Fraudband

David Crowe in the The Australian Financial Review this weekend (subscription only) argues that Australia's 2.8 million broadband users get less but pay more for their connections than consumers in any other country. A movie that takes 6 hours to download in Australia could be downloaded in Canada in 40 minutes. Canadians pay $54 per month for unlimited downloads and speeds of 5 megabits per second while Australians pay $99-95 to Telstra for a download limit of 10 gigabytes at 1/4 the speed.

Punishing metering restrictions discourages online music, video, games and interactive services. It also limits broadband use in education, science and trade. It also imposes more basic costs of just communicating. High costs of broadband access lead to low levels of market penetration and low effective network externalities - Australian per capita incomes are 75% of those in the US but levels of broadband use in households is 33% compared to the US's 71%.

The speed issue in Australia stems from Telstra capping the speed of its digital subscriber line network at 1.5 megabits per second even though many phone lines and modems are capable of much more. To ramp up speeds Telstra and others would have to widen pipes at the centre of their networks and the large investments required make little sense to Telstra given its dominant market position in the broadband market.

Telstra's Trujillo offered to spend $3.1 billion on an optical fibbre network in the cities if the Government would chip in $2.6 billion for the bush and give Telstra regulatory concessions. This would have greatly increased network speed for a net subsidy cost of $130 per Australian. The Government declined fearing of further cementing Telstra's monopoly position. Australia's low population densities prejudice the economics.

At the core of these issues is that Telstra is a private firm that has primary responsibility to its shareholders. Providing close to universal access to high speed, low cost broadband would give the Australian economy a long-term boost and overcome disadvantages of being a large, sparcely-populated country. The Australian Governmentt should bite the bullet and negotiate the minimum transfers necessary to drive this investment in our long-term future.