Today’s broadband piece in The Age is on whether broadband is a public good.
From a taxpayer’s perspective, high-speed broadband is a high-odds gamble
Joshua Gans, The Age, 11th November 2008
YESTERDAY I argued that, for most people, the economic value of higher speed broadband just isn’t there. It is true, there are some parts of Australia where commerce and people are concentrated and in these areas, they value higher speed broadband and, not surprisingly, it has arrived.
But with the Federal Government proposing to spend $4.7 billion of taxpayers’ money so 98% of Australia has fibre-to-the-node connectivity, it is natural to query the likely public benefit.
It must first be acknowledged that the Government considers this an investment and expects a return, it does not consider it expenditure.
In my mind, it is unclear why and how the Government can earn such a return where private investors could not.
One possibility is that they intend to accompany the investment with a regulatory regime that restricts competition and thereby allows the National Broadband Network to exercise monopoly power.
However, it would seem that the Government would gain little from politically-unaffordable but universally-available broadband.
The more likely possibility is that it actually is expenditure, but the Government is justifying it on the basis of public, rather than private, benefits.
Both the current and the previous government argued that higher speed broadband investment would bring $30 billion in benefits to the economy annually. Telstra has also quoted that figure.
However, that estimate is based on a 2001 Accenture study that itself utilised US estimates on the value of basic broadband. That value involved moving from very low broadband availability to 90%; which is what we already have in Australia. So that value is likely to be a vast over-statement.
Moreover, Telstra (which often argues that it is best placed to assess the value of these types of investments) has recently claimed that not investing in a fibre-to-the-node network is costing $200 million per month in lost gross domestic product. While I am unsure of the basis for that estimate, what it does do is place the value of broadband at less than a 10th of the previously quoted figure.
That said, there may be additional benefits to increased broadband availability; such as in education and health care. The idea of a surgeon in Melbourne operating remotely on a patient in an isolated area is the picture of what could be provided. But does that require us to hook up all households in the country or just to ensure there is a high-speed connection to town centres?
Moreover, we know that Australia is a laggard in broadband speeds. Many countries have near universal availability of high-speed connections. Indeed, Japan and South Korea have connections with 100Mbps (more than five-times higher than the Government’s target). Surely we should be able to identify and measure the public benefits by looking at those countries?
The surveys show that those benefits simply are not there yet. To be sure, residents in those countries enjoy faster video downloads and more connectivity for internet gaming but these are not public goods. And it is true that small businesses in those countries do not have to worry as much about location if they require high-speed connections. But even here, a design export business can still operate, it just may not be able to operate from anywhere it chooses.
Some might argue that this scepticism represents short-term thinking and that the benefits will eventually arrive, that even if they are not currently defined, we will nevertheless be ready for them. But we have to remember who is footing the bill.
For starters, the Government’s proposed service will likely cost as much for consumers as existing broadband. Even today, over 2 million subscribers remain on dial-up, despite the widespread availability of ADSL. Their revealed preference is not to pay for that. Moreover, because you need a state-of-the-art computer to take advantage of higher speeds, many middle to low-income households will miss out (25% of all households do not even have a computer). The problem is, as taxpayers, they will still pay for broadband while others (including myself) will get the subsidised benefit. It is Robin Hood in reverse and, from that perspective, an unfair gamble.
Joshua Gans is an economics professor at Melbourne Business School. He maintains a blog on these issues at economics.com.au.