Conroy’s Digital Economy Con
The plans for Australia’s digital economy as outlined by Senator Conroy today reveal the hollowness of the argument for an immensely expensive and excessively risky Fibre-to-the-Home (FTTH) network.
The Coalition broadly supports the eight goals outlined by Senator Conroy today. But they could all be achieved by spending much less than $50 billion on a FTTH network.
A cursory look at each of the Government’s goals reveal the shortcomings and shallowness of Senator Conroy’s arguments for a new, anti-competitive, one-size-fits-all Government-owned fixed line monopoly.
Goal One: Australia will rank in the top five Organisation for Economic Cooperation (OECD) countries in the portion of households that connect to broadband at home.
Broadband connectivity does not require FTTH – that much is clear. As is also clear from p. 21 of the Report, the biggest barrier to Internet usage, let alone fast broadband usage, is income. While 26% of Australians over 15 did not use the Internet at any location in 2008-09, the figure for those in households with incomes of less than $40,000 per annum is 34%. However the percentage of those not using the Internet in households with incomes of $40,000 -$79,000 is 14%, in households with incomes of $80,000 -$119,999 6% and in households with incomes over $120,000 only 5%.
The massively over-capitalised NBN will be under huge pressure to charge higher prices, to service its huge capital base. And, because it will be a monopoly, there will be no prospect of competitive services keeping prices low. As we have seen in recent years the dramatic decline in the cost of telecommunication has been driven by competition.
The one thing the NBN is not going to deliver, therefore, is cheaper access to the Internet; in other words it will do nothing to bridge the digital divide which is, as the ABS statistics demonstrate, in very large measure, a divide defined by income, or lack of it.
Goal Two: Australia will rank in the top five OECD countries in the portion of businesses and not-for-profit organisations using online opportunities.
The OECD figures show that 96.6% of Australian businesses with 10 employees or more are already using broadband, meaning it is ranked fourth in the OECD already. So this is hardly an argument for completely scrapping our existing competitive broadband market.
Goal Three: The majority of Australian households, businesses and other organisations will have access to smart technology to better manage their energy use.
This is an admirable goal but not one that can only be met through a FTTP network. Economists Robert and Charles Kenny note the roll out of 30 million smart meters in Italy between 2001 and 2005 required bandwidth of just 2.4 Kbps using existing copper or mobile networks.
Goal Four: 90 per cent of high priority consumers such as older Australians, mothers and babies and those with chronic diseases, can access individual electronic health records. In addition, by 2015, 495,000 telehealth consultations will have been delivered and by 2020, 25 per cent of all specialists will be delivering telehealth consultations to remote patients.
This is an admirable goal, but the Government’s own research shows that this doesn’t require bandwidth of 100 Mbps, or anywhere near. The Department of Broadband’s Telemedicine in the Context of the National Broadband Network paper cites three separate case studies where the bandwidth required for clinical applications was 1.52 Mbps, 1.5 Mbps and 10 Mbps respectively.
Goal Five: Australian schools, TAFEs, universities and higher education institutions will have the connectivity to develop and collaborate on innovative educational services that will extend the opportunities for online learning.
Australia’s 38 universities and the CSIRO are already connecting to superfast broadband – capable of higher speeds and greater bandwidth than currently offered under the NBN – as part of the AARNET scheme. Meanwhile, 80 per cent of TAFEs are connected via fibre and 63 per cent of high schools are connected via fibre. Increasing the penetration of fibre can clearly be achieved independently of a national FTTH network.
Goal Six: Australia will have at least doubled its level of teleworking so that at least 12 per cent of Australian employees may work away from the traditional workplace.
An Access Economics report that attempted to quantify the benefits of teleworking, referred to in the National Digital Economy Strategy, does not attempt to quantify the increased incidence of teleworking across different levels of bandwidth. Rather, it quantifies the economic benefits of teleworking using existing bandwidth. Although businesses have indicated they will be more likely to engage in teleworking, no economist has been able to quantify the benefits or assess whether they justify a $50 billion Government subsidy. This is precisely why the Government should have conducted a cost-benefit analysis before announcing the NBN.
Goal Seven: Four of five Australians will choose to engage with the government through the Internet or other type of online service.
It is difficult to think of any Government service that requires 100mb/s bandwidth to residential premises and it is worth noting that none of the services referred to by the Government in this paper require such high bandwidth to be delivered to homes.
Goal Eight: By 2020, the gap between households and businesses in capital cities and those in regional areas will have narrowed significantly.
The Coalition agrees that rural areas of Australia have been traditionally underserved by broadband providers. The Coalition pledged $2.7 billion during the 2010 election in funding for fixed wireless and satellite connections for the bush. However, the Coalition would already be rolling out these services rather than setting a deadline of 2020 to bring the bush up to scratch. If the Coalition’s 2007 OPEL plan had been implemented most areas would already have high-quality services today.
Senator Conroy’s National Digital Economy Strategy is simply a thinly-veiled spruiking of the NBN. It does nothing to reassure the Parliament or the Australian people that there is any likelihood the NBN will be delivered on schedule, on budget, or amounts to the best use of taxpayers’ funds.
 DBDCE, (2011), “National Digital Economy Strategy”, p.21
 Kenny, R., & Kenny, C., (2011), “Superfast: Is It Really Worth the Subsidy”, p.19. Available online at: http://www.apo.org.au/sites/default/files/Overselling_Fibre_1127.pdf
 NICTA, (2010), “Telemedicine in the Context of the National Broadband Network”, available online at: http://www.dbcde.gov.au/__data/assets/pdf_file/0016/130714/NICTA-Telemedicine_Report_cr_-pdf.pdf