotheextentthatpricesleadtohouseholdschoosinglowerspeedsthan
available.Theimpactsofthisaremoderatedbecausetheconsumerswiththehighest
valueforspeedwilltendtochoosehigherspeedplans.
Revealed preference and stated preference

ItispossibletocombineSPtechniques(suchaschoicemodelling)withRPdata(suchasNBN
Couptaketodate).Forthisstudywehavechosennottodothisandtoseparatelyconsider
thebenefitsusingtakeupdataasadifferentmethodology.Thisdecisionreflectsthelimited
takeupdataavailableandtheforcedchoiceencapsulatedinNBNCotakeupdata,which
meansitcannotprovideinformationonthevaluefrommovingtothelowestNBNCoplan.RP
dataintheNBNcontextalsosuffersfromissuesincluding:
limitationonthealternativesoffered,intermsoftheprices,download/upload
speeds;and
limitedvariabilityinattributesandcorrelationofattributesforexample,revealed
preferencedatafromtheNBNCouptaketodatewouldnotbeabletodifferentiate
thevalueforuploadanddownloadspeedsseparately,astheyarecombinedin
packages.
Therearealsodisadvantagesofstatedpreferencetechniques.Thesearesetoutbelow.
45Thiscanbeseenbytakingthederivativeoftheexpectedconsumersurpluswithrespecttoanattribute,such
asthedownloadspeed.(Notethisisalsoonthebasisthatthemarginalutilityofincomereflectsthederivativeof
utilitywithrespecttoallpricetermssquaredaswell.)
184of196
Hypothetical scenarios
SPmaysufferfromhypotheticalbias,aconditionwherebyrespondentsansweringSPsurvey
tasksrespondinamannerotherthanhowtheywouldiffacedwithsimilarchoicesinreal
markets(seeforexample,Fiferetal.2014).Giventhelackofanalternativemethodologyto
collectpreferencedatainmanyresearchcontexts,inparticularformarketswheretheobject
ofstudyinterestcurrentlydoesnotexist,anumberofattemptsoverpastdecadeshavebeen
madetoimprovetheexternalvalidityofSPexperimentoutcomes.Forexample,researchers
haveexploredanumberofinnovations,introducingmethodssuchasinformationacceleration
(forexample,Urbanetal.1996,1997)whereresearcherscreateachoiceenvironmentthat
mimicsbetterthecontextinwhichfutureconsumptionwillbemade,thecombiningofSP
datawithrevealedpreferencedata(forexample,Hensheretal.1994;KroesandSheldon
1998;Wardman1998)whichisdesignedtoaugmentthehypotheticalSPdatawithrealworld
data,andattemptstomakethechoicequestionsmorerealistic(forexample,Collinsetal.
2013)withtheaimtomakethemmirrorascloselyaspossiblesimilarrealmarketplaces.
LetusbeginbyrestatingthatSPdatarepresentschoicesmadeorstatedgivenhypothetical
situations.Wenotedearlierthatthismayleadtosituationsinwhichpersonalconstraintsare
notconsideredasconstraintsatthetimeofchoice.ThiswillparticularlybethecaseiftheSP
taskisnottakenseriouslybysubjects(Sure,IlltaketwoFerraris).Thetaskoftheanalystis
thereforetomakethehypotheticalscenariosasrealisticaspossible.
ThehypotheticalnatureofSPdataalsoofferstheanalystasignificantbenefitoverRPdata.
WenotedintheprevioussectionthatRPdataisconstrainedintermsofbeingabletocollect
informationsolelyoncurrentlyexistingalternatives.Assuch,thealternatives,theattributes
andtheattributelevelsarefixedintermsofwhatiscurrentlyonoffer.Sincepredicting
outsideoftherangesofdataprovidesnotoriouslyunreliableestimatesfrommoststatistical
models,whatwerequireisanapproachthatwilleitherallowforaccuratemodelpredictions
outsideoftheexistingdatarangeoralternativelyanapproachthatallowsforthecollectionof
dataoutsideoftheserangeswhichmaybeusedwithconventionalmodellingtechniquesfor
predictivepurposes.
ChartH.11illustratesclearlythediscussionabove.RPdatarepresentsinformationuptothe
extentofthetechnologicalfrontierasitcurrentlyexists.SPdataallowsustoexploreissues
outsideofthetechnologicalfrontier.
185of196
Chart H.11: The technological frontier and the roles of RP and SP data
X2
SP
Technological
RP
Data source: Figure 2.1 from Louviere, Hensher and Swait (2000, 23).
Mapping to Utility
WithSPexperiments,theanalystmustspecifytheattributesandattributelevelsinadvance.
Thisallowstheanalysttomanipulatetherelationshipbetweenattributesandinvestigate
specifichypothesesaboutthefunctionalformthatutilityshouldtake(forexample,linear
additive(X1+X2)orinteractive(X1X2)).Continuingfromtheprevioussection,therenowexists
theabilitytomaputilityfunctionsfrompreviouslynonexistingalternativesandtestthe
functionalformofthese.
Multiple observations
WithSPdata,respondentsareusuallyshownmultiplechoicesets,eachofwhichhasdifferent
attributelevels(andpossiblyevendifferentalternativespresentdependingonthedesign).
Thusforeachrespondent,wegainmultipleobservationsoverthenumberofchoicesets
completed.RPdatahowever,usuallyprovidestheanalystwithinformationaboutthesingle
choicethatwasmade.Wesayusually,asthisdependsonthedatacollectionmethodology
employedbytheanalyst.ThiswillbethecaseifRPdataiscollectedusingacrosssectional
survey.Givenmoreobservations,SPdatawilltypicallyproducemorestatisticallyrobust
estimatesthanmodelsestimatedonRPdata.
Mitigation of hypothetical bias in stated preference experiments
AnumberofresearcherssuchasRoseandHensher(2006),LanscarandLouviere(2008)and
HessandRose(2009)arguethatonesuchfactoristhedegreeofrealismimposedinSP
surveys.RoseandHensher(2006)suggestthattherealismofSPexperimentsisbolsteredby
therespondentsbeingaskedtomakeachoicebetweenafinitesetofalternatives,asthey
wouldinthemarket.Moderatingtherealismistheextenttowhichthealternatives,
attributes,andattributelevelsalignwiththerespondentsexperiences,orgenerallyappear
credible.Inthecurrentstudy,wesetupthesurveyinsuchawaytomaximisetherealismfor
eachindividualrespondentinanumberofways.
186of196
Use of reference alternatives and pivot designs

Forbehaviouralreasons,theliteraturehasmovedtowardstheuseofSPexperimentsthatare
pivotedaroundtheexperiencesofsampledrespondents(seeforexample,Hensher2004,
2007;Roseetal.2008).Theuseofarespondentsexperience,embodiedinareference
alternative,toderivetheattributelevelsoftheexperimenthascomeaboutinrecognitionofa
numberofsupportingtheoriesinbehaviouralandcognitivepsychology,andeconomics,such
asprospecttheory,casebaseddecisiontheoryandminimumregrettheory(seeStarmer
2000;Hensher2004).
ReferencealternativesinSPexperimentsacttoframethedecisioncontextofthechoicetask
withinsomeexistingmemoryschemaoftheindividualrespondentsandhencemake
preferencerevelationmoremeaningfulattheleveloftheindividual.Theoretically,theroleof
referencealternativesinSPtasksiswellsupportedwithintheliterature.Forexample,
prospecttheory(KahnemanandTversky1979),whicharguesthatindividualsusedecision
heuristicswhenmakingchoices,promotestheideathattheveryspecificcontextinwhicha
decisionismadebyeachindividualisanimportantdeterminantoftheselectionofchoice
heuristic,supportingtheuseofreferencealternativesinSPtasks.Framingeffects,ofwhich
referencedependenceisapopularinterpretation,providescontextsupportintradingoffthe
desiretomakeagoodchoiceagainstthecognitiveeffortinvolvedinprocessingtheadditional
informationprovidedinaSPtask(Hensher2006).Casebaseddecisiontheory(Gilboaetal.
2002)promotestheroleofaccumulatedexperiencerepresentedbyareferencealternative.
Starmer(2000,p353)inparticulararguesstronglyfortheuseofreferencealternatives(for
example,aninternetplanindecisiontheory:
Whilesomeeconomistsmightbetemptedtothinkthatquestionsabouthowreference
points[alternatives]aredeterminedsoundmorelikepsychologicalthaneconomicissues,
recentresearchisshowingthatunderstandingtheroleofreferencepoints[alternatives]
maybeanimportantstepinexplainingrealeconomicbehaviourinthefield.
The use of realistic choice tasks
AnumberofresearchershaveexaminedhowmorerealisticpresentationofSPexperiments
canproducemorerobustresults(forexample,RoseandHensher2006,Collinsetal.2013).
Giventheincreaseinthenumberofmarketchoicesbeingmadeonline,itispossiblethatSP
experimentsthataremadetolookandreactinafashionsimilartorealmarketRPcontexts
mayimprovetheresultsofSPstudies.Inparticular,thereexistanumberofwebsitesthat
allowforcomparisonsbetweenalternativeinternetproviders,includingprovidersofNBN
services,whichuponexaminationcloselymimichighlystructuredinterfacestypicallyusedin
SPdecisioncontexts.Assuch,SPexperimentsconductedoncontextsthatlendthemselvesto
internetchoiceenvironmentstendtobenefitfrommorerealisticpresentationsettingswhen
theyaremadetolookmoreliketheirreallifeonlineinterfacecounterparts(Collinsetal.
187of196
2013).Inparticular,makingSPchoicetasksmoresimilarinlookandfeel,withlargernumbers
ofalternatives(notless),andprovidingvariousnavigationmechanismsincludingsearchtools
thatallowstheamountofinformationtobecontrolledbytheusermayledtosignificant
improvementsinSPmodelresults.Inthecurrentexperiment,wemadethechoicetaskslook
similartoanexistingonlineinternetprovidercomparisonwebsite.
Cheap talk
Cheaptalkreferstoatextscriptwhichisshowntorespondentspriortocompletingan
experiment.Thescriptemphasisestheimportanceoftherespondentsanswers,despitethe
hypotheticalnatureofthedesign.Variousscriptlengthshavebeentestedintheliterature,
rangingfromshortscripts(afewsentencestooneparagraph)tolongscripts(fiveparagraphs
ormore).Thereisstillmuchconjectureaboutwhichscriptlengthisthemoreappropriate,but
formoststudies,scriptsaredesignedtosuittheintendedaudienceandproposedsurvey
methodology.
188of196
AppendixISensitivityanalysisinputprobabilities
Theprobabilitiesusedinconductingsimulationsforthedetailedsensitivityaresetoutinthe
tablebelow.Theoutputdistributionwasformedbyconducting1000simulationsusingthese
inputprobabilitydistributions.
Table I.1: Probability assumptions
Parameter
Probabilities applied
Method of estimating benefits
50% for choice modelling, 25% for take-up method and

25% for technical bandwidth demand method
Discount rate
25% for each of 4%, 7%, 8.3% and 10%
DWL of taxation
25% for each of 8 cents in the dollar, 24 cents, 40 cents

and 70 cents
Business WTP as a proportion of household
Uniform distribution from 100% to 200%
Change in WTP per year
Log normal distribution with a mean of 2% and range

from simulations of 0.1% to 33.1%
Timing of roll-out
50% NBN Co, 25% delay MTM to match FTTP and 25%
delay FTTP to match MTM
Inclusion of FTTP in the multi-technology mix scenario

Productivity assumptions
40% NBN Co, 50% panel preferred assumptions and

10% FTTP costs from the revised outlook from the
NBN Co Strategic Review
FTTP and FTTN opex assumptions
50% NBN Co, 50% panel preferred assumptions
Overheads and project management costs
50% NBN Co, 50% lower costs for MTM in line with
amount of cumulative capex
Evaluation period
2034 + lognormal distribution with mean of 6 years and

range from 2035 to 2062
Speeds for FTTN
50% base assumption, 25% pessimistic and 25% for

50-100 down/10-20 up (UK speeds)
Source: The CIE.
189of196
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Glossaryofterms
4KTV
Displaydevicesorcontentwithahorizontalresolutionofthe
orderof4000pixels.Ithastwicethehorizontalandvertical
resolutionofHighDefinitionTV,withfourtimesasmany
pixels.
ADSL
AsymmetricDigitalSubscriberLinedeliversbasicbroadband
servicesovercoppertelephonelines
ADSL2+
AnenhancementtoADSLthatusesawiderfrequencyrangeto
achievesubstantiallyfasterspeeds
Cable
TermusedtodescribeHFCcabledeliversPayTV,internet
andvoiceservicesthroughopticalfibreandcoaxialcable
Committed
information
rate
Thespeedanenduserisguaranteedtobeprovidedwith.
CPE
CustomerPremisesEquipment
Dialup
Internetservicesdeliveredusingtelephonelines,requiresno
newinfrastructurebeyondthetelephonenetwork.
DOCSIS2.0or
3.0
DataOverCableServiceInterfaceSpecificationan
internationaltelecommunicationsstandardthatpermitsthe
additionofhighspeeddatatransfertoanexistingcableTV
(CATV)system
Fibre
Delivershighspeedbroadbandservicesthroughopticalfibre
Fixedline
subscriptions
Internetservicesubscriptionswithservicesdeliveredtoafixed
addressthroughvarioustechnologyoptions.
Fixedwireless
Broadbandservicessimilartomobilebroadbandhowever
usingfixedreceivingequipmente.g.antennasmountedon
roofs.
194of196
FTTdp
Fibretothedistributionpoint
FTTP
FibretothePremises
FTTN
FibretotheNode
Gbps
Gigabitspersecond
GPON
GigabitPassiveOpticalNetworking
HFC
Hybridfibrecoaxialatechnologythatdeliversbroadband
usingacombinationofopticalfibreandcoaxialcable.
IPTV
InternetProtocolTVtelevisionservicesdeliveredusingthe
internetnetwork
ISP
InternetServiceProvider
Latency
Thetimeittakesfordatatogetfromonepointtoanother
Mobileservices Internetservicesubscriptionswithservicesdeliveredto
mobiledevices(suchasmobilephonehandsets,tables,
dongles,USBmodemsanddatacards).
Mbps
Megabitspersecond
NBN
NationalBroadbandNetwork
NBNCo
AGovernmentBusinessEnterprise,taskedwithproviding
Australianswithaccesstothemostappropriatehighspeed
broadbandtechnology.
Peak
connection
speedorpeak
information
rate(PIR)
Themaximumconnectionspeedanendusermayachieve
195of196
RSP
RetailServiceProvider
Satellite
Broadbandservicesdeliveredusingageostationarysatellite
anddishesinstalledatcustomerpremises.
TCP
TransmissionControlProtocolapopulartransportprotocol
usedtodecreasecongestion,reducepacketlossandprovide
endtoendreliabilityinconnections.
VDSL
Veryhighbitratedigitalsubscriberlineadigitalsubscriber
linetechnologyprovidingdatatransmissionfasterthanADSL
overcopperwires
VDSL2
AnenhancementtoVDSLthatusesawiderfrequencyrangeto
achievefasterspeeds
VoIP
VoiceoverIPdeliveryofvoicecommunicationsoverthe
internetnetwork
WTP
WillingnesstoPay
DSL
Agroupoftechnologiesthatusetelephonelinestodeliver
broadbandservices
196of196

Broadband Cost Benefit

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Broadband Cost Benefit

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Independentcostbenefitanalysisofbroadbandandreviewofregulation

Volume II CBA Report

Table 1: Net benefits of each scenario relative to the reference case

Cost relative to reference case

Benefits relative to reference case

Net benefit per Australian household ($)

Note: These results use a discrete choice survey to estimate benefits.

Chart 2: The net benefits of each scenario (present value)

Data source: The CIE.

Fixed wireless and satellite

Total benefits, made up of:

Source: The CIE.

MTM scenario preferred (98% of scenarios)

FTTP is better where:

Less than -$10b

Net benefits of MTM scenario relative to FTTP scenario

Data source: The CIE.

Growth in demand and upgrade potential for the multitechnology mix

Net benefit of MTM scenario mix over FTTP

Threshold to prefer FTTP scenario

Net benefit of MTM scenario over FTTP scenario without upgrade

Net benefits of MTM with upgrade over FTTP

Data source: The CIE.

Box 6: Technical modelling to understand growth in demand for speed

Understanding the components of the analysis

Index of $/premise passed

Data source: The CIE.

Table 8: Costs for each scenario panel assumptions

Capital rollout costs

Other financial (non-resource) costs for NBN Co

Total financial costs for NBN Co a

Fixed wireless/satellite footprint costs

General resource costs incurred by NBN Co

Other resource costs outside of NBN Co

Table 9: Economic (resource) costs for each scenario

$b, present value $b, present value $b, present value

Initial estimates using NBN Co

Updated panel estimates

Difference (per cent)

This report in the context of the panels terms of reference

No further rollout of high-speed broadband or new

This is clearly not a realistic scenario, but is used as a

Unsubsidised rollout of high-speed broadband to

This scenario leads to rollout of high-speed broadband to

This scenario allows the examination of an alternative

Fibre to the premises (FTTP scenario): continued rollout

This scenario allows the examination of one particular

This scenario has Australia-wide rollout of high-speed

This scenario has Australia-wide rollout of high-speed

Source: Expert panel.

What is costbenefit analysis?

Box 1.2: Key steps in a CBA

Why undertake a CBA?

Inputs into the costbenefit analysis

The structure of this report

How much speed is needed, in a technical sense?

The Communications Chambers report

The modelling approach

Communications Chambers model results

Usage profile for sample households

2 adult medium useage household with HDTV

4 adult high useage household with 4K TV

Monthly minutes during busy hours