Today the Leader of the Opposition has raised the question why invest in Fibre? Why not Wireless? After all there is a lot evidence in the US pointing to the growth of wireless and the slow down in the uptake of broadband (See Business Insider’s latest Broadband Chart, 25 Charts on Wireless and Pew’s Broadband Adoption). Plus we have the local growth in Telstra’s Wireless Broadband Subscribers (Now over 1 Million and representing about one-third of the combined retail wireless and fixed line broadband revenues – See Telstra’s 2010 Half Yearly Report)
Is he asking the right questions? After all Japan chose the wireless path a decade ago and now the world’s leading mobile economy. Should Australia, or for that matter the US, be thinking Wireless instead of Fibre?
Those of you with long memories will recall that the Australian Government’s (i.e. Telstra prior to privatisation) original investment in the Information Super Highway was $3.3 Billion.
When we re-examined that investment a couple of months back in a previous post we discovered that the total investment as of 2007 by Australia’s Telcos, IT and Media companies was in excess of Au$75 Billion in infrastructure, software and content. This figure is almost double what the federal government is proposing today. So is the proposed investment in Fibre by the Federal Government unreasonable? Given the private sector spend on the first generation information superhighway probably not.
Having said that I don’t think the total cost of the NBN is the real question we need to be looking at. After all if the Government was interested in reducing the cost it would have negotiated the return of the underutilized wireless spectrum as part of the approval process of the Vodafone H3GA merger and auctioned it off to the other players in the market (e.g. Telstra and Optus) to fund the NBN. Given the projected growth in wireless broadband services and smartphones the Federal Government would no doubt have secured a premium for the bandwidth resale. So clearly the Government does not believe price is the issue here for Australian Tax Payers.
The key issue here for the Australian Tax Payer is the potential return on investment.
At first glance the potential ROI appears very easy to establish. For example we have the suggestion by the Prime Minister that the $43 Billion investment in fibre optics is need for high tech life saving medical applications like robotis surgery and remote eHealth.
On second glance however claims such as these, although self-evident on face value, must surely be recognised as a false economy when hospital beds lay empty around the country simply because the funding is not available to provide the nursing, catering and cleaning staff to keep wards open. Besides African nations are already achieving significantly higher levels of success with remote eHealth programs with significantly less investment in technology than Australia has made in the information super highway to date. Just because the network offers the potential for delivering eHealth does not mean it will be successfully utilised to deliver eHealth.
Certainly my experience in the development of an eHealth proof of concept for one of Australia’s leading Telcos during the dot-com boom clearly indicated the barrier to success are behavioural (i.e. Cultural and political) and not technological.
“Australia failed to realise an ROI on its original investment in the Information Super Highway? So why should another round of digging “Innovative Trenches” prove any more profitable than the last?“
As you may remember the calculations in my previous post indicated that the total annual revenue pool generated from this $75 Billion investment by Australian Telcos, IT and Media companies was just Au$1.25 Billion in 2007. This suggests it will take decades for these companies to achieve any ROI on their existing investment – never mind any future investment in a next generation Information Superhighway.
So, for all the hype about the economic benefits of the world wide web, the original Information Superhighway was not a great business investment for Australia (e.g. name one global internet brand that has emerged from Australia’s original information superhighway strategy) and this is reflected in the performance of the individual share prices of Australia Telcos, IT and Media companies over the past decade since the dot-com crash. This also provides us with a context of why, at a time when the rest of the world is thinking mobile, the Federal Government is the only player in the market willing to invest in a next generation Fibre Based Information Superhighway.
Going back to the Prime Minister’s eHealth example the key issue here is not one of technology (i.e. Speed and Agility of the telecoms network) but in building and developing the underlying conceptual framework that will encourage Health professionals to maximise the ROI on the telecoms network (be that the existing technology infrastructure or the NBN). Or, put another way (in layman’s terms), buying a brand new Bugatti Veyron isn’t going to make any difference in the scheme of things if you don’t know where you want to go to and who or what you need to take with you on your trip.
This then is the element that is missing in the whole NBN debate here in Australia. The first question should not be how fast and agile our telecommunications network needs to be but what are we going to use it for to significantly improve our economic capabilities? Once we know this then we can begin the robust discussion of how fast and agile the technology solution needs to be.
We are focusing all our energies on the capabilities of the technology and not the behaviour patterns that drive the underlying need for the technology . And this is why the Fibre vs. Cable vs. Wireless debate being undertaken during this election cycle is premature and points to the underlying weakness in capability for strategic planning in both political parties.
The global success stories of the first iteration of the Information Superhighway are Google, Yahoo!, YouTube, Facebook, eBay, Amazon, Salesforce and Twitter. Each of these global brands achieved this growth by investing in ideas and people – not laying cable. More importantly they became global brands because they monetized behaviour and not the technology. Indeed the most successful internet brand Google became a household name around the world because it deliberately “dumbed” down the technology and focused its energy on profiting from the aggregation and monetization of audience behavioural patterns.
“Here in Australia innovation is measured in by the “Megametres of Trenches” being dug to lay fibre optic cable and not in the software and gadgets being developed by our best young minds. “
So what is the real challenge for Australia today? And how can upgrading our Information Super Highway us to meet that challenge?
While I was in San Francisco last month I read an article in the SF Chronicle describing San Francisco as the new Venice. It was an interesting editorial piece. After all many have laid claim to that title over the past 200 years (Think: Birmingham, England).
What struck me about the details in the article were the similarities between San Francisco and Sydney.
For example;
- San Francisco Bay Economy has a population base of 7.4 Million People, Sydney (including Newcastle and Wollongong) about 5 Million.
- GDP (Estimated by PWC) was $301 vs. Sydney’s $213
- Both are major centres of Banking and Finance – Ranked 15 and 9 in the world
- Both are major ports Oakland’s TEU 2,045,211 vs Sydney’s TEU 1,755.000
- Both are major tourist destinations with breath-taking natural harbours and both cities are within driving distance of beautiful national parks and Wineries.
It has been observed in Silicon Valley that people are working all the time and certainly anybody who has spent a summer in San Francisco will understand why they are so productive… they have to be to keep warm.
Here in Sydney we are well-known for spending a lot of the time at the beach. Our winters are warmer than San Francisco’s summers.
Here then is the one key difference. The Californian economy is twice the size of the Australian economy and in 2007 California (i.e. the San Francisco Bay Economy) exported US$48 Billion in IT products to the rest of the world. In comparison Sydney’s much hyped Service economy exported just US$3 Billion. In fact the whole NSW economy managed to export just under US$20 Billion in Minerals, Services and Manufactured Goods.
That put the NSW export economy on a par with Google’s annual revenues and at one-third of Microsoft’s annual revenues for the same period.
This ten provides us with some insight into the scope of the challenge facing Australia today. If the $43 Billion National Broadband Investment is to be of long-term economic value to the nation it will need provide the backbone that will allow Sydney (or perhaps Melbourne, Adelaide, Perth or Brisbane) to compete with San Francisco and Silicon Valley as a world leader in the export of information product services. Surely anything less is of no real strategic economic value to the country given the level of private investment in broadband to date?
Of course the US is currently discussing the need for a NBN upgrade along the lines of the Australian model. You can check out Havard’s coverage of international patterns for both fixed and mobile broadband here http://cyber.law.harvard.edu/pubrelease/broadband/
Further Reading:
[Updated 15-9-2010]
- Top Ten Myths behind Fibre Policy – Peter Cox
- NBN: the wrong policy for Australia - Malcolm Turnbull
[Updated 21-9-2010]
- Wifi on Steroids – NY Times
- Your Own Hot Spot, and Cheap – NY Times
- E.U. to Back Plan for Pan-European Mobile Market – NY Times
- Wal-Mart Debuts Its Own Branded Wireless Plans – Mashable
[Updated 21-10-2010]
Posted on August 17, 2010
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