Tuesday, 14 May 2013

NBN: Cost-Effective vs Cost-Efficient. What's what and Who Pays?

Mr Turnbull abhors meaningless terms that are undefined and ambiguous: they can be "spun" and easily manipulated for Political Purposes. Here's what he had to say on the topic in the ZDnet/Our Say Debate with Senator Conroy:
Now as far as the overall issue today is concerned I agree that diversity is absolutely critical.
I don’t agree with a public interest test, it’s interesting to see that Stephen Conroy wants to revive it so that will obviously be a policy going into the next election but I oppose a public interest test because it is completely ambiguous.
It is totally political test, everyone will have a different view on it.
In light of this, why the contradiction in the Coalition NBN rhetoric, liberally peppered with "Cost Effective"?

Isn't this a well-defined Business Concept, a synonym for "Cheaper"?

 No, not nearly.
It's a hugely misleading and deceptive term if not qualified as to how it's measured & evaluated:
  • For whom is it more "effective"?
    • Both sides of the transaction, seller and buyer, or just one party?
    • The Coalition has multiple hidden costs it is pushing onto subscribers:
      • "Cheaper for us, but boy are we going to gouge you!"
  • "Effective" by what measure?
    • Total Cost of ownership? (Purchase, Install and Operate, then Remove)
    • Operational Lifetime?
    • Environment and Social Impact ("Triple Bottom Line")?
    • Or narrowly defined as "cost to purchase"?
  • Evaluated over what Time Frame and what group of Stakeholders?
    • You can justify any decision you want just by selecting what you leave out.
There are two related terms: Effective and Efficient

Effective means "Doing the Right Thing"and
Efficient means "Doing the Thing Right".

The Coalition can save a small amount, under 5%, in up-front costs of the NBN and claim very narrowly that because they spent a tad less so they are being "Cost-Effective".

What they're intending to do is push quite significant costs onto every DSL-connected householder.
While they save $50, it's going to cost every householder $250 to get VDSL, then $500-$1,500 to upgrade to an NTD when, not if, copper phone services are withdrawn. They have will need to pay $1,250-$10,000 (based on BT costs) again when, not if, they upgrade to FTTP at their own cost.

If you add the total costs, Government and subscribers, then their approach is much more expensive and anything BUT "Cost Effective".

The difference is what NBN Co can do in a roll-out and what it will cost every subscriber to have done for them individually is the "efficiency" of a mass-deployment. A large project reduces the overheads and delays to an absolute minimum and assembles complete teams of experts in the one spot to execute tasks at peak efficiency.

Forcing each and every subscriber to individually arrange for their in-house cabling to be upgraded is the least efficient, most expensive option possible. Mass deployment projects are more than ten times cheaper per premise than one-off retail services.

They're Cost-Efficient, minimising what it costs.
Cost-Effective is about Who Pays. When you can force someone else to pick up the tab whether or not it's Cost-Efficient, that's "Good Business" but not necessarily "Good Government".

Moving costs from the taxpayer (Government) to the taxpayer (subscriber) is only fiddling the books to achieve a Political end. The taxpayer still picks up the tab, just in a different, much more expensive, way.

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