[LINK] Study casts doubt on claims for broadband

Richard Chirgwin rchirgwin at ozemail.com.au
Tue Nov 30 07:35:23 AEDT 2010

On 29/11/10 6:12 PM, Tom Worthington wrote:
> David Boxall wrote:
>> Another one for the NBN-knockers:
>> <http://www.smh.com.au/technology/technology-news/study-casts-doubt-on-claims-for-broadband-20101128-18cfg.html>
>> Study casts doubt on claims for broadband Peter Martin ECONOMICS
>> CORRESPONDENT November 29, 2010 ...
> The report "Superfast: Is It Really Worth a Subsidy?"
> by Charles Kenny and Robert Kenny, at Communications Chambers, Sat 27
> Nov 2010 12:08:02 EST. This is just a working paper, but it presents a
> reasonable argument:
> ---
> Executive summary
> Governments around the world are investing multiple billions to support
> the roll-out of fiber to enable high speed broadband. These subsidies
> are based on the premise that fiber to the home (FTTH) brings
> substantial externalities. It is argued that FTTH will support economic
> growth and is key to national competitiveness; that it will benefit
> education, healthcare, transportation and the electricity industry; and
> that it will be the TV platform of the future.
> In this paper we argue that the evidence to support these views is
> surprisingly weak, and that there are several errors that are made
> repeatedly when making the case for FTTH. In particular:
> * The evidence that basic broadband contributed to economic growth
> is decidedly mixed, and some of the studies reporting greater benefits
> have significant flaws
This is a cold reading. Pretty much any group of economic studies is 
subject to these two criticisms, because (frankly) economics is subject 
to these criticisms. While I agree, it contributes nothing to the debate 
either way.
> * Time and again, data that basic broadband brings certain benefits
> is used to justify investment in fiber – but the investment in fiber
> must be based on the incremental benefits of higher speed, since (in the
> developed world) there is already near universal basic broadband
Define "near universal". In Australia, this statement is wrong, both 
geographically and demographically. My quick estimate at DSL coverage - 
I'm not going to spend a day running a full geographic analysis just for 
an e-mail! - is that around 70% of households are close enough to an 
exchange for DSL to be worthwhile, and that's ignoring the presence of 
RIMs and other factors that block DSL delivery.

Define "basic broadband". Are they talking about 256 Kbps? 512 Kbps? Higher?
> * This error is compounded since other high speed broadband
> infrastructures (such as cable, and in time wireless) are often simply
> ignored when making the case for fiber
In Australia's case, there are particular reasons for "ignoring" cable - 
for example, there is no competitive provider access to the HFC 
networks. Wireless? I get sick of the magic wireless fairy being trotted 
out as an alternative to fibre. Kenny & Kenny also ignore that fibre 
will undergo technology improvements in the future, just as wireless will.
> * Fibre is credited with bringing benefits that would in fact
> require major systems and social change in other parts of the economy,
> such as a widespread shift to home working, or remote medical care. In
> practice, these changes may never happen, and even if they do they will
> have significant additional cost beyond simply rolling out fibre
"This is a risk, therefore don't do it". Need I say more?
> * Frequently business or government applications, such as remote
> medical imaging, are used to make the case for FTTH. But these
> applications require fiber to certain major buildings, not to entire
> residential neighborhoods (and these buildings often have high speed
> connections already)
I have two problems with this statement.

The first is that it's an urbanised world view. Where medical 
applications lack fibre, it's because they're away from cities. In this 
view, there's no reason to try and drive medical applications into 
smaller communities that don't already have fibre.

The second is that it's a re-hash of the ancient notion that "this 
technology is a business tool, consumers don't need it". Once upon a 
time, Edison put the same position regarding electricity: the world 
didn't need alternating current reticulation of electricity, because all 
the users were big businesses in the cities, only a few km from the 
generators. People saw computers as strictly business tools until 
relatively recently.

In the case of broadband, I will offer this perspective: countries in 
which today's broadband is predominantly a business tool are the 
countries we regard as being less-developed in a great many other ways. 
In any developed economy, the consumer connection far outnumbers 
business connections. Finally, there's an inverse economy of scale 
involved: if you make a policy decision that "fibre is only for 
businesses", then you will ensure that fibre networks are more expensive 
on a per-connection basis. Businesses that use fibre are penalised by 
that extra cost, as are businesses who could use it but can't afford it.

> We do not argue that there is no commercial case for rolling out fiber,
> nor do we argue that fiber brings no societal benefits. But we do
> believe that those benefits have been grossly overstated, and that
> therefore, particularly in a time of tight budgets, governments should
> think very hard indeed before spending billions to support fiber
> roll-out. A decade ago telcos wasted billions of shareholders’ money on
> telecoms infrastructure that was well ahead of its time – governments
> are now in danger of doing the same with taxpayers’ money.
Ahh, the old saw about the wasted money in the telco boom. The fibre 
that was laid - particularly submarine - was not "well ahead of its 
time". It was, by the time the submarine cable boom arrived, not only an 
established technology - it was (and is) the only technology used for 
submarine cables. The old coaxial submarine cables were either already 
retired, or about to be.

So in this statement, Kenny & Kenny mis-identify (deliberately?) the 
cause of the crash as the use of a technology that's ahead of its time, 
when in fact it was a combination of poor market research (believing 
that traffic was growing faster than it was, at the time), and a 
boom-town mentality among investors. There was a case for more submarine 
fibres at the time, but more was built than was needed.

The sleight-of-hand in this document is not what it examines, but what 
it does not examine. For example, it ignores the benefits to the 
industry, consumers and the economy that flow from equalising the 
wholesale environment, so that all retailers are on equal terms.

Damn, I'm going to have to read the whole thing again, this time with a 
more analytical eye. I don't really have time!

> From: Superfast: Is It Really Worth a Subsidy?, by Charles Kenny and
> Robert Kenny, Communications Chambers, Sat 27 Nov 2010 12:08:02 EST,
> URL:
> <http://www.commcham.com/publications/Overselling_Fibre_1127.pdf?attredirects=0>
> ---

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