Crown fibre will pay for itself - study

Alcatel-Lucent has produced an economic study that claims two massive public-private broadband projects will pay for themselves.

The study, by the Franco-American firm's Bell Labs unit, says the $1.35 billion Ultrafast Broadband (UFB) and $300 million Rural Broadband Initiative (RBI) will add $5 billion to GDP over their 20-year life time.

Alcatel-Lucent is the incumbent network infrastructure partner at Telecom (where it's best-known for the XT rollout) and the spun-off Chorus.

However, while pitched as a boon to GDP, the UFB and RBI have provided economic challenges for Alcatel-Lucent. Rival Ericsson has won UFB business from two of the four UFB contract winners, Chorus and Whangarei's Northpower, while Huawei has landed contracts with central North Island winner Ultrafast Fibre and Christchurch UFB contract holder Enable. Huawei has also landed some of Chorus's RBI business.

Alcatel-Lucent said the business modelling team within Bell Labs has carried out several macro-economic studies on the benefits of broadband roll-outs, including one for the World Economic Forum last year. Building on that work they developed the analyses and models for assessing the impacts of New Zealand’s broadband initiatives. The findings are being released at the Commerce Commission's Future Broadband conference today.

RAW DATA: Bell Labs' white paper (PDF)

The study ‘Building the Benefits of Broadband’ measures the GDP impact of the infrastructure build and determines the consumer surplus from applications UFB and RBI will support.

Alcatel-Lucent New Zealand CEO, Andrew Miller said, “The study shows the investment in UFB and RBI pays for itself, with more than $5 billion added to our GDP over the 20-year life of the build out programme.

He added that: “Perhaps of greater importance is the impact of applications associated with these initiatives that will allow for a higher consumer surplus – that is an economic boost that results from doing things more efficiently.”

The ‘Building the Benefits of Broadband’ study considered a sample of known applications across health, education, business and the dairy sector. Applications considered included: teleworking, high-definition video conferencing, on-line training, online doctors’ visits, remote patient monitoring, remote classes, online herd management and cloud computing amongst others. It showed the combined consumer surplus of using high-speed broadband applications significantly outstripped the GDP impact of building the UFB and RBI networks.

“The combined consumer surplus of the applications considered in the study reached nearly $33 billion over the 20-year period and continued to grow year-on-year,” said Andrew.

The study identified three factors that if improved could further increase the potential consumer surplus: the availability of relevant applications; the speed of application adoption; and the total level of application uptake.

For example, a sensitivity analysis showed that by increasing the speed of application adoption by 20% over the baseline, and increasing the total level of application uptake by 20% over the baseline, New Zealand can turn a $33 billion consumer surplus into almost $48 billion.

For Mr Miller, this signals an important call to action for businesses. “Without relevant, compelling and useful high-speed broadband applications, there will be no consumer surplus. The availability of such relevant and compelling applications requires innovation, incubation and collaboration.

“There is no doubt some of this innovation will occur in the R&D labs of big global companies. But for a variety of reasons – language, culture, distance, and all the things that make New Zealand unique – many high-speed broadband applications will need to be created, adapted or incubated here.”

He added, “We can’t afford to wait. The quickest possible roll-out of UFB and RBI is essential to drive speed of adoption. And it is a case of the more the merrier. Businesses have a part to play in thinking of ways to create mass migration over to these new networks to increase the total level of uptake and resulting consumer surplus.”

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7 Comments & Questions

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Good thing Steven Joyce, et al didn't listen to all the nay-sayers wanting full a study on the UFB benefits before it was started on. It would have cost us years of time when the benefits are obvious (and the cost is insanely low considering the job to be done).

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UFB is waste of time without a competitive market for international bandwidth. You don't build motorways to get to the corner dairy.......you build motorways to get down country fast.

Super Fast Fibre should be connecting NZ to global markets.............the only way to realise any forecast GDP gains.

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@Mark, it'd be nice to hear a public response from where you guys are at with your proposed cable. Esp how does the new Chinese/Huawei proposal work for/against you.
Do you plan to do an elaborate blog like the PIPE guys did?

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Holey moley NBR, I expect better reporting from you. The Alcatel Lucent report counts the COSTS of the fibre build as economic BENEFITS. Totally wrong.

<url>http://aaronschiff.net/2012/02/costs-are-not-a-benefit/</url>

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The study uses an input-output approach to calculate the GDP impact of the public and private investment that has already been earmarked for the UFB and RBI builds.

It uses the SimSIP SAM tool developed by Parra and Wodon to do this.

The costs of the UFB and RBI builds are considered as an input, not a benefit.

The study does not consider what GDP impact would occur if the resources were applied to something else, as doing so was not the objective of this particular analysis.

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another hilarious claim fromtheALU report. 10% broadband penetration increase translates to 0.18% increase in GDP. That equates to a gigantic $80 perpers on per year, or roughly equivalent to theamount that those extra connections generate in revenue for the ISP.
In other words, so what?

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The figure comes from a 2008 study by Garbacz and Thompson called 'Broadband Impact on State GDP'. It was referenced in the Alcatel-Lucent paper to illustrate that previous studies have established a correlation between broadband penetration and GDP growth.

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