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5 Efficiency and Effectiveness of the National Environmental Standards

5.1 Overview

Effectiveness considers whether the policy option will actually be effective in achieving its aims and objectives.  In this case, the setting of national environmental standards provides firm regulation for achieving the stated aims and objectives.  It is, therefore, the most direct and effective option.

Efficiency considers the benefits and costs of any policy intervention.  If the benefits outweigh the costs over time, then the policy is deemed to be ‘efficient’.  This, however, assumes that benefits and costs can be quantified in monetary terms.  In this case there are a number of ‘intangible’ considerations outlined later that cannot be given monetary values.  Yet they are identified so they can be included in the broader consideration of the efficiency and effectiveness of the NES.

Within this framework, the measure of efficiency will generally consider the national environmental standards package as a whole rather than breaking it down into its constituent parts.  So apart from radio frequency fields, the components of the package will not be considered individually.

The results of the analysis suggest there is a substantial net benefit from the NES, if the rate of roll-out is anywhere near what the telecommunications operators suggest it will be in the next 10 years.  The net benefit is larger than predicted in the initial analysis carried out in 2006: the expected profile of facility roll-out has been revised by the companies and now predicts greater activity in the near future.  Because the quantified net benefit is so large, the result of the quantified analysis is not sensitive to substantial changes in the input assumptions used.

There are unquantifiable effects on both the cost and the benefit side of the ledger.  The size of the quantified benefit also suggests that unquantified costs, particularly of loss of community participation and control, would have to be large to overturn the result.  There is no ready means of valuing these unquantifiable effects.  However, they are discussed in detail in the following sections.

5.2 Costs and benefits of adopting the national environmental standards

The figures presented in this chapter should be regarded as indicative rather than definitive.  However the overriding conclusion to be drawn from the cost-benefit assessment is that the analysis indicates adopting the NES is likely to result in positive net benefits.

5.2.1 Assumptions

Cost-benefit analysis is a long-established technique intended to identify the economic efficiency of a proposed project or policy change.  Efficiency is broadly about maximising outputs obtained from available inputs, but there are different variants used in economics.

  • Technical (or productive) efficiency refers to the most cost-effective way of providing a given service.  For instance, reducing or eliminating regulatory costs that serve no useful purpose improves technical efficiency of the (formerly) regulated activities.

  • Allocative efficiency refers to the ease with which resources can move across an economy to their most productive uses.  For instance, a regulatory process that unduly impedes investment in a particular new activity would not be allocatively efficient.

  • Dynamic efficiency refers to the optimisation of innovation and rate of change over time.  

    Both allocative and technical efficiency have a dynamic component to them: for instance, a regulatory process that discourages new investment and prolongs use of older, less productive infrastructure would not be efficient in a technical, allocative or dynamic sense.

A cost-benefit analysis proceeds by comparing effects and outcomes with a proposed change in policy against what would have occurred under a counter-factual, without the proposed change.  This counter-factual is an expectation of what would happen in the absence of the proposed change, ie, a continuation of the current status quo of varying consenting requirements across local authorities, with which industry must contend in rolling out new services and the facilities to provide them.  It can be described as a projection of supply and demand into the future as conditions change, while the regulatory status quo remains as it is today.  It provides the baseline against which to compare the likely effects under the NES.

5.3 Components of the status quo

Under the status quo (counter-factual), costs of variable consenting provisions for telecommunications facilities across local authority districts comprise:

  • various costs for companies in applying for consents, complying with localised requirements, surveillance of different districts’ requirements, and lost revenue from delayed roll-out of new facilities

  • costs for consumers of delay in obtaining upgraded and new services

  • costs for local councils in processing and deciding on consents.

These categories refer to costs where they originally fall, not on where they are finally borne.  For instance, extra costs for companies will either be passed on to consumers in service prices, (in which case there may be negative price response and reduced consumption), or costs could be borne out of a company’s profitability, affecting returns to investors and the ability to reinvest.

Ultimately the costs are likely to fall on:

  • consumers, in the form of higher prices and services denied/deferred

  • company shareholders, in the form of reduction of profits, dividends and market value of shares

  • local ratepayers, who pay the costs incurred by councils in setting and processing local consenting procedures (except costs recovered from applicants’ charges)

  • the economy as a whole, by losing some dynamic efficiency as the drag on availability of new services impedes the rate of innovation among customers (business and personal) that could be supported by them.

The benefits of variability of provisions across local authorities are less tangible, and all relate to the value to the community of self-determination and control over the pattern of development.

  • The economic value of such self-determination can be inferred through the community’s willingness to pay for restrictions and processes that result in opportunity costs incurred within the community, due to additional resources used and benefits forgone.

  • Such willingness to pay can be estimated through market research type surveys, but these require more time and resources than is provided for in this project.

  • In practice, community value is usually determined through the political process that approves the rules applied in each locality, and the economic value implied by these decisions can often vary widely between apparently similar outcomes.

  • Opportunity cost, or benefits forgone, as a result of individual rules adopted provide one measure of value of community-imposed restrictions.  For instance, if rules delay the date of new services becoming available in a district, the economic cost comprises the benefits forgone by denial of service, and/or additional resource costs incurred in using less efficient substitutes for those services.

  • This is also difficult to estimate in practice, as it depends on local circumstances; but there may be situations where denial of new services results in measurable additional costs for users of an inferior substitute.  For instance, non-availability of broadband capacity that requires customers to retain dial-up internet services results in costs for customers of additional time required for operations/downloads.

Any reduction in the above costs, or gains in the above benefits that are likely to arise from adopting the new standard, are relevant to economic cost-benefit analysis.  In practice, the benefits are often less completely valued than the costs.  But by getting some measure on the more tangible effects on costs, the analysis can provide insight on how big the benefit of local control would need to be to justify retaining it.

The case for national standards is more readily justified in the presence of externalities than for effects that are purely localised.

5.4 Distribution of impacts with and without the national environmental standards

5.4.1 Situation under the status quo

The current arrangements governing environmental effects of telecommunications facilities fall differently on different parties in the community.  The principal resource use effects are listed below and in Table 2.6

  • Industry:
    various effects on the cost side arise from:

    • cost of preparing applications for consents and steering them through the process
      (a once-only cost for each consent, but varying widely across local authorities with the complexity of the applications and, in aggregate, dependent on the number of applications)
    • cost of complying with non-standard requirements and conditions of consents once issued (may be once only or recurring cost)
    • cost of staff assessing requirements of different councils (a recurring cost, but fixed irrespective of number of consents sought)
    • deferred market penetration, revenues earned and cumulative presence in the market.

  • Consumers:

    • are faced with restricted competition and denied or delayed access to new services and capacity provided by new technology, to the extent that the process slows the roll-out of that technology.

  • Residents:

    • enjoy the benefit of participating in and influencing local planning processes through approvals of works, submissions to local plans etc7
    • incur a cost from the potential for residual intrusions of street clutter.

  • Councils:

    • enjoy the benefit of exercising on behalf of constituent’s localised control over amenity, noise and radio-frequency exposure
    • incur costs on processing consents (variable with number of consents)
    • incur costs on setting criteria by which to judge consent applications.

  • Government:

    • has no particular cost or benefit from the current arrangement.

Table 2: Costs and benefits under status quo

Costs

Benefits

Industry (producers)

Applications for consents

 

Complying with non-standard requirements

 

Fixed costs of staff assessing requirements

 

Market penetration deferred

 

Consumers

Denial/delay in use of new services

 

Residents

Neighbourhood street clutter

Input into notified applications
 

Input into local regulation setting
 

Improved local amenity

Councils

Consent processing (per application)

Control over visual intrusion

Criteria setting

Customised noise / radio-frequency limitation

Government

Source: NZIER

5.4.2 Changes with the proposed standards

The effects of the proposed changes on the different parties in the community are summarised below and in Table 3.

  • Industry:
    a number of benefits from the changes including:

    • reduced time and cost spent in obtaining consents, and reduction in unanticipated delays in operations
    • economies of scale realised from using standard components across wider areas
    • reduced cost of assessing compliance with each individual district’s particular requirements
    • reduced uncertainty about outcomes across districts
    • removal of redundant regulation (such as by-laws) that are superseded by the NES
    • faster market penetration and corresponding increase in revenues
    • higher expected returns from investment.

  • Consumers:
    benefit from:

    • faster roll-out and access to new services
    • increased competition, choice and consequent improvements in service quality in new areas, and price reduction in existing serviced areas.

  • Residents:

    • benefit as potential consumers: this is subsumed within the consumer benefit above and should not be counted twice, but is listed separately here to distinguish the residents affected by proximity to a roadside facility from the wider group of potential consumers served
    • incur costs from potential proliferation of street clutter
    • incur costs from loss of input into local control measures
    • may incur adverse effect on property value (although within the controls of the NES, such effects are probably negligible; there remains the possibility of inappropriately sited equipment impacting on street appeal of individual properties with an appreciable effect on their value)
    • commercial property owners and commercial activities are also affected – especially those sensitive to the quality of the adjoining streetscape, in mixed-use / commercial areas which are also likely to be of key interest for telecommunications network development.

  • Councils:

    • benefit from avoiding the cost of consent processing (should there be costs in excess of the fees recovered from applicants)
    • benefit from avoiding the cost of setting criteria and determining outcomes
    • incur cost in reduced control over visual, noise and radio-frequency impacts of street facilities
    • potentially incur costs in managing more utilities operators locating equipment in limited road space.

  • Government:

    • benefits from facilitation of roll-out of new technologies, new entrant competitors and support for economic transformation; however, the economic benefit is realised primarily by consumers, producers and their shareholders
    • incurs costs in promulgating, promoting and monitoring the application of the new standards

Table 3: Changes in costs and benefits with the national environmental standard

Costs

Benefits

Industry (producers)

 

Reduced consent cost and time

 

Economies of scale from standard components

 

Reduced cost of assessing requirements

 

Reduced delays in processing

 

Reduced regulation from bylaws

 

Faster market penetration

Consumers

 

Faster roll-out of new services

 

Increased competition, choice and service quality

Residents

Potential proliferation of street clutter
(visual disamenity)

Benefit as potential consumers
(but not to be counted twice)

Adverse property value effects (questionable)

 

No input into local applications

 

Councils

Reduced control over visual effects

Avoided cost of consent

Reduced control over noise and radio-frequency levels

Avoided cost of criteria setting

Increased cost of road-space management

 

Adjustment to district plan (questionable)

Government

Promulgating, promoting and enforcing standard

Facilitating roll-out of new technologies

Source: NZIER

5.5 Other potential costs and benefits

The listings above focus on economic costs and benefits, ie, they are effects that have some bearing on real resource use efficiency, which is relevant to RMA section 7(b) and to section 5 more generally, through its impact on community wellbeing.  The items in the list share the characteristics of having appreciable resource use implications.

Other things could be regarded as costs and benefits, but if they have no appreciable resource use implication they cannot be incorporated in a cost-benefit analysis.  In any community with a plurality of views, what some regard as a benefit may be regarded as a cost by others.  This particularly occurs where one person gains the benefit but the cost is borne elsewhere.  If there is appreciable cost for some, but the benefit accrues to others with no indication of what they are willing to pay to obtain it (because they are free-riding off imposition on others), then on balance costs are likely to exceed benefits.

Where things may be regarded as both costs or benefits by different people, an expected balance of appreciable resource impact is recorded in the listing.  In light of this, other potential costs and benefits include:

  • Costs for industry of increased regulation from the NES in areas which currently do not regulate the affected activities (eg, in Palmerston North).  This applies in a minority of local authority districts, and is expected to be less significant than the opposite effect of benefit for industry from reduced and more consistent regulation country-wide.

  • Benefit to residents of increased certainty of regulation.  Anecdotally, residents appear much more willing to expend time, energy and resources on tailoring plan provisions to local concerns than they do on subjecting them to national standards, so this benefit seems likely to be small and outweighed by the loss of local participation and influence over controls.

  • Costs to residents from street clutter.  Obstacles placed in road reserves provide some degree of nuisance to those using the street and are therefore a cost to wellbeing.  This includes trees, signposts, rubbish bins and bus shelters.  If the NES results in proliferation of obstacles and clutter that cost will increase, although with the NES requiring a minimum separation distance between cabinets of 30 metres, then perhaps not by much.

  • Benefit to councils of certainty in national direction, and in not having to update plans to keep up with technological changes.  These are variants of the benefit from avoiding cost of setting criteria and determining outcomes, as listed in Table 3.  These are all examples of government performing one function that would otherwise be undertaken by 73 territorial authorities: this should reduce administration costs across local government by more than the increased cost for government.

  • Costs for councils in adjusting district plans to remove confusion over conflicts with the NES.  In principle the NES should entail no such cost as there is no formal requirement to change plans to accommodate the NES.  However, council respondents envisaged some additional cost for informal notification of the change in council publications, websites and supporting documentation.  One council expected formal change to the plan would be required, to remove conflicting provisions between the plan and the NES; and to protect the council from potential future liabilities that might arise should others suffer economic loss as a result of such conflicts.  While government may not regard this as a real cost because it is not a formal requirement of the NES, if councils do so anyway, because of extreme risk aversion or other factors, there is still an expected value cost to be accounted for as a consequence of the introduction of the NES.

  • Costs cited by telecommunications companies, in the dual role of each local authority as the local planning authority and the road controlling authority.  Road controlling authorities are able to impose reasonable conditions on utilities operators who seek to exercise their statutory rights to use the road corridor in its jurisdiction.  These conditions must be complied with.  This may be a benefit to the community in that some aspects of concern (such as specific location of roadside facilities) may be controllable through this route, but it detracts from the benefit for telecommunications operators: some have reported difficulties in dealing with some local authorities in their road controlling role to the point where they avoid using the road-space.

5.6 The cost-benefit model

A fully quantified model (if possible) would compare the ‘with’ and ‘without’ standards situation over a period of some years.  This would entail developing scenarios for ‘with’ and ‘without’ standards situations over a foreseeable future, and comparing the differences between them.  This requires for each scenario:

  • a projection of likely investment in telecommunications in successive years over the analysis period, taking account of any changes in the rate of investment attributable to the costs or uncertainty around consenting

  • the proportion of that investment that is likely to be affected by the NES – in particular, the role of works in road reserves in those future investment plans

  • the compliance cost of obtaining consent for works that would be subject to the NES, arising from application and processing costs and any additional costs from meeting non-standard requirements

  • an estimate of how additional costs without the NES translate into higher prices, and the likely price responsiveness of customers as a result.

The model structure is based on the premise that the NES is likely to:

  • reduce the costs of compliance for those works in road reserves

  • increase the speed of investment and roll-out of new services

  • reduce the price of some services, with corresponding increase in demand for those services, due to improved facilities and increased competition.

The summation of these components is a measurable benefit of the NES, against which to compare the dis-benefit of losing local control and potential localised amenity/streetscape effects.

5.7 Cost-benefit analysis – Does it stack up?

To assess whether the NES is likely to be worthwhile, it is necessary to assess the magnitude of the effects its introduction would have, and value these in dollar terms as far as possible.  Interviews with industry and local government stakeholders have provided some information on which to make such an assessment.  This is subject to some uncertainty due to imprecision in the ability to record current costs and effects, and to the difficulty in respondents’ self-assessment of likely future changes under the NES.  The analysis that follows is therefore subject to wide confidence bounds and should be regarded as indicative when aggregated across the country.

This section outlines the interview results and infers some representative or typical values to use in the analysis of national costs and benefits.  These typical values are then subjected to sensitivity analysis, to establish how robust the results are to changes in the input assumptions used.  As much of the information obtained is commercially sensitive and offered in confidence by the respondents, the figures that appear here are in most cases ‘blended’ from different respondents, and are not attributed to individual sources.

The focus of this section is on the NESs relating to roadside cabinets, noise and associated aerials and masts, as these represent the most quantifiable activity for assessing the difference with and without the NES.  Most operators anticipate some easing of consenting processes with the radio-frequency standard as well, but the quantum of effect is less well defined.  To some extent the use of large masts to which the radio-frequency standard would apply depends on the uptake of activity in road reserves, as one tall mast covering a wider area can be a substitute for several smaller roadside facilities.

Improved or cheaper services assist other industries in innovating and creating business and wealth for the community; this is acknowledged as an underpinning reason for facilitating roll-out of new technologies, but these consequences cannot feasibly be quantified in this analysis.

5.8 Identification of unit costs and benefits

5.8.1 Effects on the industry (producers)

The benefits of the NES for industry are likely to come principally from reductions in costs and timing delays in the roll-out of their upgraded facilities.  For new entrants, this may be the difference between having a service to sell or not.  For incumbents it can be the difference between expanding or contracting their share of the telecommunications market, and in extracting higher value and volume of business from existing customers upgrading to newer services.

Changes in consenting costs

Most industry interviewees anticipated reductions in the cost of obtaining RMA approvals, although they varied in their estimates of how much this would be worth.8  Partly this is because of the difficulty of disentangling RMA consent processes from the parallel process of dealing with local councils as the road controlling authority: these activities within businesses are often inextricably linked.  Partly it is because respondents cannot easily isolate the class of road reserve applications from their total operations.

The responses on cost of obtaining consent per site range from $3,000–5,000 to $25,000–30,000.  The first figure refers only to identifiable expense items (eg, cost of consultants’ time) and excludes staff time and resources associated with each application.  The latter figure refers to both RMA and road controlling authority processes, and is estimated to drop down to around $12,000–15,000 if roadside facilities became a permitted use (implying a saving in consenting cost of $13,000–15,000).  Other responses were between these extremes, implying an unweighted mean of $11,000–12,000 saving per site on consent costs alone.

Table 4: Current range of costs for obtaining resource consents for telecommunications facilities

 

Range

Mean

Industry costs per application*

$3,000–$30,000

$11,220

Councils net costs per application

$1,200–$5,000

$2,590

* Based on an estimated annual roll-out of 1100 sites per year.

Changes in consenting timing

Although the RMA provides for consent processing within 20 working days, operators report considerably longer times for consent approvals.  One respondent provided an average across councils it deals with of around 70 working days, an interval that has increased from just under 40 days in 2003.  Its figures show that the processing interval tends to be longer for councils in Auckland than in other metropolitan centres, and that all Auckland councils have undergone a distinct step change increase in interval since 2004: they appear to have become more wary of approving anything that may be controversial with constituents.  Some applications require 6–8 months to process, and a few have taken up to 12 months.

The consequences of such delays can be illustrated with a hypothetical example.  Suppose a roadside aerial and cabinet brings into reach 2000 suburban properties, of which the operator expects to sign up 10% as subscribers to its services.  If these 200 new customers pay $50 per month for the new service, a delay of one month in consenting results in forgone revenue of $10,000.  So if, on average, consent approvals take 70 working days instead of the statutory guidelines of 20 working days, there could be a delay of 50 working days – 10 weeks – which in the example above would amount to around $22,600 forgone revenue.

If this is representative of the opportunity cost incurred per site, eliminating delay would provide a substantial revenue boost for operators across all sites.  If the delay is predictable, operators can adjust to this by allowing more time for their application to be processed.  If the delay is unpredictable, it not only forgoes revenue but can also incur additional cost by interfering with scheduling of installation work.  Operators report there is random variation in the timing of processing, with even apparently similar applications to the same council having markedly different processing times – depending on how different individuals within the council approach the task.  Beyond this, delays can be compounded by network effects, as the benefits of some network upgrades depend on the last (slowest) site to get approval.

These timings and costs are all for non-notified consents.  Notified consents would take longer, but are less typical.  Some operators deliberately avoid sites where notification is likely, because of the additional timing and cost expected.

Faster market roll-out and penetration

A corollary to shorter processing and consent approvals is faster roll-out of installations and the availability of services dependent on them.  Particularly for operators without an existing landline or cellular network, being able to fill in the gaps in coverage quickly would confer a momentum to roll-out that is likely to increase the effectiveness of their promotional activities and improve their market penetration.  Conversely, having ‘holes’ in their coverage because of localised consenting impediments has the opposite effect.  Although all operators anticipate a faster roll-out under the NES, none has provided a quantifiable estimate of how much faster it might be.

How many sites are likely to be affected?

Most operators indicated a proposed programme of roll-out for their works in road reserves, which could be combined into a country-wide figure.  The precise location and timing of these programmes is still not determined, because it is affected by factors such as the implications of local loop unbundling and local circumstances.  Most operators intend initially rolling out in areas with the highest expected revenue yield, such as the main metropolitan centres, then extending into lower-density and rural areas.  They also indicate some stepping up of activity over an initial 2–3 years before sustaining a steady rate of roll-out.  This rate is expected to settle on around 1000 roadside sites per year across all operators over the next 6–10 years.

The simplest assumption is that the rate of roll-out will be unaffected by the NES.  However, an average consenting cost of $12,000 per site represents between 5% and 12% of the cost of installations, so it is plausible that an NES that reduced costs by that amount could improve the attraction of roadside sites and increase the rate of use of such sites.  One operator, who identified the RMA costs as the biggest single obstacle to its roll-out operations, suggested its roll-out plans were contingent on the removal of this obstacle.  Other operators suggested that, in some areas, dealing with the road controlling functions of local authorities was more problematic than consenting processes, so their use of roadside sites would not greatly change.

While most operators suggested there would be an increase in the rate of roadside facility roll-out under the NES, there is no numerical basis for assuming what that change in rate would be.  The analysis uses a central ‘blended’ estimate informed by the indicated plans of separate operators, which is the same with NES and in the counter-factual.  This gives an average of 968 sites a year (with a bulge of 1800 sites in the first three years), varying these rates through sensitivity analysis.  This yearly average is lower than the 1200 a year used in the Phase 1 report, but the pronounced bulge in the early years in Phase 2 tends to increase the benefit in the discounted analysis.  This change in profile over time is due to revisions of figures by the companies, not to the effect of the NES.

Economies of scale from standard components

The larger operators all suggested there would be savings if they could place larger purchase orders with their equipment suppliers, in confidence that the equipment could be used more widely across the country.9  None however suggested how large that saving might be.  As an individual site may entail works costing $100,000 to $250,000, even a small percentage saving may accumulate across a number of sites; but given the variety of components involved, there is no reliable basis for quantifying a typical saving.

How much new business is created?

Rolling out new capacity and facilities into new areas affects the value of telecommunications services in those areas in two ways.  One is, if customers see the value in new services and are willing to pay to obtain them.  The other is improvement of service quality (eg, greater capacity for dial-up downloading), the value of which is reflected in the customers’ willingness to pay for the service (if the improvement is reflected in the tariff structure) or by time saving and convenience for customers (if it is not).

While a service operator may see a business opportunity in increasing market penetration, from a national perspective some of this is a trade diversion from other operators or existing business.  For instance, extending broadband capacity into a suburb may attract customers to switch from their former dial-up arrangements, in which case the business gain is to some extent cannibalising the previous service provided.  The net benefit is therefore not the total gain in revenue, but the incremental increase in revenue over what was there before.

This incremental increase could be represented by the change in average revenue per customer (the value effect).  There will also be a volume effect if the number of telecommunications customers increases in an area with the arrival of new facilities.  In each case, telecommunications services displaced need to be netted off the estimate of increase to arrive at incremental gain.  How large the incremental value effect is, however, is difficult to determine because the quality of services changes simultaneously with the new facilities.  For example, the monthly retail charge for broadband services is around 50–60% greater than the monthly charge for dial-up alternatives, but these are not equivalent services.

In summary, if a site generates new revenue for an operator of $50 per month, the net gain to the economy will be $50 less the value of any similar service displaced.10  For example, if broadband is 55% more valuable than its dial-up alternative, the value of service displaced is $32.25 and the net gain is $17.75.  This means that from the operator’s point of view, increasing market share is more valuable than cannibalising its existing customers (which generates only $17.75 extra revenue).  However, from a national perspective, this adjustment of apparent revenues applies whether the previous service displaced is that of the same operator, or that of a competitor, ie, the gain is just $17.75.

The cost of providing these benefits

The cost of providing new services needs to be netted off the value of their benefits, to arrive at a net benefit.  These costs are principally the new facilities’ capital installation costs, operations and maintenance costs over their lifetime, and transaction costs in dealing with local councils on consenting and obtaining permission to occupy the road reserve.

5.8.2 Effects on consumers

The effects on telecommunications of the NES arise from the faster roll-out of new capacity and services, and the increased competition, service choices and price/quality improvements that should result.  This could affect them in three main ways, by obtaining:

  • the same service at lower prices, enhancing their consumer surplus (eg, by switching to a lower cost supplier)

  • an improved quality service at the same price: the value of such service improvement will be at least as large as the difference in cost with the next best alternative of providing that improvement (ie, the avoided cost of obtaining the improvement by some other, more costly means)

  • new services, the value of which is represented by consumers’ willingness to pay for them.

As indicated in section 5.1 above, quantifying the consumer benefit with any precision is beyond the practical bounds of this report.  The assumption is that consumers obtain value from any new service they pay for, in excess of what they actually pay by some indeterminate amount.

5.8.3 Effects on residents

Residents will benefit as potential consumers of the new, improved services.  They may also suffer a number of adverse consequences, perceived or real.  These include:

  • potential proliferation of street clutter, detracting from amenity

  • potential adverse effects on property value11

  • loss of input into local decisions on applications that concern them.

Insensitive siting of such structures in places that obscure sightlines or detract from the street appeal of properties is a potential concern.  The NES provides for a minimum separation distance of 30 metres between cabinets, and does not specify positioning of such structures.  The NES does however, require compliance with any performance standards that already exist in a district plan.  The assumption is that, through the district plan process, the community has had the opportunity to identify whether the potential effects on amenity from street clutter is an issue for them.  The extent to which residents have any effective say in that process is difficult to judge.  Judging by the level of response on RMA and other local government consultation, most residents are not active on trying to influence decisions, except where it affects them very directly.  A small minority are active across a broad range of issues.

While in principle all these things can detract from residents’ welfare, there is no empirical basis on which to quantify these effects, and they may be rather small.  The analysis uses assumed values to test how big these effects would need to be to appreciably change the results.

Effects on property value

Evidence on the relationship between cellular facilities and property values is mixed (see Appendix 5).  While media reports and qualitative surveys of residents’ concerns suggest an expectation of substantial price falls following on from installation of cell towers (Bond & Beamish 2005),12 quantitative analysis of actual transaction data suggests the negative impact is very much smaller (Bond & Squires 2006)13 and falls away rapidly with distance from the site (Bond & Xue 2005,14 Bond & Squires 2006).  The perceived reduction in value from close location of towers is much greater than that realised across the neighbourhoods in which they are located.  It is also greater in cases where tower location attracts a lot of media interest in the locality (Bond & Beamish 2005).

The main impacts on values come from visual effects rather than electro-magnetic radiation concerns.  Visual effects are often strictly localised and moderated by other aspects of the local landscape.  In the absence of visual intrusion, for an antenna tower to have an actual impact on property values the public concerns about health risks from exposure to radio-frequency fields would need to be strong and pervasive (Industry Canada 2006).  This does not currently appear to be the case in New Zealand.

Even at the more conservative proportional estimates above, a lot of properties could fall within a 250-metre radius of cell towers, each covering an area of around 19 hectares.  This, however, would exaggerate the value effects for New Zealand at large.  The value impact depends on assumptions about the visibility of towers and the density of housing around them which are likely to be highly variable across the country.  Moreover, if cell towers appreciably reduce the value of (and demand for) certain properties, there will be a corresponding increase in demand (and value) for properties not perceived as being affected.  From a national perspective, the impact of cell towers on property values is almost entirely an intra-community transfer which is irrelevant to a national cost-benefit analysis.

The current analysis does not quantify such property value effects because:

  • property value effects are largely transfer effects of no consequence for a national cost-benefit assessment

  • the roadside facility sites that are the main subject of the NES are less obtrusive than the stand alone cell towers for which estimates exist, and likely to have less impact on property prices

  • attempting to model impacts on a geographical basis would be complex, costly and provide no useful information for a cost-benefit analysis.

Loss of input into local planning decisions

Residents receive some benefit from being consulted and having input into the planning decisions that affect their neighbourhoods, so to the extent that an NES restricts that ability there will be a cost for residents.  No studies have come to light, however, about what value residents place on retaining the ability for such input eg, how much residents are willing to pay to retain that right, or are willing to accept compensation for its loss.

This analysis does not use an explicit value for residents’ rights of input, but does include some sensitivity analysis to identify how valuable such a right would need to be to alter the cost-benefit results.

5.8.4 Effects on councils

Councils gain a benefit from the avoided cost of consent processing, and from avoiding the cost of setting their own criteria with which to assess the applications they received.  Against this they lose an option for controlling visual impacts, noise and radio-frequency levels, and they may face increased costs over managing road-space between competing users, and for adjusting their district plans to be consistent with the NES if introduced.

In canvassing their views, most councils indicated roadside telecommunications facilities were a very small part of their total consenting activities.  The apparent cost per consent varied quite widely between different authorities, which is not surprising in a small sample where single exceptional experiences can markedly skew the overall pattern.  There is also a difference in the way councils categorised the cost of applications.  Some indicated a fee for applicants which were less than the apparent cost they identified in full-time equivalent time for processing.  Some estimated the cost at a standard charge-out rate to cover council fixed overheads that is nearly four times the hourly cost of labour at average public sector earnings rates ($29.50/hour).15

Two councils indicated a labour cost per consent application equivalent to about 44.5 hours at the average wage rate.  At the updated wage rate, this amounts to $1,333 per consent.  This dollar amount is used here as the standard value for council costs saved per consent.  This excludes overheads, which are incurred regardless.  It also excludes any application fee received by council, which is assumed to be already counted in the costs for operators.

Although there is no legal requirement for councils to formally change their plans to align with the NES, one council believed it would need to formally change its plan to accommodate the NES, rather than waiting for the next plan review.  According to the council, this would be a one-off cost of $80,000–$100,000.16  Other councils indicated all that would be required was a minor change to their website until the plan undergoes its routine review, incurring negligible marginal cost.  The analysis examines the effect of including such a cost ($90,000 per plan change) for a number of councils on the overall net benefits of the NES.  Removing this cost from the analysis entirely would increase the net benefits of the NES.

There is no information on which to base an estimate of additional road management costs and reduced control over environmental effects that might arise as a consequence of the NES.  Sensitivity analysis is used to examine how big these values would need to be to change the results.

Local authorities face revenue consequences from telecommunications development in their areas, as utilities networks are subject to local body rates; in some cases councils collect rent from facilities on road reserve, in apparent contravention of section 153 of the Telecommunications Act 2001.17  However, these payments do not add value to the assets charged, and are simply transfer payments of no relevance to a cost-benefit analysis.

5.8.5 Effects on central government

Central government will incur costs in implementing an NES, involving the costs of promulgating and promoting the standard.  The Ministry for the Environment indicated these costs could be $150,000 over three years.  In the analysis, this sum has been divided evenly over the first three years, ie, $50,000 a year.

5.9 Aggregate costs and benefits

5.9.1 Outline structure of the analysis

The aggregate cost-benefit analysis is constructed by estimating the costs and benefits associated with the projected number of roadside sites constructed over the next 10 years.  A net present value is calculated from the central estimates, then sensitivity analysis is conducted to see which values are most critical to the results.  Notional values are inserted for some of the intangible effects, to see how big they would need to be to overturn the results.

The counter-factual (without-NES situation) is the progression of telecommunications roadside roll-out under the current status quo.  All costs and benefits are relative to that counter-factual.

The period of analysis is confined to 10 years, which may appear short but is chosen for the following reasons:

  • district plans have a 10-year review cycle, so beyond 10 years all plans that currently pose obstacles for telecommunications development will have been changed in ways that cannot be foretold, leaving no basis for assuming benefits beyond that time

  • telecommunications technology developments are moving so rapidly that investments placed today may need upgrading beyond 10 years

  • in a discounted analysis the main impacts will come in the initial years of the NES.

The discount rate used is 10% real, in line with current Treasury guidelines.  All costs and values are real resource costs, excluding all taxes, subsidies and other intra-community transfer payments.

5.9.2 Results with assumed ‘typical’ values

Section 5.2 above has indicated that the information base for this cost-benefit analysis is somewhat patchy and couched in uncertainty.  Only the following items have empirical values in the central quantified analysis:

  • benefits for industry in terms of reduced consenting costs

  • benefits to local authorities in terms of reduced consent processing costs

  • costs to local authorities in terms of premature adjustments to district plans

  • costs to central government from implementing the NES.

The results are summarised in Table 5.  On the basis of the central ‘typical’ assumptions, the quantified analysis returns a very healthy net benefit, as expressed in the cost-benefit ratio, and this is robust against changes in the discount rate (in either direction).  This raises the question about how large the unquantified items would need to be to overturn that result.

The analysis assumes that such unquantified items as the dis-benefits to residents from having visual intrusion, proliferation of street clutter, and inability to influence decisions on the road outside their properties vary in proportion to the number of sites: ie, there is a notional value of dis-benefit per site, just as there are benefits related to sites.  Such dis-benefit is incurred just once per site, at the time at which consenting would have occurred in the absence of the NES.  Table 5 shows that even a small value of dis-benefit – $500 per site – is enough to put a dent in the benefit-cost ratio.  The break-even dis-benefit value, at which the benefit-cost ratio is reduced to 1.0, is $12,177 per site.

Table 5: Results under base assumptions

 

‘Typical’ base assumptions

Community
dis-benefit $500
per site

Community
dis-benefit $10,000 per site

Community
dis-benefit $12,177 per site

Discounted at

10%

8%

10%

10%

10%

PV benefit $000

94,479

102,438

94,479

94,479

94,479

PV costs $000

4,837

5,134

8,518

78,454

94,479

PV net benefit $000

89,642

97,304

85,961

16,025

0

Benefit-costs ratio

19.53

19.95

11.09

1.20

1.00

Note: PV = present value.
Source: NZIER

The question this raises is whether this is a reasonable figure to represent the value of community dis-benefit.  A single roadside site may serve around 2000 houses, so this figure amounts to only around $6 per house.  However, an economic value is an expression of relative preference for one thing over others, and needs to be related to other expressions of value.  One way to approach this is to ask whether a neighbourhood of 2000 houses would care enough about the positioning of an aerial extension to an existing pole and roadside cabinet to expend $12,177 or more in an effort to avoid or mitigate its positioning there.

In principle this could be addressed through a non-market valuation technique that identifies community willingness to pay for different levels of public involvement in community decisions, but there do not seem to be any empirical studies of such issues.  Circumstantial evidence suggests the value placed on public participation – the community’s willingness to pay for civic engagement – is not high.  Submission rates struggle to exceed 5% of households on local council consultation, except on certain celebrated causes.  The opportunity cost of individuals’ time spent on such consultation is low, being mainly substituted for leisure rather than work time.18  If it were equivalent to the average public sector wage of around $29.50/hour, the break-even value would be equivalent to 413 person hours on consultation activity – which could easily be expended across a community on a controversial issue, but may not on a minor localised issue.  There is no definitive evidence on whether this break-even value is consistent with the value of unquantifiable effects in other circumstances.  Further, the number of properties directly affected by a mast and cabinet site will be much smaller than the full 2000 properties within range, and probably smaller than the number who expect to benefit from the new services it provides and would welcome the roll-out facilitated by the NES.

5.9.3 Sensitivity to changes in assumptions

Table 6 presents results from changing a number of assumptions in the analysis.  The changes are broadly applied – reducing or increasing costs and benefits by some factor to indicate whether the broad magnitude of particular assumptions is critical to the result.

Table 6: Changes relative to base assumptions (PV = present value)

 

Half as many sites

Industry benefits half as large

Industry benefits one-tenth as large

Costs to local authorities four times as large

Half the benefits and double the costs

Discounted at

10%

10%

10%

10%

10%

PV benefit $000

47,240

52,150

18,286

94,479

23,620

PV costs $000

4,837

4,837

4,837

18,976

9,550

PV net benefit $000

42,402

47,312

13,448

75,503

14,070

Benefit:costs ratio

9.77

10.78

3.78

4.98

2.47

Note: PV = present value.
Source: NZIER

The table shows the quantified analysis is robust to large changes in individual assumptions.  The right-hand column shows that halving all the benefit assumptions and doubling all the cost assumptions reduces the benefit cost ratio to 2.47, still sufficient to indicate the likelihood of positive net benefits on the quantified analysis.

The analysis remains incomplete by the omission of:

  • Increased business from new facilities: the companies anticipate this, but there is no way to assess how much of the increase would be new business, or how much diverted business and associated changes in value and cost, so these aspects of producer surplus and consumer surplus are outside the quantified analysis.  This omission tends to under-estimate the net benefit of the NES.

  • Unquantifiable effects: the break-even value for community dis-benefits reduces as the net benefits figure comes down.  For the analysis reported in the right hand column of Table 6, the break-even value is $3,822 per site.  Such lower figures have a higher probability of coinciding with how the community values these unquantifiable effects than a higher figure.  The omission of a value for unquantifiable effects (mostly costs) means the analysis may over-state the net benefit of the NES.

  • Flow-on and general equilibrium effects: the cost-benefit analysis is conducted in a ‘partial equilibrium’ framework which is not able to trace the consequences of changes in costs and benefits on users and producers across the economy.  Such flow-on effects are a major part of the justification for roll-out of broadband and other services, for it is what people do with the new services and connections that supports innovative behaviour and contributes to dynamic efficiency across the economy.  Such flow-on effects can in principle be tracked through general equilibrium models, which show how price changes in one sector feed through to changes in resource use and prices in all other sectors.  However, there are few such models available in New Zealand and all are limited by out-of-date inter-industry models that no longer accurately reflect the relationships between sectors.  The omission means the analysis tends to understate the value of the NES in stimulating new activity widely across the economy and society.

Nevertheless, there are some broad patterns and similarities in the information provided.  The analysis and its robustness to large changes in input assumptions indicates that if the actual figures on roll-out and costs are anywhere near to those in the analysis, the NES should provide a substantial net benefit.

5.9.4 Update to industry expectations

The cost-benefit analysis above includes new information on the number of roadside sites that industry participants expect to be installed over the next 10 years.  Given the recent progress on local loop unbundling we asked industry participants to update their expectations of the number of roadside sites they would be installing from 2008 to 2018.  Feedback has indicated an appreciable change in industry expectations since the initial economic analysis was completed in late 2006.  The total number of roadside sites expected to be installed in the next three years has increased approximately 1.6 times, followed by an almost halving of the number of roadside sites over the following seven years.  In the cost-benefit analysis framework, benefits accruing sooner receive more weight (due to the discounting of the value of future benefits over time) and as a result the change to industry plans has improved the net benefit (or net present value, NPV) of the NES.

It is difficult to determine how much the changes in expected roll-out are due to perceived easing of the process brought about by the NES, and how much by exogenous factors (for example, the progress on local loop unbundling or the operational separation of Telecom).  If the NES induces the expected early bulge in roll-out, it would be inappropriate to use the same profile for the counter-factual in the absence of the NES.  If that were the case, the net benefits

of the NES would be greater than those calculated here, because relative to the counter-factual the NES not only reduces consenting costs but brings forward more roll-out into the near future, where benefits are discounted less.

5.10 Radio-frequency national environmental standard

The foregoing analysis has focused on the roll-out of telecommunications facilities in road reserves.  The NES for radio-frequency fields does not lend itself to such a quantifiable analysis for various reasons.  A number of local authorities appear to be converging on an approach similar to that in the NES in any case, and telecommunications companies appear to be more comfortable on this issue than with roadside facilities, in which there is greater variability in dealing with localised effects.  Also, the number of sites whose costs may be appreciably affected by adoption or non-adoption of the NES is more indeterminate, depending in part on the success or otherwise of roadside facilities.  To some extent these are substitutes: increased use of roadside sites reduces the need to use larger aerials that are more affected by the radio-frequency NES.  In such circumstances, and given the high level nature of the information obtained from canvassing respondents, it is not feasible to postulate a number of sites needing consents in future years, to which a difference in costs with and without the NES can be applied.

Councils and communities would arguably lose less local control by adopting the radio-frequency NES, while gaining the benefit of reduced load on consenting and other planning activities.

5.11 Conclusions

The quantified results suggest substantial net benefits from adopting the national environmental standards.  Sensitivity analysis suggests the analysis is robust to large changes in the input assumptions, so if the actual roll-out rates and costs are anywhere close to those used in the analysis, they are likely to result in a net benefit for the country at large.

There are limitations in the quantified analysis, due to the information available on what has been hitherto a relatively small part of total telecommunications activity and council resource consenting activity (roadside facilities).  The principal parts of the quantified analysis are:

  • resource cost savings for telecommunications operators in obtaining consents, and for councils in processing them

  • resource costs for government in supporting the introduction of the NES, and for some councils in adjusting their district plans to conform with the NES.

The principal effects outside of the quantified analysis are:

  • the economic surpluses for both consumers and producers arising from increased telecommunications service use, due to improved quality and/or reduced price of services

  • the value to the community of the loss of local control over environmental effects arising from activities in the road corridor.

While the analysis omits some unquantifiable costs, it also omits some probable benefits, such as the flow-on effects and stimulus to new activity and innovation that availability of new services and technology will provide.  Through such flow-on effects, the NES would contribute to dynamic efficiency across the economy and community at large.

As there is no ready means of valuing these unquantifiable effects, there remains some question over whether the NES is appropriate or inappropriate from a community perspective, ie, whether the combined benefits are sufficient to outweigh the loss of local control over environmental effects.  However, the net benefits on the quantified analysis are so large that local control would need to have a high value to local communities to overturn the result.

Some factors may reduce the net benefits of the NES.  The proposed standard gives councils the opportunity to introduce district plan provisions relating to location, design and external appearance.  Such provisions have the potential to place greater restrictions on the application of the NES but they will not undermine the certainty which the NES would provide.

Another factor that may reduce net benefits is the role of local authorities as both environmental resource regulator administering the RMA and as road controlling authority.  As such they are able to impose reasonable conditions on utilities seeking to exercise their statutory rights to use the road corridor.  Telecommunications operators report difficulties with some local authorities in their road controlling role which, if they became widespread following loss of local control under the NES, could substantially reduce the benefits of standardising the process under the RMA.  The recently completed review of utilities’ use of the road corridor should reduce the potential for misunderstandings that impede the process between utilities operators and road authorities.

This analysis indicates that adopting the NES is likely to result in positive net benefits.

5.12 Summary: efficiency and effectiveness

Efficiency is a measure of whether the benefits of an option outweigh the costs.  It is considered that the NES will deliver substantial benefits.  These include reduced costs to industry, local government and ultimately the public, provision of new technologies, greater choice and improved quality of telecommunications services to consumers.

The net environmental and economic benefits are considered to exceed the net environmental and social costs of the NES.

Effectiveness is an assessment of how well an option will work.  The NES was considered to be an effective method of achieving the policy objective compared with the available alternatives.  In particular, it is considered that it would provide clarity and consistency as to the levels of permitted development provided for telecommunications infrastructure at a national and local level.

In summary, it is considered that the proposed national environmental standard is the most appropriate, effective and efficient means of achieving the objective: to provide for consistent and certain regulatory planning provisions that apply on a national basis, to assist in network and equipment design and equipment sourcing for roll-outs, and to achieve a reduction in compliance costs and timeframes.

 

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