As someone who has specialised for many years in building business models for media and communications businesses including creating Australian broadband models for overseas companies I cannot disagree with requiring detailed financial estimates from which to evaluate the assumptions, methodologies and possible outcomes of Rudd’s National Broadband Network. However, we also need to look at “The Bigger Picture”.
Rudd describes the project as ‘nation building’ and in the official announcement to stimulate jobs in the short term and to drive productivity, improve education and health service delivery in the longer term.
The futurist Mark Pesce appreciates that we can’t even dream the possibilities today but speaks of the potential of lifestreaming, the sharing of our lives with friends on broadband, to me a highly popular but rather vacuous dream. However, he is right that the speed of the NBN FTTH should be well above if not multiples of the 100 Mbps the Government is promising.
Paul Budde, the leading communications consultant, has been advocating the merits of FTTH to Governments for many years and particularly his belief in the value of the applications for electricity smart grids, health, education and the environment.
With the scarcity of doctors, specialists and teachers in regional and rural Australia broadband is gong to be increasingly important to provide social equity and public services to all Australians.
Turnbull claims that no one else in the world has adopted a majority Government owned carrier where the taxpayers carry the financial and technological risk.
Yet the government owned Telstra built a telephone service where the highly profitable major markets cross subsidised people living in regional and remote areas providing a universal service to all Australians. Not only was Telstra one of the most profitable companies in Australia but the Howard Government ended up selling it for over $50 billion, a great return.
As a public company Telstra provided one of the slowest and most expensive internet services in the world and held back on providing ADSL2+ or throttled the speed unless its competitors offered a service in the same market.
As at September 2008 Telstra only enabled ADSL2+ in 1,403 exchanges out of 5,069 exchange service areas. ACCC analysis found that 48 per cent of the population lived within 1.5 km of an ADSL2+ enabled exchange where they could receive downloads greater than 12 Mbps.
Under public ownership less than half the population had broadband exceeding 12 Mbps leaving over 4 million people without a high speed broadband service. Again Telstra has refused to roll out its own NBN and is now proposing to upgrade its HFC network to speeds of between 70 Mbps to 100 Mbps but it only passes 2.4 million homes in the capital cities leaving out 70 per cent of the population.
Turnbull has criticised the Government for building a second Telstra but only Government ownership will provide social equity to all Australians, private ownership will just cherry pick the most profitable markets ignoring the remainder as repeatedly demonstrated by Telstra in recent years.
Japan and Korea have led the world in developing high speed broadband without proven demand or economic business models
However, the factor missed by Turnbull and the analysts is not the direct returns but the applications it enables and productivity gains.
Broadband and the Economy
In 2008 the OECH published a background report “Broadband and the Economy” for the Seoul Ministerial Summit on the “Future of the Internet”.
It is an extremely interesting paper which argues that there have been in history a few general purpose technologies (GPTs) that have fundamentally changed how and where economic activity is organised. It gives the examples of printing with movable type, electricity, the internal combustion engine, steam engines and railways. In more recent times information and communication technologies (ICTs) including computers and the Internet, are considered GPTs which not only effect their own sector but lead to fundamental changes in production, invention and innovation.
The initial impacts of electricity and steam were fairly small with a considerable time lag that eventuated in a UK productivity growth of .26 per cent to .38 per cent per year by the late 1800s. The impact of electricity reached 3.3% per year productivity by 1937 but most of the benefit came from the applications and the further productivity gained.
The impact of ICTs seems to be much higher and quicker than other GPTs with 0.68% per year in the US in 1974-90 (Crafts, 2003). The estimates for Broadband are 0.4-2.7% per year by 2015 and 0.8-5.7% by 2028.
The World Bank/infoDev is expected to publish a report which claims that an extra ten percentage points of broadband penetration by 2006 accounted for a 1.21 percentage point increase in per capita growth per year in developed countries and 1.38 percentage points among developing countries.
The reliability of these figures may be questioned but the overall situation is that ICTs seem clearly to be a GPT and that high speed broadband will increase productivity and hopefully lead to creation of new applications, industries and innovation.
Broadband and ICTs are facilitating the globalisation of services expanding markets, increasing efficiency and competition. We are all aware of the offshoring movement of lower skilled back office, administrative and call centres to lower cost countries. However, there is now globalisation of highly skilled and higher value added services off shoe including accounting, advertising, design, R&D, software programming, technical testing, marketing and advertising, management consulting and human resources. Indian companies are setting up near-shoring businesses in low cost countries in Eastern Europe to service Western Europe and Latin American countries to service the USA, Spain and Portugal.
The US has fallen from fourth in the OECD to 15th in broadband penetration. Barack Obama believes “that as a country the US ensured that every American has access to telephone service and electricity, regardless of economic status, and that he will do likewise for broadband internet access”.
In the UK the Prime Minister Gordon Brown writing in The Times claimed that the ICT and broadcast sectors account for 6 per cent of GDP, equivalent to the financial services industry, and that the UK is the world’s biggest exporter of “cultural goods”, greater even than the US. The UK Minister for Communications, Technology and Broadcasting report “Digital Britain” states that the digital economy is 8 per cent of UK GDP and advocates upgrading and modernising digital networks to not only be competitive with European, US and Asian economies but to provide fairness and access to all and the development of infrastructure and skills to enable effective online delivery of wider public services.
Australian political and business leaders need to be able to see the “Big Picture” to be globally competitive with the combination of high speed broadband and a skilled and educated work force.
Otherwise the services sector with over a 60 per cent share of our economy will be outsourced as has happened to our manufacturing industry which is now less than 10 per cent of GDP and agriculture 2.3 per cent.
If we were to hypothesise a basic increase in productivity of only 1 per cent in non-farm GDP in Australia then this would equate to over $10 billion per year, a substantial increase in taxes and on international experience the productivity growth may be far greater. We certainly would not need to increase charges by two or three times as claimed by opponents.
Perhaps as a nation we could provide the broadband service for free and certainly subsidise the cost in regional and rural areas and for lower income households to provide public services and social equity to all Australians.
There is far more at stake in the “Big Picture” than petty squabbling over whether there is a traditional short term viable business model. The future of our economy and the standard of living of our children are at risk.
More from Peter Cox can be found at www.coxmedia.com.au