Monday, April 10, 2006

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.

6 comments:

Bring Back EP at LP said...

Harry, I am on the board of Robert Menzies College at Macquarie University.
We get plenty of complaints about internet speed from our O/S, mainly Asian, students.

We have to explain it is Telstra's fault and the government simply has no idea.

Damn that Alston. Why didn't he do something about this rather than wasting his time whinging about the ABC's coverage over the Iraq invasion.

hc said...

I agree Homer. The State and Federal Governments too are concerned with promoting regional communities. Australia's major physical difficulty is its sparceness of population over a large area.

Facilitating efficient communications, distance education and entertainment at a distance would help this. The costs seem moderate I cannot see why this is not an urgent national priority.

patrick said...

Hey, whilst the gist of this is quite true, I pay 70AUD per month for nearly unlimited downloads (24GB) on cable with Optus.

So there are better options - but my French friends and family are still paying the same amount for unlimited downloads at nearly 10Mbs in good conditions with built-in VOIP free local calls and television!

But part of the reason for this is the distances. French internet was revolutionised by a company Free (ha) that literally installed their own exchanges throughout France - all the real goodies only came when you could be wired through a Free exchange directly (although it was already pretty good). The other part is of course that Telstra have prevented Optus doing this here.

Matt Canavan said...

Why should the government subsidise something if users aren't willing to pay for it? Sure broadband would provide benefits but these are privately captured. I don't see why non-broadband taxpayers should have to subdise broadband users (who btw would probably have high education and high incomes).

hc said...

Matt, I am not a big supporter of government subsidies and, I know, 'regional economics' always has an aroma of pork-barrel politics about it. But I think there are significant 'network externalities' in encouraging good communications in the bush - it can help get things started. We get national benefits from having prosperous regional towns and subsidising communications is an effective way of delivering such benefits - the various country interests can fight it out commercially given cheaper communications costs. Even if you don't like this line, if you accept that governments will be motivated to suppport regional comnmunities, this is an efficient way of doing so.

By the way I looked at your blog - great layout and good arguments. I'll visit.

lesleym said...

matt's site may have a fantastic layout, however, if I cannot read his text because a non-web-standards colour system was chosen, I remain unconvinced by what could possibly be a very persuasive narrative.

OTOH, I'd be happy to exist with sub-optimal internet speeds, if only I could be sure that everybody in Oz suffered the same amount!