Friday, May 12, 2006

High speed public internet plans

I have criticised on this blog (here, here) the quality of Australia's broadband internet service. I aired these views to a group of economics students before the budget. One student said - given the regulatory complications why not get the public sector to lay out a high speed network and retail broadband services to various businesses including Telstra.

This appeals to me as I believe the partial privatisation of Telstra was an error and that the complete privatisation will compound this error. If getting the government to repurchase stock in Telstra to republicise it is 'fantasy land; stuff (I am one of its few supporters) then the proposal advanced by this student makes sense. Otherwise there is a difficult compromise with Telstra trying to maximise its share price and the Government trying to limit Telstra's inefficiently overpriced, monopoly provision of access to a vital national asset.

Indeed Kim Beazley's budget response proposal to publicly-provide a high speed broadband internet service is consistent with this. The numbers Beazley quotes still suggest a substantial private involvement - the costs are much larger than the numbers he provides - but the gist of his idea is sound.

Australia is a large country where transport and communication are binding constraints on development. Regional development schemes often involve 'picking winners' and 'pork-barrelling' at election time. If governments do seek to promote regional development (and I think they should) then a high speed communications network would complement investment in improved roads. Then firms could take advantage of such improved communications on the basis of market opportunities rather than political plans.

Improved communications and entertainment possibilities would encourage young people to continue living in regional Australia and facilitate distance education and other training options. A good idea.


ian holsman said...

The issue (as see it) is not the speed client connections per se, but more how web sites are charged when they are hosted inside of Australia

Paul montgomery has a post about the high prices here:

Until you can get equitable pricing locally, then major sites will offshore their sites (making it slower for locals to access).
even buying a local .au domain name is 5x more expensive than in the US.

get the government to fix those 2 things, (ie lower the cost of developing services on the net) and you'll have a much more interesting local community

conrad said...

I always fail to see why is it a good idea to subsidize areas of regional Australia so that we can presumably keep subsidizing them in the future, and high speed broadband seems to be a good example of it.

It seems to be some strange Australian dream that everyone should have everything no matter where they are, and the end price of this is that vast amounts of money are wasted.

What is the point of trying to encourage young people to stay in these areas when they would be more productive elsewhere in Austraila ?

hc said...

Ian's point seems a good one - the link he cites is here. I'll look into these arguments further. My understanding is that speed does remain an issue but checking around I am getting ambiguous signals.

Conrad there can be market failures in regional areas that reflect 'coordination issues'. There are also unpriced external costs in large cities such as congestion and pollution that seem to suggest a case for pursuing regional policies.

Yes, regional policy has a justifiably poor name because it can be simply an excuse for pork-barrelling.

But if you do want to promote the regions then even-handedly improving communications and then allowing markets to work seems better than trying to pick winners and promote particular industries.

conrad said...

Is there a largely accepted non-biased analysis of the cost/benefit of subsidizing the particularily "regional" areas of Australia ? I'd be interested to read it -- Is it really the East Coast people of Australia complaining, or is there some justification to it ?

Also, if it was just pollution/congestion that we were worried about, then the rather much cheaper and much simpler solution would be to integrate the small cities close to the big ones better --Newcastle/Wollongong/Geelong/Tawoomba(?) and possibly even Canberra.

That might be as simple as sticking a fast train between those cities and the bigger ones, which means people could work in the big cities but not waste vast amounts of time on trasnport. This would remove vast numbers of people from the big cities -- and is in fact now what happens in Paris.

Personally, I don't see any solution to pork baralleling, so wasting vast amounts of money connecting everyone versus a smaller number seems to be a case of two wrongs not making a right. The great amount of money which the Australian public doesn't seem to mind being wasted (particularily when spent on them) is presumably a problem of social acceptance that some unfortunate will probably have to pay for the hard way one day.

hc said...

Conrad, I don't have much to add to my earlier response. Most regional interventions are pork-barrelling but a motivation for regional development lies in problems in the cities and giood development possibilities in the regions themselves if coordination issues (getting things going 'together') can be overcome.

Good communications and transport services provide a relatively even playing field for development to take off based on commerciial realities. Also high speed broadband facilitates things such as distance education and entertainment.

It seems to me that the cited costs of establishing high speed broadband internet services to all major Australian cities and towns are not that high. See the links I provide for the figures.

They would provide a sensible help for developing regional Australia that would advantage us all.



Vee said...

First of all I must say I'm not a regular reader of this blog, in time I may be

I didn't get interested in politics etc until 2003 and being a regional resident (I think I'm in fact classified as rural) I have an interest in regional policies and thus why I promote Enterprise Zones. (3 links)

That said, it seems to boil down to city v country or the haves v have-nots.

Now we want a developed nation not a one part first world, one part third word nation so we have to open up to the regional economies.

As this happens we'll see resources able to be re-allocated more efficiently and effectively (eg. it wont cost as much to move) and will increase the flow of ideas and ingenuity and increase development and the city-country relationship will not be as pronounced

I'm finding as time moves forward and we get closer to NSW 07 the more I get peeved. Sydney this, Sydney that. Which leads me directly to how urban folk think about country folk. Who cares?!

Disappointing isn't it? So the feeling in general is mutual. Subsidise this, subsidise that and nothing happens.

Perhaps we need to look at what a subsidy actually is - Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest

Its the type of subsidy and its effect we have to look at.

Sam Ward said...

Ian's argument is completely irrelevant. The point is broadband access, not how much it costs to have a domain name. A domain name or having your site hosted in Australia are completely irrelevant in the global world of the internet.

The point is the speed of broadband access, and Australia lags behind most of the developed world in this area by a fair margin. We pay $300/month for a service that costs $35/month in somewhere like the US or Hong Kong.

As for regional subsidisation - a bigger hoax couldn't be imagined. People in the country pay $60,000 for a house that would cost $400,000 in the city, and then complain when their internet bill is $60 a month instead of $30?

I've never heard of anything so ridiculous.

hc said...

Sam, My arguments on the case for subsidies are here.

I am unsure costs of web sites are not also an issue.

How's Bangers?

Ian Holsman said...

it isn't just about the cost of buying a domain.
It is how it costs people double the amount to host and run a website inside of australia compared to running it elsewhere.

having something hosted else where is a speed issue. especially since it takes 200ms to get a packet over from the US. (which limits the real time applicability of voice and video) .

it also puts a heavy dependance on the data-links between the US and Australia. (which is a scarce resource which is expensive to add excess capacity too).

So lets say we have this 25x speed broadband.. what then.. we would have a saturated link to the US (which is about saturated now anyway) so you are not going to see any real speed increase from anything as all the services need to go over this link.

by investing/making it cheaper to operate services locally you avoid using that scare resource, and create an environment where businesses can do innovative things here.