We’ve all been hearing recently of the step change that broadband will bring to New Zealand – it seems to be one of the big election issues with both main parties coming to it from different angles. Both of these angles have however main the mistake of assuming economic benefits from broadband as a given – without the empirical analysis and data to back that claim up.
Into that breech comes Arthur Grimes, of the Motu Research and Education Trust. Grimes spoke last week at Victoria University’s Institute of Policy Studies and discussed infrastructure in general and had some interesting points about broadband.
In essence grimes stated that unlike traditional infrastructure (roads, water etc), broadband has no clearly defined purpose and as such falls under the “general-purpose technology” category rather than pure infrastructure.
We’re trying to get a handle on what are the benefits of broadband and who might they accrue to. Give me another six months. At present I wouldn’t have any particular answers; but the conceptual answer is that there is a difference between broadband and road straightening. With broadband we just don’t know what the benefits will be. I suspect that under traditional cost-benefit analysis, we would say it’s hardly worth rolling out broadband. We’d look at what benefits we know about and apply appropriate discounts and consider that it’s very expensive anyway and we’d say ‘those numbers don’t add up’. But if I look at the uncertainty and its role as more of a general-purpose technology, then maybe the answers are very different. At the moment, there doesn’t seem to be much of a framework for thinking about it. We’ve just got two parties saying ‘we’ll spend’ and ‘we’ll spend more’. I don’t think there’s much real thought been given to why you would do that; but maybe there is a reason that justifies that approach.
Like I said – a brave man indeed. Not quite as pointed as Telstra-Clear CEO Allan Freeth who claimed that;
the main result of faster broadband links to the home may be more downloads of pornography and movies rather than improvements to productivity
Which is something neither Helen Clark nor John Key particularly wanted to hear.
My take on this? I believe widespread broadband is an enabling technology that is beneficial for the country – this however is a different statement from those who seek to differentiate the general benefits of broadband per se with the supra benefits of FTTH.
The jury’s out but we’re fools if we think they’re able to make a decision without the full data.
Good to see TC CEO Allan Freeth out and tearing at the dogma that comes from the broadband ideologues – his point seems to be forget fibre to the home (FTTH) concentrate on Fibre to the node or Fibre to the business.
I gotta say I agree – I’ve had so many people preach at me about instant 10% productivity gains with widespread fibre rollouts that it makes me shake to hear – where’s the empirical evidence I say?
No – the real issue to me is that my buddy – who runs three or four good sized SMEs, can’t get DSL at his house on 30 minutes from Christchurch – let’s forget pipe dreams about Fibre to the home and concentrate on a dual strategy of allover coverage of reasonable DSL and targeted fibre to particular areas that justify it.
And for those that want fibre and aren’t in a targeted area, the Canadians (did I mention my soft spot for Canadians – have a solution – a great partnership between homeowners and the telcos – nice)
Interesting to read this Wired article which laments the patchy roll out of fibre in the US. The article talks abut the fact that fibre roll out in the US is concentrated to areas that Verizon services and local government supported projects. Interestingly the ld chestnut that has been hotly debated hear appears in the Wired article which says;
Still, it’s not entirely clear that people on fiber connections are going to have a big advantage over slowpokes on regular broadband. Today, there is not much that can be done on a fast connection that can’t be done on a standard one. Fiber is already available to a third of South Korean homes, but that hasn’t revolutionized society there, at least not yet.
Now I agree we need to give everyone some degree of reasonable connectivity. I was at a enterprise development agency board meeting yesterday discussion this issue, and the fact that there are a number of people within the area of the EDA with no access to DSL whatsoever. Clearly this is an issue – and I believe a more important one to solve initially than the FTTH one.
But it’s an argument that goes round and round – and I guess if I was sitting in Wellington or suburban Auckalnd I’d be calling for targetted urban FTTH as well – it’s just that we need to remember where our GP comes from – a significant part does in fact come from rural busnesses, the very busiensses that have the potential to become much more efficient and value adding with the application of technology – and good rual availability of DSL will help with that.
I got an email this afternoon from Velocity Networks up in Hamilton. Velocity is a partnership between local government and tertiary institutes which aims to put in place fibre infrastructure for the Hamilton metro area. In their own words;
the combined fibre networks span the city, providing ultra-high speed broadband internet access to commercial buildings at speeds of up to 1Gbps (1000Mbps). Operating as an ‘open access’ community network, users are free to subscribe to services from a range of application and internet service providers on the network.
The project has a number of implementation phases and is expected to be completed by 2010. The initial rollout of the extensive fibre network has been funded by a $3.3 million grant from the Ministry of Economic Development, as part of the Government’s Digital Strategy.
Velocity say that;
A number of well known service providers such as WorldxChange, Kordia, Orcon, FX Networks and Lightwire have already signed up and are now offering their own data and voice solutions across the network…We also have several local internet cafés offering internet access through our fibre network
It’s pretty well accepted now that no one player can muster a business case to put this sort of infrastructure into place. It’s also argued that fast internet is a barrier to growth in this country (I’d add that it’s only one barrier and we need to think about removing the other ones as well). This sort of arrangement is an example of what we should be aiming for.
And by way of proof that it’s actually happening, here’s a picture of the trenching machines hard at work!
Everyone will by now have seen National’s plans unveiled yesterday for a $1.5b investment in FTTH. John Key’s announcement is below;
Lots of commentary about this already, Rod is pretty positive as it reasonably neatly dovetails with the work the NZI has done (and which Rod was involved in).
Now ubiquitous broadband is a good thing, I’d personally love it. But being a good thing, and being the cure for our economic ills are two very different things. John Key claims FTTH is the productivity unleasher that will move us up the OECD economic rankings – he gives the examples of almost free local toll calls, cheap international calls, movies on-demand and telecommuting. Only one of those things is closely linked to productivity and there is no empirical evidence that a move to a telecommuting enabled world would in fact boost productivity.
I’m not pouring cold water on the idea – I applaud National’s vision and courage – I only hope that the analysis into true return is done such that decision can be made that actually help New Zealand win.
Editors note – the following is a reprint from The Independent Financial Review – It is an interesting counterpoint to the current broadband discussion taking place in New Zealand
There has been more baloney than usual in the media lately about New Zealand’s internet infrastructure – or the lack of it.Much of this is driven by a report from the New Zealand Institute which put forward a worthy-sounding plan to ensure that 75% of the population is linked up by fibre optic connections within 10 years.
That’s not a bad goal, however the way NZ Institute boss David Skilling proposes to achieve this is by appropriating Telecom’s last mile company Chorus, along with the local assets of other Telcos, to create a price regulated government monopoly that will provide all the links between premises and telephone exchanges throughout the country.
Think of it as Stalin meets ‘Think Big’.
And the carrot for doing this? Apparently a benefit of $2.7 to $4.4 billion per year to the New Zealand economy.That’s an enormous benefit but the Institute assures us it will happen due to tele-presence (whatever that is) and the gravity defying Weightless Economy.
If the NZ Institute is really recommending that Government grab people’s assets, and create a monopoly one would expect it would have some pretty solid arguments to support its case. But sadly, while the supporting arguments may hold some credibility in academic and economic circles, in the real world they simply don’t pass even a basic common sense test.
Let’s look at their proposal in a little more detail.Firstly they plan to grab the fibre-to-the-premises assets of all the competing Telco’s in the metro areas, then roll fibre out into the suburbs to pick up 75% of the remaining premises’.
This leads directly to the first flaw in their argument; the institute fails to realise that almost all economic value is created in businesses not in homes.At work the internet is a great productivity tool, in the home it’s largely an entertainment medium. The Institute’s plan is to kill competition in the business districts of the country to ensure a rapid deployment of fibre in the suburbs.You’ll be able to download Trade-me and You-tube faster – but where’s the value in that?
To be fair though some value is created by people who work from home but for the vast majority of those people the existing copper networks do the job just fine.On the other hand most urban based business can already get access to fibre. The competition is growing in the major centres there are up to four competing fibre providers and competition even exists as far a field as the West Coast so it’s hard to see where $2.7 to $4.4 billion of benefits per year will come from.
To add insult to injury the Institute plans put the rural sector, where much of the real value is created in the NZ economy, in the ‘too hard’ basket. Most farms for example will fit into the ‘other’ 25% that won’t be served within the next ten years.
The institute believes that fibre is a commodity that isn’t differentiated so nothing significant would be lost by having a monopoly providing a homogeneous service.
In practice nothing could be further from the truth. In the many centres were competition exists IT managers make their decisions’ by considering factors such as network diversity (should I use one provider or keep them honest by using two), network design (stars and circles are popular and have different price/performance characteristics), reliability (some operators fix things faster than others) and of course price.
Under the Institutes plans competition based prices will be replaced by prices incorporating a guaranteed, government regulated profit margin.
It’s hard to imagine how these consumers could possibly benefit.
Having created a monopoly the Institute then proposes that telecommunications companies lease fibre infrastructure from the monopoly and create their own services on top.Mr Skelling cites the city of Amsterdam as an example of where this model has been deployed.The writer has been unable to track down any independent research that quantify’s the benefits to Amsterdam of this adventure. In fact he rather suspects that the plans were hatched in one of Amsterdam’s famed ‘coffee shops’.
The fact is that so called ‘Service Based’ competition in telecommunications simply doesn’t work.This is because at the so called service level it’s almost impossible to differentiate telecommunications services. The cellular telephone market is a high profile example of where billions of dollars have been lost by companies trying to build Service Based business on top of third party infrastructure.Disney for example failed when it developed a Service Based business to market cellular services to kids – the kids stuck with their existing operators and Disney gave up.A viable telecommunications company needs infrastructure and services to succeed.
A proposal that forces companies to divest their assets, destroys a vibrant competitive market, and creates a monopoly is not something that should be considered lightly.
These are activities that strike right to heart of our economy and our society. As a prerequisite to such a radical proposal you would have expected to see real market failure and obvious economic benefits accruing from any subsequent proposal.
In this case the NZ Institute has clearly failed to demonstrate either, market failure or clearly defended benefits. The market for last mile network services is competitive, dynamic and growing at a pace that meets customers’ demands and the benefits from their monopolistic proposal are opaque at best.
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