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Government Policies Beyond Broadband

The telecom infrastructure decisions we are now facing have very little to do with developments or the need for services in 2009 or 2010. They are more related to where the digital economy is taking us in the future. This is well beyond the time needed to kick-start sluggish economies.

While the demand for high-speed broadband to access the Internet (or, as is the case in the USA, HDTV entertainment) is an important factor, the real economic and social value lies in the multiplier effect this infrastructure can create for healthcare, education, energy savings, etc. It is for that reason as much as for high-speed Internet that we need to start building—or at least planning for—Fibre to the Home (FttH).

It has been estimated that over time such an approach could add 1%-2% to national GDPs. In the United States this could lead to 240,000 new jobs and in Australia it could translate to perhaps as many as 100,000 new jobs.

The Australian plans are more ambitious than the US plans and so the economic benefits in Australia could potentially be larger.

Current networks are based on copper and coax cable and these technologies have a limited life (there is international agreement on this). Wireless can fill the gaps but it won’t be the main technology in cities. The question now is how to move from these older technologies towards all-fibre networks.

Incumbent telcos are not driving these developments. Their basic, rather out-of-date, business model has been that if you run a monopoly you want to milk the asset (the old network) for as long as possible. With little competition you can drip-feed the market with new (better services) and charge a relatively high price. As soon as you provide the next update you discount the previous one. In this way you can stretch out the life of the old network for many more years.

Furthermore, the telcos prefer to develop e-health, tele-education and other applications themselves so that they can charge a premium, rather than letting these institutions develop their own applications over the infrastructure.

This is an unsustainable model based on a very short-sighted vision.

The problem is that the telcos’ top-down model is hampering innovation. A key reason is that the incumbent telcos have a stranglehold on the underlying infrastructure. They are not making that infrastructure available to third parties on economically viable prices and conditions. Their market power is so great that nobody else can enter this national infrastructure market unless massive changes are made to the regulatory environment. Without such regulation there is little or no infrastructure-based competition, and this allows the incumbents to totally control the downstream and upstream markets.

For decades regulators have tried to create a better (more competitive) marketplace through network price and access regulation. However most governments have come to the conclusion that incumbents have so many ways to ‘game’ the system that new forms of regulation are now needed.

Increasingly governments want to use the broadband infrastructure to stimulate economic activity. But, as mentioned above, the role of the incumbent as gateway keeper has become the major barrier to enabling healthcare, education, energy and media to use the same infrastructure.

The decision for new infrastructure cannot therefore be based simply on customers’ demand for Internet access. It should spring more from the need for a long-term national infrastructure planning process for the digital economy. Increasingly governments are seeing it this way and are prepared to make the appropriate regulatory changes to clear the way for FttH infrastructure projects, based on open networks.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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