My Cost Benefit Analysis on the NBN

The Senate report ( process here, final report here, pdf (327k) here) on the viability of the NBN asked for a cost benefit analysis. Several have been done already, including:

* Ergas and Robson (2009) here, found $13 - 20 billion loss, based on all revenue generated from usage fees (reported here, pdf here)

* Gans (2009), found overall social benefits, using a month consumer payments and surplus analysis here, and pdf here.

* My previous attempt on this blog (Apr 2009), which suggested an operating shortfall of $40 million per month: available here.

I have updated my Cost benefit analysis of the NBN and attach it for your information (here ; updated for broken link, Apr.2013). Given the recent Senate Report calling for a cost benefit analysis, and media talk, I thought I would have a go at putting one together. About three hours work.

I found that to achieve a positive NPV, the NBN needs to add between 0.5 and 1.0% to GDP per annum. Approx $7 billion per annum, proportional to % build complete from network 50% complete. I add NPV for NBN Co, including projected revenue, depreciation, operating costs, but no interest.

This model assumes, funding/interest at 5%, consumer takeup maximum 70%, corporate takeup maximum 90% at year 8, pro rata over the course of the build, with accelerating takeup as the build passes 50% complete.

In the model I assume that the Federal Government pays interest on $43 billion invested at 5%. That Telstra loses 50% of its value over the network build (about $20 billion). That NBN Co earns profits, which pay down the $43 billion NBN investment, and NBN Operating expenses of 20% of depreciation (about $430 milllion after build). Depreciation straight line at 5% per annum.

Future adjustments to model could include: grossing Telstra loss up to future value (adds about $10 billion, and reduces NPV by $7 billion), adding other telco losses, eg Optus, AAPT, shaping GDP gains from high in mid term, and dropping over the longer term.

The spreadsheet allows all these variables to be manipulated and show the impact on NBN and National NPV. I look at cashflows for years 1-15, and discount at 5%, including debt outstanding at that point. If you have any questions about the model or would like to discuss it, please let me know.

NBN Early Pricing analysis - Value WATCH (June 2010)

I have analysed the early NBN pricing between Exetel, iiNet and Primus using my Value Watch methodology.

The McKinsey Report (https://wiki.dbcde.gov.au/dashboard.action) advises pricing for penetration  - see Exetel Tas NBN prices http://www.exetel.com.au/residential-fibre-pricing-tasmania.php starting at $0 plus $2/Gb for basic (25mbps) to $50 plus $0.75/Gb for fast (100mbps). Mckinsey advise wholesale price around $30 for entry level broadband (25mbps; unlimited Gb) plus $5 for unlimited calls. Equates to about $55-60 retail entry level. But three other ISPs are pricing NBN like a premium service: iiNet, Primus $50 for 5Gb; $90 for 15 Gb. I know who I would prefer. I will attach my comparison of the initial NBN prices below.

See graphical comparison here.... http://www.mediafire.com/file/wdyj0qkzmbe/NBNvalueWatchJun2010.pdf...

Comments welcome below. The Value Watch compares Price per month and Price per Gb. Greater value is when both these indicators are minimised. Exetel shows a clear value lead over iiNet and Primus in these early stages.

Update: Exetel revised their prices up from $1.50 / Gb to $2/Gb and monthly access down from $10 to $0. Faster plans had no changes. Will have to update analysis.... Revised graphs with updated Exetel prices here - http://www.mediafire.com/file/htfdqy3m4j2/nbnJune2010b.pdf

iPad ergonomics poor? How about a lap stand?

A recent youtube video shows a 99 year old getting her first computer, but the ergonomics look bad, because she is bent so far over her lap to use the screen.





Concerned that iPad users might be hurting their back, by using the iPad on their lap, we are prototyping a Lap Stand. We want your feedback. Please treat this prototype as work in progress, and durability has not been proven.

When innovation is bad...?!?!

I have been invited to attend the Hanken School of Economics, Helsinki Finland to discuss the downsides of innovation.

A workshop called "Beyond the pro-innovation bias" is being run by Prof Karl-Erik Sveiby, in May 2010. Profs Jan Fagerburg, and Nancy Harding are making keynotes. The format is interesting because of the small group involved, the focus on brainstorming and problem solving, and the output of publishing the results as a book or special issue. UQ however prefers funding when a paper is presented at the gathering.

"The objective of the workshop is to bring together a group of 15-30 innovation researchers to explore alternatives to mainstream innovation research by addressing how unintended and undesirable consequences of innovation could be brought into the research agenda of the innovation research field. We want to go beyond the 'pro-innovation bias'." - Hanken website

My suggestion of a new term to indicate loss of value - 'denovation' (Jan 09) caught Prof Sveiby's interest and led to the invitation.

If innovation is something new, the result can be good or bad. If innovation is something new that adds value (as I argue in my thesis), then what is something new, which decreases value - I call this denovation. The trick is to work out if your action creates or destroys value or both. For instance, a price rise decreases value unless there is compensating change in product features.

Firms raise prices and think there is no effect on customers. I argue customers notice and remember, and include such information in ongoing value assessments. Price rises means customers lose value, and while customer response may not be immediate in action, an immediate response to the shift in value is a shift in attitude; increasing negative or decreasing positive sentiment towards the firm. Hence the need for ongoing measurement of customer attitudes towards firms as a measure of ongoing value provided.

Revising results - AJETS vs now

As my supervisors ask me to add more data into my results chapter, I look again at the first draft of results from Oct 2007.

I attach the latest draft, and the Oct 2007 draft for your comparison.

The first draft was written, but not submitted to the AJETS - Australian Journal of Emerging Technologies and Society.

Here is the AJETS file Oct 2007. ( attached 459k pdf)

Here is the latest draft Results file April 2010. (attached 1.5M pdf)

Institute of Value Management

I have been discussing my thesis with some Value practitioners from the UK. They raise some interesting questions which I will deal with shortly, when I find the time. I have posted them here to consider, and to share.

Richard

Good to find someone being so rigorous. I'm intrigued by your findings and the way that you present them, as far as I've been able to understand them from your blog. The outlines for HBR make good sense and it is time they paid proper attention to customer value as opposed to their usual cursory nod. I hope they take them.

I have few questions and observations which I hope might stimulate a dialogue:

1.I wondered about the impact of experience with similar or competing products - or from product trials - is that embodied in attitude in your model or am I looking in the wrong place?

2.In my non-rigorous work on this I have found it useful to separate strictly social (family and peer group interactions) from network enablement (community, society) as very different motivations seem to apply. Do you make such a distinction?

3.Further I have found that fit with complementary products and services is a strong driver. I tend to refer to systemic values when exploring these issues. Your research does not seem to have thrown up this concern (or am I missing something?)

4.You identify context, or relevance, as an influence but not narrative integrity (by which I mean the story I have about myself - does this product fit with my self-perception? will it help me build the story of me?) Again anecdotally I have found this to be significant and I usually try to explore this dimension with clients. Do you accommodate such a concept?

Finally I have found it useful to categorise items like necessary tasks and complexity as costs (usually in terms such as effort and cognitive load)/. This allows me to place them on the cost side of the value equation along with price, social exposure, status risk etc. I'm not clear how you envisage the benefit / cost trade-off working. Or is this too analytical for your model?

As a further aid to my understanding I wondered how your values compare with the set of universal values identified by Schwartz and summarised in the rather fuzzy image I attach.

Great work! I'd love to read the thesis.

Best wishes
D@IVM

Earlier comment from KS@IVM:

The origins of the IVM lie in the promotion of value analysis/value
engineering as originally developed by L.Miles. VM has however developed
from those origins where the focus was on manufactured products to encompass
all types of "products" and organisations. It is argued that QFD,
benchmarking and lean are all developments from VM approaches. More recently
VM has encompassed soft systems methodology and has considerable affinity
with systems thinking and concepts of the learning organisation. It is not
directly associated with earned value. I assume from your reference that
you are referring to what in the UK we call earned value analysis (EVA)which
looks at the ratio between percentage costs incurred and percentage
activities complete; as opposed to economic value added(also EVA!)as
proposed by Stern. I would argue that the latter involves a narrow
definition of value, while the former is only related to value if planned
activities can be shown to be relevant to achieving organisational
objectives whose achievement at an organisational level underpin value.

There is in Australia an equivalent organisation to the IVM
(www.value-management.com.au), and there is an Australian standard on VM.
The leading VM academic in Australia is Roy Barton(RTBarton@aol.com).

Institute of Value Management

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Tel/Mobile: 07919 470566

Our mission is to enable our members to develop and promote the professional
practice of managing sustainable value to secure and ensure economic and
social wellbeing for organisations and citizens in the UK and
internationally.

Find out more at ivm.org.uk

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Further academic discussion of Value Management from this perspective can be found at:

Managing value as a management style for projects
International Journal of Project Management, Volume 25, Issue 2, Pages 107-114
S. Male, J. Kelly, M. Gronqvist, D. Graham

The Economist debates Innovation

The Economist is hosting a debate on the proposition:

that innovation works best when Government does least.

See here - http://www.economist.com/debate/overview/168/Innovation.