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VULGAR is taken as common or unsophisticated as contrasted with the
economics used in the analysis of the National Broadcasting Network.
The academics who looked at the problem argue that a new backbone or
a new pipeline that will serve the new communications technology
needs of the nation would result in underutilization of existing
private backbones, leading to price increases. We are under the
impression, that (in vulgar economics) the greater the supply, the
lower the price. But let’s leave that for later.
One of the arguments given by the government in
proposing the NBN project is that it will provide the “last mile
connectivity” to agencies and schools and consumers of these
services at the end of the line, the ones that are not now served by
present service providers because they are in less inhabited areas
and provide far less revenue. And since the government needs to
serve its own agencies, facilities and offices in these area, NBN
will make the same services available to the public in these areas
who otherwise are not served because it is not economic for private
economic companies to do so.
The academics suggested a build-operate-transfer
arrangement for this last mile connectivity which sounded like the
proposal of Jose de Venecia 3rd’s Amsterdam Holdings Inc. (AHI).
From the exchanges in the Senate investigation. AHI will use the
government’s backbone put up by the BOT alternative in order to
compete with the private sector in the supply of modern
communication services. But our experience with major BOT projects
has been that the government ended up subsidizing their operations.
The LRT is a case in point. Rather than subsidizing its operations,
the government is thinking of buying it out.
All this, of course, is arguable. Although the
economists who testified in the Senate were two-handed (they gave
none-of-the-on-the-hand, on-the-other-hand hedging) testimonies, we
may take a look at the problem of underutilization. In the face
of the technology explosion over the last few decades, it would seem
the experience is that, if the technology is available, it will be
used.
The slogan of our major telephone company used
to be no backlog on telephone services. But that was wiped out by
the cellular phone. The cell phone may be an expensive alternative
when it first hit the market, but it has become affordable even to
domestic helpers. And the telephone companies are falling over each
other building expensive cell sites in order to beat the competition
in coverage.
But let us take a look at an older example of
this underutilization theme. When the martial law government
started thinking of nuclear power plants, four decades ago, the
general reaction was similar to the NBN reaction today: It was too
much, too sophisticated and it far too expensive to be viable.
Besides, there were the usual accusations of
kickbacks and overpricing.
The result was that the postmartial-law
government scrapped the nuclear power project altogether. The
sentiment was why should the country subsidize the so-called
cronies. It is at this point that we can again do a little vulgar
economics; a marginal analysis of the power situation just after
EDSA 1.
If we decide to continue the project, with its
kickbacks and all, in order to order to abort the threatened power
shortage, how much more would it have cost us?
The power crisis did hit us near the end of the
administration of President Corazon C. Aquino because the nuclear
power that was expected to meet the expected shortage did not
materialize. The country had to go into expensive oil and
environmentally dirty coal-fired plants. And the cost of oil has
since tripled from its cost when the nuclear power plant was
planned. So continuing with the nuclear power project may have been
more economic. At least we would not have suffered the brownouts.
Let us concede that there was corruption
involved in the nuclear project. But a simple marginal analysis
would probably show that the country would have been better off and
probably not suffered as much, if at all, from the massive
nation-wide brownouts if we had gone nuclear.
And the irony of it all is that we had to pay
for the useless nuclear plant installations anyway. Given that we
may have to spend more to continue the project, would the added
expense be more or less than our expenditure for the “emergency”
power program we entered into? We are now complaining about the
“onerous” contracts we entered into with private power suppliers
because we were over an oil barrel at the time.
The situation was so bad that there were even
attempts to resurrect the project as a regular oil-fired plan t. If
the benefits from going through the nuclear power plant project were
better than the cost of our alternative, would staying with nuclear
power been the more rational decision?
Let us take a closer look at the economics of
the NBN project and let the courts settle its name-calling offshoot
among the politicians.
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