Thursday, 12 September 2013

What will fast broadband mean for you?

As my previous post on the latest developments in broadband pricing noted (and which, somewhat to my surprise, generated an unusually large number of page views), there is quite a range of opinion in the marketplace about the potential benefits of our new Ultra Fast Broadband (UFB) fibre network.

Some folks reckon that the potential economic and social benefits are so large that everything possible needs to be done to get the fibre rolled out ubiquitously and quickly, and that policies should be aimed to maximise early and extensive uptake of the new fibre-based broadband. They also point to the potential for strong network effects - the more people sign up, and the quicker, the more each one benefits from the presence of many others.

Others range from agnostic - broadband could well pay off, but it's uncertain what the payoffs will be or in what areas - through to the sceptical: the costs are high, whereas the benefits are arguably limited and distant.

It never hurts to have some evidence when you've got debates like these, and I've just come across a brand new study that's attempted to estimate what the payoffs might be to households from the likes of UFB. I haven't seen much coverage of it in New Zealand, so I thought I'd draw people's attention to it. It was done for Australia's Department of Broadband, Communications and the Digital Economy by Deloitte Access Economics. You can download it from Deloitte's site.

Here's the guts of the thing. Access Economics found that the benefits to the average Australian household, in today's money, would be worth about A$3,800 a year in 2020. This was on the assumption, by the way, that the Aussie version of our UFB, the NBN (the National Broadband Network), would be rolled out as the outgoing Labor government planned, with fibre all the way to your home, rather than (as the incoming Coalition government prefers as a cheaper option) fibre 'to the node', i.e. to a cabinet in your street, with a copper connection from there to your home.

Access found that roughly two-thirds of the benefit (A$2,400) would be money in your hand, one way or another, and the other third is their estimate of the implicit money value of things like time saved travelling. Around half of the total A$3,800 comes in that 'Productivity > Lower prices, better quality' line. This, Access say, "is made up of price reductions, improvements in quality, changes in wages, and higher profits from businesses they own". In turn those higher wages and profits come from an assumed economy-wide 1.1% of GDP productivity gain from the NBN, which in turn is consistent with the results from a study done for the World Bank on the 'Economic Impacts of Broadband'.

Access reproduce a key finding from that research, which I've also shown below.

Access commented that "The Qiang analysis [shown above] found that the economic impact of each ICT innovation was larger than all those previously...and that differences in broadband penetration among countries may generate long-run gains to overall economic growth for those that are
early adopters".

The Access study also breaks out (in Chapter 3) some detailed illustrations of how NBN/UFB would affect households of different kinds. They find that the benefits vary very widely from one set of family circumstances to another, and that there is "some evidence that the scenarios with greater impacts are where households face difficult circumstances, such as needing to find employment, move residence or where additional education is of significant benefit. This could suggest that broadband has the potential to play a role in improving opportunities for those in society facing disadvantage".

What should we make of this?

I suspect that I'm in the same place as many of you: I don't know (yet, and maybe never) what the payoffs from UFB might be, or whether they're worth the multi-billion-dollar gamble. As I've suggested before, there are times when I think it's worth rolling the dice, even when the stakes are large and speculative, and UFB could well be one of those times, and I also think that UFB or the like is going to be the stake you have to put on the table to play at being internationally competitive. I'm probably somewhere on the upbeat side of UFB-agnostic, and to that extent this latest research sits comfortably with that kind of view.

All that said, obviously one bit of research is far from the last word on anything. That's not to dismiss it. It's a solid-looking effort: I trekked through the various assumptions and calculations they made, and they look reasonably well-grounded to me (though if some kind reader can make a better fist of putting plainer English around their 'elasticity of substitution' line of reasoning than they have, I'd like to hear from you). And it likely leads you to think more about the upside aspects of UFB, though even if you conclude, "UFB is a corker of a plan", that still leaves you with some tricky policy issues about both copper and fibre.

In any event, it's got to go into the pot with whatever other evidence comes to hand. My plan from here is to post more good research on UFB and see where the results take us.

Incidentally, and I appreciate it's somewhat off-topic, this Access Economics research illustrates one of the core strengths of economics. Economics (particularly macroeconomics) and economists have to some extent become an easy target for post-GFC activists looking to substitute their approach (typically non-market) for ours. But when a government comes to place a couple of billion dollars bet on the likes of a UFB, it's worth noting that we still have the analytical tools and quantitative skills to help throw light on the bigger policy issues of the day.

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