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.