Monday, November 29, 2010

Superfast Broadband Not Worth a Subsidy

Several media outlets, including the ABC have reported that the study "Superfast: Is It Really Worth a Subsidy?" calls into question the value of government subsidising high speed broadband projects, such as Australia's National Broadband Network. This is just a working paper, but it presents a well reasoned case:

Governments around the world are investing multiple billions to support the roll-out of fiber to enable high speed broadband. These subsidies are based on the premise that fiber to the home (FTTH) brings substantial externalities. It is argued that FTTH will support economic growth and is key to national competitiveness; that it will benefit education, healthcare, transportation and the electricity industry; and that it will be the TV platform of the future.

In this paper we argue that the evidence to support these views is surprisingly weak, and that there are several errors that are made repeatedly when making the case for FTTH. In particular:

  • The evidence that basic broadband contributed to economic growth is decidedly mixed, and some of the studies reporting greater benefits have significant flaws
  • Time and again, data that basic broadband brings certain benefits is used to justify investment in fiber – but the investment in fiber must be based on the incremental benefits of higher speed, since (in the developed world) there is already near universal basic broadband
  • This error is compounded since other high speed broadband infrastructures (such as cable, and in time wireless) are often simply ignored when making the case for fiber
  • Fibre is credited with bringing benefits that would in fact require major systems and social change in other parts of the economy, such as a widespread shift to home working, or remote medical care. In practice, these changes may never happen, and even if they do they will have significant additional cost beyond simply rolling out fibre
  • Frequently business or government applications, such as remote medical imaging, are used to make the case for FTTH. But these applications require fiber to certain major buildings, not to entire residential neighborhoods (and these buildings often have high speed connections already)

We do not argue that there is no commercial case for rolling out fiber, nor do we argue that fiber brings no societal benefits. But we do believe that those benefits have been grossly overstated, and that therefore, particularly in a time of tight budgets, governments should think very hard indeed before spending billions to support fiber roll-out. A decade ago telcos wasted billions of shareholders’ money on telecoms infrastructure that was well ahead of its time – governments are now in danger of doing the same with taxpayers’ money.

From: Executive summary, Superfast: Is It Really Worth a Subsidy?, by Charles Kenny and Robert Kenny, Communications Chambers, Sat 27 Nov 2010 12:08:02 EST

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