100 Megabits

One of Kevin Rudd’s main goals is to implement a blazingly fast nation-wide 100Mb/s national broadband network, at a cost of around $43b. This would place Australia at the pinnacle of world broadband networks.

Frankly, I can’t think of a single bigger waste of tax-payer’s money than this (especially when we are due to run huge deficits). After all, what does one use 100Mb/s for? Movies, music and porn – that’s it. I’m a fairly heavy internet user, yet I can’t for the life of me think how I would use anywhere near 100Mb/s. You don’t need 100Mb/s to check your email. You don’t need 100Mb/s to do research for your high school essay. You don’t need 100Mb/s to chat to your Mum over Skype. All you need it for is BitTorrent. Should the government really be spending several tens of billions of dollars of taxpayer’s money on subsidizing BitTorrent? I don’t think so – especially given that governments around the world are spending billions of dollars trying to fight copyright infringement. It would be much more cost effective to subsidize rental video outlets and adult stores, which would have the same effect for a fraction of the cost.

I see two possibilities for how this scheme could develop. First, given that it is estimated that use of the network by the end user will cost around $200/month, there is a very real possibility that few people will want to pay the price to use it, in which case the resources will have been wasted. Alternately, lots of people might start using the network for its speed which will put private sector ISPs out of business, since they will be unable to compete against this newly created, heavily subsidized behemoth. This could have devastating implications for the telecommunications industry and might effectively socialize this critical sector of the economy. Either of these possibilities is undesirable.

In Australia, like in other developed countries, the market has proven very effective at providing broadband services to our residents. If a 100Mb/s network hasn’t already developed in the market, this is probably a fairly good indication that such a network would be economically unviable and therefore shouldn’t be pursued by the government.

This post has been cross-posted at Peter Rohde’s blog.

22 thoughts on “100 Megabits

  1. It’s called progress. If you don’t like it go back to carrier pigeons! (P.S. I’m a dickhead.)

    ADMIN: The comments are for friendly discussion. Feel free to insult yourself, but no throwing personal insults at other people.

  2. The whole thing is rather non-sensical, as the 100 Mb speeds would not be achievable in any case. As anyone who has ADSL2+ would confirm, most overseas sites will not load at anywhere near the theoretical network capacity. The end user speed depends on many more factors than just this one. Personally I can download files off my ISP’s mirror server at speeds of up to 1.6Mb/sec, and yet if the same file is to be downloaded from overseas servers, at times I would be lucky to get 50kb/sec!
    The whole broadband issue is yet another of Rudd’s smokescreens he uses to make himself look like a guru to the masses, who by and large seldom take the time to look at any such announcement in more detail. I doubt it will ever get off the ground.

  3. Peter,

    I would bet that in 10 years we will certainly have use for 100 Mb/s. 10 years ago barely anyone had any internet at all, and look where we are now. To think 100 Mb/s will be used just for illegal downloads and porn is as simplistic as thinking, 20 years ago, that the internet would always be the domain of academics and computer nerds. Plus, the existence of infrastructure should drive the development of applications. It’s been like that for many technologies we have seen emerge in the last decade or two. A country who gets the infrastructure set up first may see the next Google or Facebook emerge in their own territories.

    Furthermore, large infrastructure investments can and should be taken by governments even if the free market does not find incentives to do so. [alright, I risk being beaten up in this particular blog] Governments aren’t just large businesses. Even if they can’t get a profit out of this investment, returns may come indirectly through general economic growth sparked by the existence of the infrastructure. The internet itself wasn’t started by private companies, but by universities and the public sector. No one had then any idea of how useful (and profitable) it would eventually turn out to be.

    Not to mention other less directly measurable possible benefits. Socialising this critical sector may also have other strategic and political benefits, precisely because it is a critical sector. Look at Russia’s political power for having control of Europe’s energy supply. Now imagine a large Chinese corporation with control of Australia’s telecommunications…

    But there’s reason to be suspicious. Especially when I think of the internet censorship scheme running in parallel, and the excessive influence of fundamentalist christians on this government. And $200/month is a lot of money. Doesn’t seem to agree with the government’s claim that “Every person and business in Australia, no-matter where they are located, will have access to *affordable*, fast broadband at their fingertips” [from the link on your post]. Where did you get that figure from?

  4. Eric — I agree that new uses will naturally emerge over time. However it is also true that new infrastructure will naturally emerge over time. The government isn’t necessary for this process, and they are generally responsible for retarding the natural progression of technology by diverting resources to the wrong areas.

  5. I agree that the telecommunications industry as it exists today (in it’s partially free structure) is better than one government provider.

    But I wouldn’t say “the market has proven very effective at providing broadband services to our residents”. Because a free market never existed.
    A truly free market and a legal structure of better property rights protections would have delivered better broadband than we have.

    Government regulation from federal to council level, the ACCC, building regulations, the original Telecom monopoly have all hampered telecommunications development in this country.

    I’d guess that a country like Japan would always have better broadband speeds for geographical and population density reasons.

    But it is simply unnacceptable that I live 13 km from the city (Adelaide) and I do not have access to any ADSL services. It’s 2009!
    This situation could have easily been avoided in a free market situation.

    Basically various governments and councils have contributed to the current problems. Now they boast about their huge expenditure of tax payer money and they expect me to be thankful!
    Not to mention the expected $200/month fees!
    At least a common thief doesn’t expect you to thank him after he robs you.

    BTW, I think you are right to say that it is stupid for the government to be supporting torrent downloads/porn etc. But I think this statement stands on it’s own two feet without additions. The government spokesman would claim that they are educating the children. You could just as easily claim they are encouraging sloths and copyright infringement at any internet speed.

    And Eric, I totally disagree.
    The internet was started by the military. A proper government function. Not an infrastructure project. There has been a huge amount of private development of computers, software and telecommunications research.
    Plus, when governments attempt to monopolize science as they do, of course discoveries are made in government/university labs. Discoveries are made by intelligent individuals that work where they have to work. So what? Universities would be far more effective if privatised. Notice the terrible standards of state education these days?
    Notice how rationing and poor performance occurs with every single government countrolled product or service?
    Then this poor performance is used to justify continued govenrment involvement. eg/ There’s no more important, necessary resource as food. Should we socialize food? Or is starvation not such a great thing?

  6. Hi Eric,

    I agree with you that infrastructure/technology often precedes the application for that infrastructure, but I don’t think this is justification for spending $43b willy nilly on something that *may* find applications further down the track. This is an enormous amount of money for a country the size of Australia and I can think of better infrastructural projects that this amount of money could be spent on. The problem with the “infrastructure may drive the applications” mentality, is that the applications further down the track are generally unforeseen and it is therefore a significant gamble to invest this kind of money.

    The $200/month figure came from a news article on this topic, which was just an estimate given by some analysts. To my knowledge, the government itself has not officially indicated how much it will charge for this service – it may be more, it may be less.

  7. i agree with the article but just have to point out that soon EVERYTHING will be connected to the internet, mainly the living room TV’s will be streaming internet TV channels rather than radio/digital broadcast. streaming HD content will require super fast connections, but like you said, theres no market for it yet, we should let it evolve. stupid rudd ‘fiscal conservative’ lol

  8. Eric,

    Peter is claiming this is too costly. It is 4.3% of one year’s GDP [capital costs alone].

    It is difficult to believe this project would have a positive NPV. It might, I accpet that that may be true.

    The Commonwealth deficit would take seven years to pay off, the NBN would take about 5-6.

    What opportunities may we be forgoing be embarking on such a project?

    In present value dollars, these are the revenues the project would need to have over the years to recoup the costs, aside from budgetary considerations (i.e to actually pay for itself).

    Assume the money could otherwise invested in the capital market which averages 14% ROE. I will also list a rough per capita estimate (I think this is reasonable as the money is being taken away from private investment – even a lower discount rate will see significant figures needing to be paid out, in the context of all other points made here. Even with a 5% rate [close to the real cost of capital] the costs are still high given what costs they are and in what context they are made).

    9.804 bln—> $466.85 per capita per year (@ 5%–>$430.00)
    11.17 bln—> $532.21 per capita per year (@ 5%–>$451.50)
    12.74 bln—> $606.72 per capita per year (@ 5%–>$474.07)
    14.52 bln—> $691.66 per capita per year (@ 5%–>$497.77)
    16.55 bln—> $788.50 per capita per year (@ 5%–>$522.66)

    Remember, this is per capita, not users (which are less) and this is simply for the recovery of capital costs, not for the price of distribution, ISP services and connection fees etc.

    The first response was misguided. Moving from carrier pigeons etc did not require investment in a potnetial loss making venture by a national Govenrment requiring debt and future cash flows to make the project self funding above the cost of what the private sector could do this for).

  9. ADSL2 was rolled out in Australia without government assistance. iiNet built their own ADSL2 network up from scratch.

    I have no doubt that by the time 100 Mb/s connections are relevant for things other than domestic downloads of music/movies/pr0n there will be enough commercial incentive to provide it.

  10. But it is simply unnacceptable that I live 13 km from the city

    Then you should consider moving.

  11. Yes, it appears that way. I’m having difficulty finding the original article I read about this estate in QLD. You might find the following of further interest.

    Here’s a quote from a thread at Whirlpool:

    We’re currently looking at firing up the service in an initial 12 housing developments across four states with Opticomm (including Fernbrooke in QLD, Northgate and Lochiel Park in SA, and many others).

    We intend to deploy in every development Opticomm builds.

    More info on the technology from Opticomm.

    I just moved from where I was on a RIM and have ADSL for the first time here in Australia (in my case ADSL2+). ADSL2+ is fine for me – I wish I lived closer to the exchange though as I can’t get IPTV. My previous address in Australia was stuck on a RIM – unable to get ADSL of any kind. My brother just moved into a fairly recent estate (2000+) only to find he has Pair Gain – again, no ADSL. Something very wrong was happening in the “free market” back then to prevent the necessary equipment getting into some areas/estates.

  12. Peter and Mark,

    I was mainly arguing against the ideas that (i) there’ll be no use for 100 Mb/s; (ii) governments shouldn’t invest in infrastructure.

    But I agree that the cost of this particular project, given the size of Australia’s economy, is very hard to justify.

  13. Eric — I agree especially with your first point. While I don’t know what the use of 100 Mb/s will be, that is true of all future technology. 100 years ago people may have said the same thing about cars that traveled over 100km/h.

    But I’m not sure that the government should be the ones guessing at how future technology will develop. The private sector is able to make the necessary judgments and investments in telecommunications as and when they are necessary.

    As for government infrastructure spending in general, it is a commonly claimed role for government. Perhaps it is appropriate. However, I think it is incumbent on the government to specifically show what they are doing and make the business case. Unfortunately, today it seems like the government just needs to say the magic word “infrastructure” and people assume it’s money well spent.

    (I also think that the private sector would be able to do much that the government does with infrastructure… but that’s a bit of a different debate.)

  14. If nearly everybody had 100Mbit/s then we could readily do telepresense type communication. That would be really cool.

  15. i guess if your only experience of the internet is recreational then you could be forgiven for thinking that the only use for fat pipes is movies, music and porn. if you run a business and your customers are on the internet then a great deal of the time you will need to have video content to market to them and to provide customer support and so on, just to remain competitive. that’s just where things are at right now. this is particularly true when some or most of your competitors are overseas.

    the fact that we don’t ALREADY have fat pipes at least in the major state capitals really should be more of a scandal

    the common explanation for how behind we are in internet speeds is that australia has a vast land mass and a small population – but when you compare how concentrated our populations are into urban areas, compared with places like finland and germany, that explanation doesn’t really hold much water

    i’m not necessarily enthusiastic about such a big government approach to providing telecommunications infrastructure, but we really do need much better access to fast internet in this country and we needed it years ago

  16. James – did you read what Steven posted? A private firm already offers the 100Mbit service for less than Rudd’s web will cost.

  17. James, if you need to offer your customers video content etc, can’t you be competitive by using, say, US hosting for your website?

    Mark, I can’t think of anything that justifies the government building this broadand network. However, just because one small company has connected a real-estate development or two up with fibre to the home, I don’t think we want to get carried away thinking that Australia already has a wonderfully fast broadband network system.

    Personally I think that Rudd is doing this to make the history books. Many of his government’s recent announcements mentioned that they were “historic firsts”. Some call it monument building I believe.

    Unfortunately with the government hovering the issue of high speed broadband networks, many companies and individuals will be holding off investing in this area. The companies will be hoping to get “sprayed” with “free” money from the government to build the thing. With the government not promising to deliver RuddNet until – what was it? – 2015 or something?, I reckon that simply delays the arrival of widespread high speed networks in Australia. What an awful state of affairs.

  18. using US hosting isn’t always a good option, especially given the implications for effective SEO.. but anyway it’s the poor connection speeds that that are the real problem, there’s absolutely no doubt that me and my employees would be more productive with faster internet. we buy better computers to cut down on the time it takes for things to compile or render, and that makes us

    ADSL2 is still the fastest speed available to my office suite in the middle of melbourne’s business district, and it’s hardly adequate. Cable blows chunks whenever there are other people in the area that are using it.

    again, my post wasn’t to speak in favour of the rudd scheme.. but saying that the present system has “worked” is just a little out-of-touch when the broadband connections available in the middle of a city of 3.9m are lagging way behind what is available to shithole industrial estates in northern england, small german towns and a great many former eastern bloc countries

  19. err.. i meant to say: we buy better computers to cut down on the time it takes for things to compile or render, and that makes us more productive, it’d be nice if we had first-world internet available too

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