One of the Big IdeasTM in Kim Beazley’s budget reply speech last week was that the federal government should fund a broadband rollout.
This would make some sense if there were large positive externalities inherent in broadband use. But this seems unlikely. Beazley seems to hope that broadband will facilitate more online education, which could lead to the oft-touted positive externalities associated with education (higher productivity, less crime, higher tax revenue, more civic connectedness, etc). Yet given that these education externalities themselves are small, addressing them through the indirect instrument of broadband must have an even smaller positive externality.
Others have argued for government funding on the basis that we should bridge the broadband divide (though this didn’t seem to be Beazley’s pitch). Yet as Rob Atkinson and I argued in 2001, in relation to the old digital divide, it’s typically better to give poor people cash than computers.
Putting dollops of public money into broadband isn’t as bad an idea as Labor’s “no foreign apprentices” policy (aka Kick the Kanakas), but it ain’t a whole lot better either.
(Over at Kalimna, econblogger Harry Clarke takes the opposite view.)
My initial reaction is to disagree with you.
Telstra is responsible for our woefully slow broadband speed.
government should own infrastructure that the private sector can’t own.
The government can lease it out at cost and let the best ISP retailer win.
Andrew there are many businesses in the country who simply find it hard to compete because of the lack of decent infrastructure in this area.
how do you come to the conclusion there are no positive externalities.
Have you ever travelled past the great divide?
In 2006 Australian household uptake of internet (broadband. dial up is flattening or declining) is still strongly related to income, employment participation, age and particularly post-compulsary education. NESB and gender (by themselves) have essentially ceased to be an indicator of uptake.
Unlike the phone, mobiles, and TV, the net requires a literacy in text and technology to benefit from access. We do run some danger that the Digital Divide will get larger and more divisive, albiet with a smaller percentage and number of people down at the “without” end.
At the moment the Feds subsidise BB access in rural areas through HiBiS so that 512 down 256 up is available for $17 a month from Telstra in rural areas as a special introductory 6 months offer. I understand it is claimed to be half price.
Given that uptake of existing BB is strongly related to post compulsory education and income it is EXTREMELY unlikey that a 25X faster wider pipe is unlikely to cause a stampede to Kimbo’s “….. instantly download documentaries, educational software and digital books.”
I accept that Kim didn’t refer to the Digital Divide but any action to address the growing divide is likely to be related to entry barriers ( $2,000+) for hardware and software, literacy both traditional and ICT, and training and support for maintaining and fixing computers when they (and they will) go wrong, and learning to use ICT. The DD won’t be addressed by faster / bigger.
Sadly Kim couldn’t resist slipping into his budget speech a bit about porn and ensuring the net is safe for kids, thus showing, that despite his bigger /faster pipes, he doesn’t understand the net at all.
Like I mentioned on kalimna, if you could encourage investment in the backbone infrastructure, making it cheaper for people to host and create services here in australia you’ll get more bang for you buck.
right now it takes about 0.2 seconds to get a packet across the pacfic. making the pipe to your house as fast as possible isn’t going to change that much.
(.3 seconds is about the threshold where real time voice breaks down and becomes unusable)
This is a big issue, as it much cheaper for local providers to host their data from overseas.
If you want them to host locally, it means changing the pricing scheme the large backbone providers charge for their bandwidth to make it on par with what the service providers charge in the US for theirs.
(it costs ~8c/megabyte for traffic at an australian hosting provider, US ones give 3000 megabytes for free when you host with them, which makes hosting locally about 2x the cost).. actually hosting the machine is about the same.
Why does homer comment on economics blogs? I admit that I’m no expert, but he beggars belief.
‘A government monopoly is the cause of high prices – governments should monopolise infrastructure that private companies can’t. ‘
Where to start?
What should they do with the T3 money??
With no government debt you could have one heck of a decent cable and wireless international digital media (both downloaded and via regular satelite/cable) – if you spent even 25% of it – but then that may not play too well in the Packer and Stokes households.
It seems to me that if the government ran the network them most of the regulatory squabbles between the ACCC and Telstra would vanish. Telstra as a private firm with potential monopoly power and the need to get an efficient high speed network would no longer be an obtacle. It could rent out the network to all comers at low long-run marginal cost.
Andrew I think you could defend public provision at two levels:
(i) (Weak argument) Assume that regional development policies are a reality – they are in every state I am aware of – and ask they might best be promoted. In my view providing transport and communications infrastructure provides minimal distortions. They are available to all comers and firms can seek profitable advantage by drawing on other natural advantages they might have. This seems to me a better policy than trying to pick winners by going for particular projects. Its a second-best argument.
(ii) (Stronger argument). Recognise that there are externality issues in developing regional areas that are hard to capture without initiating something. There are incomplete markets for coordinating activities and providing basic infrastructure helps with this coordination. There are also unpriceable externalities associated with urban development in large cities that can be offset by encouraging people to live in smaller towns and satellite cities – high speed internet can encourage this by facilitating entertainment and education. Finally, there are general amenity benefits from preserving rural environments which requires we keep people living in them.
Option (ii) I probably believe. I call it ’stronger’ because of the odour attached to ‘regional economics’ and ‘regional development proposals’ generally due to pork-barrelling politics.
Ian Holsman’s arguments are worth considering.
speaking of networks and incomplete markets, its 2006 and we still don’t have an uninterrupted stretch of freeway connecting melbourne and brisbane. this is something that’s alway bugged me, especially when there’s the bi-annual propaganda about road death tolls (easter and xmas).
on broadband rollout, some government role to prevent local area monopolies and waste from redundant duplication of networks may be necessary. But I don’t see why a rollout couldn’t be cost effectively privately funded much like the tollways in sydney and melbourne with access leased to providers (as per homer’s post).
California’s trial with broadband over powerlines (see http://arstechnica.com/news.ars/post/20060428-6698.html ) might be the most cost effective way to go with a country wide rollout.
Geez. The first step would be to sell Telstra into as many small parts as possible!
Broadband in France was revolutionised when a small-ish (but I suspect well-connected) company started offering unlimited downloads unlimited speed (as fast as they could) for a flat 30 euros a month. As they proved popular, they started installing their own exchanges, which now cover most of the country, and permit them to offer almost-LAN speed internet (7mbs being common), TV, VOIP with free network calls and dirt-cheap international calls and a couple of trial basis interactive services, still for the same 30 euros a month.
They do have the advantage of population density and exchange density – very few people live further than 1 km from an exchange(!) and every exchange has a lot of potentia clients on it. That affects speeds and the economics of installation. But Optus has been harassing the ACCC for years to make Telstra let them install their own exchange boxes, with Telstra constantly coming up with such farcical excuses as ‘there is no room’ (despite the digital boxes that optus wants to install, and that Telstra is replacing its original analogue switches with themselves, being about 1/10th the size of the original analogue switches).
They use, of course, ADSL, so you don’t need cables, don’t need billion-dollar broadband roll-outs, and don’t need government monopolies. Indeed the biggest thrill with ‘degroupage‘ – being directly connected to the Free (that’s what the company is called!) exchange switches – is that you no longer need pay the absurd 26 euros line-rental to France Telecom and you still get a (inordinately cheaper) telephone service.
So half the problem is not who is running the network, it is that people are running it!
Regional areas, however, are a separate case, because ADSL is much less viable there. Political reality being what it is, I think I’d prefer the goverment to simply tender out the construction of a cable network, partly for the reasons Harry advocates and mainly because it is the cheapest and most efficient way of achieving what is going to be achieved anyway. Currently we have the mind-bogglingly inane ‘minimum service’ nonsense with Telstra, and similar kinds of ‘quasi-government’ solutions, which must be in the long run much more expensive than just having someone build the network as a stand-alone project.
Patrick,
you may have quoted someone but you didn’t quote me.
Telstra a government monopolyis responsible for our woefully slow broadband speed.
government should own monopolise infrastructure that the private sector can’t own.
? What did you mean?
Telstra is both the owner of the infrastructure and a retailer of that infrastructure.
That is a conflict of interest.
It is Telstra which is responsible for our ever slow speeds in broadband.
If The government merely owned the fibre optic infrastructure and let retailers do whatever they wanted internet speeds would be a lot faster.
I still disagree, but that’s a reasonable and arguable case. Whyever didn’t you express yourself in such terms from the start? I understand that we all comment in haste, but the mere moment’s reflection required to express oneself with a modicum of coherency is surely not wasted (cogency, of course, may require rather more effort).
I don’t think there is a great efficiency or equity case for heavily subsidising telecoms in the bush, but I’m with Harry – I’d accept it’s better than the realistic alternatives.
And I’m certainly willing to accept it as a realpolitik deal to unshackle the provision of cheap and innovative services in the cities. Let’s give Telstra a swag of money from the taxpayer to spend in National Party electorates as a direct quid pro quo for getting rid of its dead hand elsewhere.