[LINK] The Big Picture

[David Boxall]

<http://www.businessspectator.com.au/bs.nsf/Article/Rudds-NBN--The-Big-Picture-pd20090409-QX979?OpenDocument>
by Peter Cox

Posted 9 Apr 2009 4:47 PM
Rudd’s NBN – The Big Picture

The announcement by the Prime Minister of the new National Broadband 
Network and much of the reaction to it has demonstrated a lack of 
understanding of ‘The Big Picture’ by many parties and perhaps not even 
a full appreciation by the PM himself.

The Opposition leader, Malcolm Turnbull, has been highly critical of the 
failure of the Government’s tender, the lack of evidence of the economic 
viability of the project and the risk to the taxpayers.

The broking and investment analysts have also questioned the ability of 
the project to earn a commercial return and the resultant difficulty in 
raising private equity which will probably result in the Government 
having to fund most if not all of the capital required.

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, methodology and possible outcomes. 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 cent 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 cent 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 per 
cent 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.

Globalisation

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.

-- 
David Boxall                    |  When a distinguished but elderly
                                 |  scientist states that something is
                                 |  possible, he is almost certainly
                                |  right. When he states that
                                |  something is impossible, he is
                                |  very probably wrong.
                                                   --Arthur C. Clarke