Broadband in the AFR

An opinion piece that summarises my position on broadband has come out in today’s Australian Financial Review. Full text over the fold.

Go local for next generation

Australian Financial Review, 12th December, 2006, p.55

In broadband solutions, small can be beautiful, argues Joshua Gans.

There is a problem with the national broadband debate in Australia, and the problem is national. I do not mean by this that as a nation we face a problem. I mean that the solution to our current broadband quagmire is being hampered by a focus on national alternatives. Instead, there is every reason to believe the solutions to broadband and, in particular, the next generation require a series of local solutions.

To begin, consider why we have a search for a national solution. First, we are told there are few companies that can amass the capital and expertise to invest in broadband. Then it is noted those companies are national. Hence, it is argued that unless they consider investing on a national scale – and get protection from competition and regulation to do so – nothing will happen.

Second, we are told the reason for broadband investment is to encourage local content. To have local programs streamed over the internet requires content developed for Australian tastes. Unless there is ubiquitous national coverage, no such development will occur.

The combination of the supposed need for national-scale investment and the national scope of content leads to a conclusion that broadband needs a national provider. The premises underlying this are demonstrably false.

First, on the supply-side, the main bottlenecks for faster internet access are all in the “last mile” from the relevant Telstra exchange. This is what is driving the fibre to the node (FTTN) debate. However, you need only look at your own locality to realise that the last mile to your home can be covered in myriad ways. Only one of these is to rely on traditional phone lines, the “copper pair”. Wireless solutions abound, and those with wireless networks routinely note that their neighbours have the same thing. Economist Nicholas Gruen sees this as an obvious opportunity for neighbourhood sharing.

But it is also possible for smaller firms to connect fibre from nodes or exchanges to houses. This does not require Telstra. Instead, it requires access to things Telstra controls. These include interconnection at the exchange, as well as use of the conduits that run down streets. Open these up, and you open up the possibilities for local entrepreneurs to find local solutions.

From a supply perspective, the solutions can respond to geography but also to demography. The need for investment varies from area to area. An example of this is the federal government’s Broadband Connect, which subsidises providers who connect outlying homes. Another example comes from state and local government working with developers to build fibre into new housing allotments. As they do so, land values and rates rise. So having decent broadband infrastructure provision becomes something akin to having good garbage collection. It is fundamentally a local issue.

But what of content? It is nice to talk of the internet’s use as involving a one-way flow of information from providers to consumers. But it is clear the flow is driven by exchange and collaboration – it is two-way. Examples such as YouTube and blogging are easy to point to. Even in the past, email was the killer application. The predominant means of two-way interaction is among people you know. And the people you know are mostly local.

So there is no compelling rationale for investing in broadband to encourage national content provision. There are already dozens of means of getting content to users. We do not need to spend billions on another. Instead, local money needs to be spent to generate local services.

The broadband debate needs to shift from national to local provision. And the good news is that if we get the regulatory settings right (in terms of access) we will get the local market solutions right in terms of provision, competition and procurement.