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In its mid-September issue of ‘Boss’ insert magazine The Australian Financial Review wrote about NBN and its CEO Bill Morrow. In one of the opening paragraphs the author of the feature, Joanne Gray, said that Morrow “tries to ensure the country’s biggest single infrastructure project since the Snowy Mountains hydroelectric scheme does not turn into a $50 billion white elephant.”


As Hamlet’s mother Gertrude said, “the lady protests too much methinks” – the NBN appears to be designed to become precisely that. And taxpayers will foot the bill.

In 2011 I wrote about the fallacy of a five year long telecommunication project in a world subject to Moore’s law. I pointed out that over the course of five years the cost of relevant equipment and services would likely drop six fold, while the technological capabilities available at the original price would grow about six times bigger.

At the time, the decision makers should have realised that the project’s technological and commercial framework would change 36 fold over just five years, leaving the nation with a completely obsolete communication system by the time it was built.

In the article I also pointed out that 4G wireless networks could deliver data transfer speeds comparable to the NBN, without the need to install the fibre and do the hard work of pulling out the old copper wiring. The latter still sounds, to me at least, a bit like government-imposed vandalism – destroy alternatives, forcing people to use NBN.

Obviously, my predictions were destined to miss the mark – no one can really foretell where technology will take us in five years. Whilst advanced 4G does make the NBN redundant, I didn’t predict that the advent of 5G will make NBN look silly as the wireless technology will deliver one gigabit transfer rates, about 10-15 times higher than NBN ever hoped for.

According to the ‘Boss’ article, NBN will be connected to 9 million homes by … 2018 and has been forecast to bring in $1.7 billion revenue (currently hovering around $170 million) per year. The project will cost up to $56 billion.

The current completion date seems to have shifted to 2020, which now makes the NBN a 10 year project. Interestingly, NBN’s current slogan states its aim as: “Eight million Happy Homes by the year 2020.” I suggest that they should check their maths, or their propaganda.

The ‘Boss’ article goes into the details about how Morrow wants to make NBN deliver. But surely we have to ask questions about the business case?

Shouldn’t we rather be asking if we really want to continue with a project that will require $56 billion investment over 10 years but only generate (at best) $1.7 billion annual revenue? A business venture with equity of $56 billion ought to be generating at least $8 billion PROFIT (not just revenue) in order to make commercial sense.

Humans suffer from a cognitive bias known as ‘sunk cost fallacy’. But, one would hope that, our key decision makers have the nous to be able to overcome this mental weakness. At a bare minimum they should perform proper commercial and technical analysis. This means ignoring what has already been spent and built, and focusing instead on what options exist to get us where we want to be.

Everyone would agree that a high-tech 4G-5G network Australia-wide would be vastly preferable to the WEN (White Elephant Network).

But to do that, we must first notice that we already have an elephant in the room.

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ABOUT THE AUTHOR
Andrew Gorecki, MD of Retail Directions, has worked with the retail industry since 1985. Industry insiders appreciate his strategic advice and insights, as he lives and breathes for the industry. Andrew received a nomination for the Australian Entrepreneur of the Year Award in 2010.
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