Is Superfast Broadband worth the cost? Governments are pouring billions of dollars into FTTH networks, citing future economic & social benefits. But some question whether it is worth the cost, reports Grahame Lynch
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here have been three great revolutions in the delivery of fixed Internet access. As catalogued by Robert and Charles Kenny in a 2010 paper, the first was the advent of dial-up Internet in the mid-1990s. By 1997, for a $90 cost per line in an ISP’s modem rack, people had access to email, Geocities-type content, rudimentary e-commerce and online news. The next revolution came around the turn of the century, as DSL became deployed. For as low as $50 per DSL port, we saw the rise of a broadband economy. This brought us the utility and benefits of the likes of YouTube, Flickr, Skype, Hulu and iPlayer. The third revolution is now: the advent of super-fast broadband using FTTH promising 100Mbps and even gigabit speeds. One problem: it costs much more than $50-$90 to deploy. Try more like $2000 or even $5000, the proposed eventual overall cost per connection for the Australian NBN. This is more than an incremental leap in cost; it is a fundamentally greater order of investment than ever seen before in the telco world. Increasingly, markets have failed to invest at these levels at a level that governments would like to see. So across the world—in Singapore, France, Qatar, Malaysia, New Zealand and notably, Australia—they are investing billions of dollars in providing capital for fibre-based access networks. They are doing so on the basis of the notion that not to do so would deny their citizenry full
access to the benefits of a digital economy - while recognising that since it is an investment in a future that cannot be quantified, it is difficult to evaluate the extent of any eventual economic pay-off. But given the “unintended” positive consequences and benefits of past technological revolutions, many governments are betting on pervasive fibre as a lowrisk if pricey investment in their economic futures. Says Piotr Stryszowski, a technology economist with the OECD, “Calculating the economic benefits of the Internet today would be like sitting in the 1930s and trying to calculate the economic benefit of the telephone network 80 years in the future. It is doubtful that anyone 80 years ago could have imagined the phone network becoming what is now a big part of the Internet.” “Clearly, network rollouts are long-term investments and need to be considered as such when weighing the costs and benefits.” Yet a growing number of economists are beginning to ask questions about the uncritical advance of governments into fibre investment and are questioning whether the ‘build it and they will come’ mentality truly represents a wise emulation of past experiences with pervasive communications and power networks. INCREMENTAL ROLLOUT? New Zealand economist Bronwyn Howell of the Institute for the Study of Competition and Regu-
Robert Kenny
lation says: “It is worth remembering that neither voice telephony nor electricity networks were deployed ubiquitously in advance of demand for services. The build outs were incremental, even within households. First, in the living room for lighting, and only subsequently in the kitchen and laundry as appliances were developed.” “Electric refrigeration and washing machines were not invented because there were power points in laundries and kitchens,” she adds. “The power points came about as a demandside response to the presence of a value-generating actual application. Points were installed only when the benefits accrued from using the appliances exceeded the fixed costs of extending the reticulation network and the costs of electricity at the household level.” Robert Kenny, a former telecom executive at Level 3 and Reach turned policy consultant, says that pervasive fibre networks can be justified in markets where population density is high such as Hong Kong or places where la-