Broadband in The Age

It is a week of op eds for me on broadband. It hasn’t stopped yet. Over the fold is today’s installment from The Age. Also take a look at Alan Wood’s sensible comments.

Broadband plans speed towards the toughest obstacle

The Age, 21st June, 2007.

BOTH the Government and Labor have now said that they will do something to ensure there is high-speed broadband in Australia. For Labor, it will involve a public-private partnership with potential spending of $4.7 billion. For the Coalition, it will involve legislative changes to facilitate a private option with public funding used to fix the issue in regional Australia.

Each party would have you think their plan is very different from the other. But, in economic terms, they are virtually indistinguishable. Each involves a tender, public money, lots of private investment, and the big one: some unspecified way of dealing with the real competition and regulatory issues that have caused this mess.

There we have no clarity whatsoever. Each party has promised to enact whatever legislative changes are required to allow their preferred option to be implemented. They offer no solution, only a process.

The solution is the hard bit and surely requires testing with the electorate. One solution might have been to spend a tonne of money — far more than Labor is proposing — to leapfrog existing networks entirely and put in fibre or a wireless solution all the way to the home. This is what leading broadband countries such as South Korea and Japan have done. But it seems that neither political party thinks it worthwhile. And a good thing, too. The evidence is that the extra uses you get are at the moment based on entertainment rather than real public need. Best leave that large amount of investment for the future.

So if we are not going to simply side-step the problem, we are left with a regulatory quagmire. On the one side we have Telstra. It claims that investment cannot go forward because our entire competition regime is broken. It will not even switch on the equipment it has, arguing that the Australian Competition and Consumer Commission is holding a dagger to the throats of its shareholders, threatening their returns. It is a funny argument given that if equipment isn’t switched on, it doesn’t generate much of a return.

But the story is that Telstra is talking but is not now investing. So its proposal seems to require a legislative weakening of our competition policy regime.

On the other side, we have G9. It is worried about the opposite issue. To lay down fibre to a node isn’t enough. It needs to gain access to the home and that means connecting its fibre to Telstra’s copper pair. What is more, G9 is worried that should it lay down that fibre, the Optus experience with cable will be repeated and Telstra will just lay the same stuff down side-by-side. If we got there, the consumer would win big time. But precisely because of that, we aren’t getting there.

And so a G9 or non-Telstra proposal seemingly has to fill this gap. It can be done with public money (a la Labor) or restrictions on Telstra (presumably the Coalition plan). But, in either case, the issue of access to Telstra’s copper pair needs to be dealt with. And that requires a tougher competition regime.

So it is this matter that the broadband debate is all about. Do we need to weaken our competition regime to give the incumbent breathing space to invest, or do we need to strengthen it to allow others to invest?

There is no getting around it. Last year, in a report for the Committee for Economic Development of Australia, I argued that what we might like to do is let local solutions flourish, with different localities pushing their own plans that may include competition or even some local council provision.

This is the sort of thing occurring in the US. There, they have multiple incumbent providers and so local entrepreneurs have options when laying fibre from exchanges. Here, we have no such luxury outside our CBDs. The only way to go is to resolve the “more or less” competition issue.

The Australian broadband scene is filled with promises but no solutions. Competition issues that have held back investment for years have not gone away. Neither party has proposed a way of dealing with them. And, given Telstra’s recent statements and advertisements, any concrete proposal would be seen as giving in to it or would provoke further argument. But that is the choice. The next government is going to have to decide for or against Telstra’s way. It will take a tough decision either way.

The sad thing is that this is something that the Australian electorate might want to see. How will the next government face up to the tough issues on microeconomic management? At the moment, each proposes a process with no pre-election decision. That’s too late.

Joshua Gans is professor of economics at the Melbourne Business School, University of Melbourne.

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