Assessing the Value of the Australian NBN (National Broadband Network)

Malcolm Turnbull (Leader of the Opposition)comments on the economics of the NBN today in the Australian - http://www.theaustralian.news.com.au/story/0,25197,25329883-5015664,00.html
Since no comments seem to be making it in, here is my comment on the Opposition leaders assumptions.



   

Prime Minister Rudd, and Opposition Leader Turnbull.

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My assumptions are online at : https://web.archive.org/web/20120410065801/http://www.thejoie.com/welcome/docs/NBNcosts.xls (archive.org)

Background: Investment $43B, fibre to the home to 90% of homes, plus wireless to rest, giving 100Mbps to fibre homes, and 12 Mbps to rest. Prices, and consumer takeup unknown. Business case not provided. Announced here
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Mr Turnbull makes some good commercial sense in his article. I have made some estimates on prices and takeup, as well as costing the investment with interest and depreciation, and make the following comments.

MT assumptions:
Operating expenses 50%, depreciation 5%
Takeup of homes 50%, rest with competition
ISP $100pm, NBN (Ruddnet) 70% of $100pm : gives no economic return on investment

My assumptions:
Spreadsheet is online at: http://www.thejoie.com/welcome/docs/NBNcosts.xls.
Depreciation same, Interest as for depreciation
Takeup $200pm 10%, $150 20%, $100 30%, $75 40%, $50 60%, $30 80%

On these assumptions, even with no operating costs (and I think 50% is very high), interest and depreciation (5%) at $180m per month each, swallow the revenue of max $240M, leaving a shortfall per month of $120M plus operating costs, and excluding competition, and ISP profit.

Other benefits accrue to businesses, who also use the network. Looking at small, medium and large, I guess small might pay $200 20% takeup, $150 30%, $100 40%, and medium $2,000pm 10%, $1,000pm 20% and $500 30%, large $20,000pm 10%, $15,000 20%, $10,000 30%.

Even with business cost savings on Telstra prices of 50% for large, and 20% for small, and revenue expansion for large 5%, Medium 10% and Small 20%, the most extra revenue and benefit I can get to is about $80M per month.

Still a shortfall of $40M per month, plus operating costs, plus competition, plus ISP share.

So, there are a lot of variables here, and it is worthwhile to think through what they are, and what they are worth to us individually, as a family, and as a nation.

If a national project is worth $40M of national fervour (per month) then maybe it is worth it. If we can find another $40M of benefit elsewhere eg international reputation, proactive problem solving, then maybe there is value in the NBN.

Other downsides would include potential impact on other telecoms share value, to shareholders.

Long ago, Pliny once said: fortuna fortem favet, not long after Mt. Vesuvius erupted. Sometimes life is for living, and doing the big important things to make the world a better place. Fortune favours the brave. The NBN might cost us $40M a month ($2 per person per month), but setting an example to the world - PRICELESS.

Google : function vs aesthetics

Wired reports a clash in value dimensions - function vs aesthetics. A Google designer is leaving because the engineering data driven culture at Google is driving him mad.

Title: Google data culture drives designer crazy - and out here.

The comments are especially interesting showing the ongoing dimension clash between what works and what looks good. Google wants proof of what looks good, from user testing - the average best. Their data driven culture is good at answering what works fastest, but not so good at aesthetics. They tested 41 shades of blue to see which one had the best response from users.

Value dimensions are individual, and aesthetics perhaps more individual than function.

We are all equal, but some are more equal than others.

Fast Company 2009 Top 50 Most Innovative

Fast Company name Team Obama as the most innovative company in its 2009 list, beating out last years winner, Google #1, and Apple #2.

Team Obama is a value management case study - listen, respond, engage with your customers to deliver value to them. In return, they delivered their votes.

Team Obama is not a corporation, but an organisation, and value delivery does not need to be necessarily about profit, but it is all about delivering value. For Obama, this probably means - hope, the new, fresh thinking and approach. An ongoing example is the community consultation (see image top right) at www.whitehouse.gov, and the transition website at www.change.gov, and initiaitive like" Join the Discussion" - see here. See more on this in the NESTA Measuring Innovation Blog post.

Fast Company list is online here - here.

Measuring Innovation - UK Style

NESTA has nearly $2M (USD - 1M GBP) for measuring innovation projects. I tendered for the Measuring User innovation subproject.

There are four projects:
- measuring corporate innovation 500k GBP
- innovation growth accounting 250k GBP
- framework conditions for innovation 75k GBP
- measurng user led innovation 100k GBP

See details at Innovation Index, with Research Notes, and Guidelines for tendering.

Look at my tender for a value approach to measuring innovation, at a national level.
The key is engaging consumers to vote for which innovations create value for them, using a website, built for that purpose. Obama's change.gov website, and tools therein is a model for this approach.

Happy inauguration day!

Imagine. Create. Innovate.

Europe has decided 2009 is their year of Creativity and Innovation.

The goals are taken from their website www.create2009.europe.eu:

The European Year of Creativity and Innovation has the objective to raise awareness of importance of creativity and innovation for personal, social and economic development, to disseminate good practices, stimulate education and research, and promote policy debate and development.

The Year addresses a wide spectrum of related themes such as:

• fostering artistic and other forms of creativity through pre-school, primary and secondary education including vocational streams, as well as non-formal and informal education


• maintaining engagement with creative forms of self-expression throughout adult life


• cultural diversity as a source of creativity and innovation


• information and communication technologies as media for creative self-expression


• ensuring that mathematics, science and technological studies promote an active, innovative mindset


• developing a wider understanding of the innovation process and a more entrepreneurial attitude as prerequisites for continued prosperity


• promoting innovation as the route to sustainable development


• regional and local development strategies based on creativity and innovation


• cultural and creative industries including design – where the aesthetic and the economic coincide.

For your consideration.

Upside Down-novation (Denovation)

Innovation has traditionally defined around something ‘new’. Schumpeter talked of new products, services, business models (Schumpeter 1934), and indeed the ‘nova’ in innovation is Latin for ‘new’. Recent definitions of innovation have included the related concept of value and value creation. For instance, the Innovation Metrics project, sponsored by the US Department of Commerce, and whose board includes elite business and academics define innovation as ‘something new that creates value’. The 2008 Australian National Innovation Review uses a similar definition (Cutler 2008).

However, by linking innovation and value some terminology issues have arisen. I have been writing my PhD about how consumer understand value in a new technology. This research aims to better understand innovation from a consumer perspective, and uses consumer interviews and a grounded theory methodology (see Ferrers(2008)). Some terminology issues have arisen.

The first issue builds from Schumpeter’s idea of creative destruction. When innovation creates, it builds upon the destruction of the old ways. As innovation creates value, so it destroys value. But we seem to lack a word to indicate this destruction. If innovation is something new, which creates value, what do we call – something new which destroys value. My suggestion in this note is that we need a new term for this idea. Such a word emphasises the value impact of the new. We have innovation for a positive impact, and we need a word for a negative impact.

A few possibilities have come to mind. These words use negative prefixes to indicate destruction. Prefixes such as ‘un’, ‘contra’, ‘min’, ‘anti’, or ‘de’ could be used, and connected with innovation. Thus possibilities are un-novation, contra-vation, min-novation, anti-innovation and de-novation.

Value similarly suffers from a lack of negativity. This is a second terminology issue, Value can be a noun or a verb. Something has value or we may value something. Both meanings are positive. However, we seem to lack a word which means loss of value, or negative value. Elsewhere I have argued that value moves either up or down, with new information and relates to several dimensions such as price, time and function (Ferrers 2008). What I now argue for is a new terminology to capture this negative action and movement. A price rise or something that wastes our time destroys value, yet we would not call the change and innovation or new value. I propose that we call a loss of value event, a ‘devalue’ or ‘devaluation’.

In short, I portpose two new words to complement innovation and value. I suggest we use ‘denovation’ to be the opposite of innovation and use this word to denote something new which destroys value. Also, I suggest we use ‘devalue’ as the noun related to a loss of value. I look forward to you comments.

References:
Schumpeter, JS 1934, Theory of Economic Development (per http://en.wikipedia.org/wiki/Innovation)
Cutler T 2008, Australian National Innovation Review, available online at www.innovation.gov.au
Ferrers R 2008, Towards a value theory of innovation, DRUID conference, Copenhagen (online here).

Measuring Innovation - Some 2008 reports

Here are some recent Innovation Measurement web pages I have come across recently:

Boston Consulting Group (Aug. 2008)
Innovation 2008: Is the Tide Turning?
A survey of 3000 executives say they are less happy with their return on innovation (2008 43% happy, 2006 52% happy), and will spend less on innovation in 2008 (2008 63% spend more, 2006 72% spend more). 28 pages
http://www.bcg.com/impact_expertise/publications/files/Innovation_Aug_2008.pdf

Measuring Innovation 2008: Squandered Opportunities
Firm level recommendations of measuring innovation. N=332 executives.
http://www.bcg.com/impact_expertise/publications/files/Measuring_Innovation_Aug_2008.pdf

Australian Bureau of Statistics - Tasmania (March 2008)
Measuring Innovation: Towards developing a scorecard
Surveys definitions and other measurement projects, including Schumpeter, Oslo Manual, output, outcome and input based measures, linkages and knowledge diffusion approaches. Assesses scorecards from OECD, European Innovation Scorecard, Canadian Scoreboard, Massachusetts, Progressive Policy Institute (WA.), Global Creativity Index. Creates Tasmanian scorecard with six categories: knowledge creation, human resources, finance, knowledge diffusion, collaboration in R&D, Market Outcomes.
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8163.6Main+Features12008?OpenDocument
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