Broadband in BRW

I have an article in today’s Business Review Weekly (reproduced over the fold). It suggests that what we need governments to do is focus on applications rather than infrastructure.

The broadband fantasy

Business Review Weekly, 12th July, 2007, p.27

I remember the day in 1998 when I first got hooked up to broadband cable at home. I was an early adopter of the technology, so much so that today technical support gasp in awe whenever they hear my simple username. It was great. I did not have to dial in to check email and looking up the news and weather throughout the day became routine. Basically, I could do at home what I had been able to do for a few years at work. But other than that not much changed. Indeed, it was a few years before we could dump the white and yellow pages. There was some catching up to do.

In one sense, it is just as well I couldn’t do more. Back in those days, the only plan available had a 100MB per month download limit. It is hard to believe, but for early adopters, there was a regular nervousness about using too much and receiving an outrageous bill.

Today, things have changed. The usage limits are higher but there are many more things to use them on. Having basic broadband is now seen as a necessity.

In this context, it is not surprising that the debate over the government’s role in broadband provision has become somewhat confused. Both the current stoush between the ACCC and Telstra as well as both political parties dueling proposals are all about connecting up, not basic broadband, but the next generation of high speed broadband.

And once again, I am ahead of the pack. For a year now, I have had high speed broadband with speeds of 24MBps. It is what broadband evangelists aspire to for the entire country. And what do I use it for. Well, pretty much what everyone else uses it for. The applications available — YouTube, iTunes, Skype, eBay, Second Life and many others — all operate well on basic broadband. You get a speed bump but not much as it still relies on speeds across the Pacific. Your broadband is only as good as the lowest common denominator in the network. No wondrous world of opportunity is opened up. And I certainly would not want a government handout to satisfy my somewhat irrational and personal desire to be on the technological frontier.

The theory behind the push for more investment today is that if you provide it, the applications will come. On a global level, that was certainly true in the development of the Internet, but Australia’s moves here are a ‘drop in the ocean.’ It is investment elsewhere that will generate the applications; although that hasn’t happened yet.

But what then, broadband proponents ask, of Australian applications? Might the applications developed here conquer the world? To which, I respond, do we really need everyone in the country to be hooked up to high speed broadband to stimulate this? Even if monthly subscriptions were low enough and computers supplied fast enough (both big ‘ifs’), is this a situation of putting the cart before the horse?

You only have to attend a Telstra talk (as I did recently at the Future Summit) to see impressive videos of what broadband could give in the future. It is a rosy picture indeed but it is also a fantasy in present day terms. The most compelling things are applications in health and education. In each case, experts — doctors or specialist teachers — can be consulted without them or their consultees having to move. Think of the saving in waiting room time. But even there we are far from having the applications and uses developed enough to drive demand. And when it comes down to it, having new things to do will drive consumer’s willingness to spend on high speed broadband. So it should not be a surprise that today we have trouble getting private companies to build the necessary infrastructure.

But all this suggests an obvious role for government. Instead of funding the ‘tubes’ why not fund the development of necessary applications. If the great applications are currently imagined rather than real, why not try to make them real? Put scarce public money into applications, test programs, start-ups and what-have-you all designed to make the applications work. If successful, this will drive demand for broadband and make it privately worthwhile for that investment to take place. And where it wasn’t taking place, governments would have the applications themselves as the rationale for providing a boost. Funding innovation in e-health and e-education not only has a strong public case but also it complements government intervention in those very same sectors. It can be seen as a part of government policy there. Moreover, it would come under the “innovation” rubric and so could become a valuable export industry.

So instead of subsidising bricks in the hope building a hospital or school, subsidise the hospital or the school directly. It is cost effective (a fraction of $5 billion), manages risk appropriately and has a clear public good motivation.

Joshua Gans is professor of economics at Melbourne Business School. Last year he wrote a report released by CEDA and what to do about broadband. It is available at http://www.ceda.com.au.

9 thoughts on “Broadband in BRW”

  1. I’ve been meaning to ask – so are you saying regional and rural Australians should not have high speed broadband because they’re unlikely to and/or cannot innovate?

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  2. No, I am saying that if Australia needs an option for innovative firms to use high speed broadband to compete then you don’t have to hook up every household. You need to have some areas where those businesses can go and we have them.

    I think that regional and rural Australia should have high speed broadband if the social value of putting it there exceeds the cost. No one has yet made that case especially given that they will have normal broadband.

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  3. 1. You don’t have to be a firm to be innovative

    Open source proves that and where are most open source people, in their homes.

    2. So regional and rural Australians should be denied being innovative with high speed broadband? Of course this is predicated on this option not being able to be done on normal broadband but who can say what innovations high speed broadband will come up with.

    That said, an organisation in regional and rural areas that has access to high speed broadband does sound like a reasonable compromise.

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  4. Your comments here and in other posts are so contradictory it’s hard to know where to start. You’re obviously very happy with your broadband internet, yet you seek to deny other Australians the same services. Using your arguments, remote communities in Australia wouldn’t even have access to a basic telephone system since their capacity to pay for the service falls far short of the cost to supply it – just ask your average Telstra shareholder, who would like nothing better than to leave many country towns without so much as an engaged signal if the government would allow them.

    And your idea to get the government to build the internet applications before we have the infrastructure in place to use them is just laughable – a bit like building a light-bulb factory before even a single electricity pole has been erected.

    Exactly what applications do you have in mind? Talk about betting on the rank outsider. Private companies both here and offshore have spent flushed BILLIONS of dollars down the drain in developing internet applications. It’s very much a hit and miss affair, with many more misses than hits – even great ideas commonly fail to get off the ground. The Australian government struggles to comprehend just what this internet thing actually is (as do you) – just take a look at just about any Helen Coonan press conference to see what I mean. God knows how you expect them to come up with something as complex as what you’re proposing – surely it’s a far better bet to put our money on something with more certainty… say for instance, the actual broadband network that will be used to drive this development in the first place?

    It is obvious that a publicly owned broadband network (a REAL broadband network) would be of enormous economic and social benefit to ALL Australians, and in ways we haven’t yet imagined. All great pieces of public infrastructure cost money, but they repay their costs to the taxpayer many times over during the span of their lifetime. Look at Highway 1 for example – a highway that just about circumnavigates the continent of Australia paid for by the taxpayer, enabling people and goods to freely and cost effectively, travel around the country. Think of the impact, both directly and indirectly, that road has on the Australian economy. Yet in direct dollar terms the Australian government makes very little out of it, if indeed anything at all. Now imagine life in Australia without it. If we use your argument, it should never have been built in the first place.

    Australia already has deep financial divides between city and country, and your broadband “plan” will not only divide it further, but ensure that our country cousins stay that way for decades to come.

    But then what do you care – you’ve already got your Broadband. Be sure to keep writing about how wonderful it is so our friends in the country can keep up with what they’re missing out on – just make sure you don’t make your web pages to big or they wont be able to access them.

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  5. Adam,

    A completely strange comment. First, I have never said I am against broadband. Indeed, for basic broadband I am in favour of spreading it throughout the country.

    You clearly misunderstand the debate in Australia. It is about whether we have HIGH SPEED broadband PROVIDED BY THE GOVERNMENT. Yep, I have it but it is not government provided. Indeed, it will generally be richer folks who get even with government provision as you need a computer, etc. So people like you want to tax the poor to help the rich. For shame.

    I focussed on applications as politicians are arguing that it is those things that make this worthwhile. OK, let’s get them rather than video downloads and game playing.

    I am also in favour of subsidies in regional areas and for country-wide stuff like interconnection with the rest of the world. I just don’t want a subsidy to the majority of Australian people.

    And I have never ruled out that HIGH SPEED broadband may yield as yet defined public benefits. My only point was: let’s look where they already have that and see. I have put that challenge out time and again and not a scrap of evidence has been produced. You want to spend billions without evidence as opposed to spending it on education and health. Good grief.

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  6. Tax the poor? How do you figure? It’s the “richer” people with cars that use the taxpayer funded roads, so what’s your point? Cars are a lot more expensive to own than a PC. Besides, there will be many other ways to use the internet in the years to come – it won’t just be with “expensive” computers.

    You’re making it sound like the Government should build the network as a gift to Australians – that it’s something that will never make its money back. Nothing could be further from the truth. As well as receiving fees from customers, the government will also benefit from increased taxes due to extra productivity, extra GST from increased local trade and company taxes from Australian organisations that will offer services on a global stage. Then there’s the benefit of less crowded cities, fewer commuters on our roads, regional growth… and much, much more.

    Traditionally, infrastructure is built by governments and paid for by taxpayers – roads, schools, sewers, etc. Australia’s broadband network should be no different. Yes we face huge obstacles that other nations don’t have to content with, geography being the most obvious one – which all the more reason why we should start building today. We should think of it as the 21st Century’s major public project – our generation’s Snowy Hydro scheme or Sydney Harbour Bridge.

    A national broadband network will take the better part of a decade to build, so it’s not like we’ll have to fork out the cash up front. It can be used by consumers as it’s built, generating income as it’s rolled out.

    I realise the trend has been for governments to flog pieces of infrastructure off, Telstra being the most prominent of a long list of examples. However we all know how quickly services deteriorate and costs to consumers rise as shareholders demand higher and higher returns, and CEOs fatter and fatter bonuses – as anyone who has used an airport or long term Commonwealth Bank customers can attest.

    A privately controlled broadband network would be a tragedy for Australia – a guarantee that both regional Australia and the very poor that you are so concerned about would be denied access.

    Nations are built by people, not corporations.

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  7. So why the argument? You and I can start digging together…

    The issue I have with a company like Telstra installing the network is that they will only install it in profitable centres and, based on their track record, will make what network they do install a larger financial burden to most Australians than what it need be.

    A truely national, “real” broadband network is something that the whole community has to own in order to get the most out of it. Unfortunately this will mean that a lot of Mum and Dad Telstra shareholders will be left holding a antique copper network, but that’s technology and investing for you.

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  8. Why the argument? You started it 😉

    Anyhow, we are not that far apart. I want to fix the Telstra issue so that the public only pays what it needs to. I want to get basic broadband rolled out in regional areas and then, when it makes sense, upgrade it all. I just to make sure that when we do that we know what the benefits really are.

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