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Australia’s Broadband Productivity Case, no research to Justify Claims…yet.

  • 12 May, 2007 12:47

<p>Dear Writer,</p>
<p>Please see below a paper that I have created to get to the facts behind the broadband debate.</p>
<p>The quality of debate and insight into Australia’s broadband capability, and the so-called productivity gains that should be possible, has been confused by poorly understood data, unchecked methodologies, arguments accepted prima facie and self-interest. Demonstrating a causal link for productivity gains is not precise, but any claim that there is one, is unlikely to be accurate.</p>
<p>Data transfer, up or down, is not a criterion of productivity. Most studies cannot show a causal link between broadband and productivity, except to suggest it, and if there is one it’s probably as correlated as everyone having good dental hygiene and GNP. Furthermore evidence from South Korea and Japan, those two paragons of broadband power, is mixed in terms of economic productivity, and here in Australia the Productivity Commission does not assess broadband in its calculations. If broadband is critical it’s time for independent research to measure and verify this infrastructure that is important for the future.</p>
<p>Guy Cranswick
Advisor
IBRS
IT &amp; Business Management Consulting
www.ibrs.com.au
gcranswick@ibrs.com.au
0425 230 983</p>
<p>Conclusion: The fractious and partisan dispute over Australia’s broadband is not educational, but it is informative, particularly for those IT executives developing a business case. Indeed, the entire public debate over broadband is dressed as a business case; that is, broadband offers a vital channel to future productivity. Or does it?</p>
<p>Perspective and context are required to understand what productivity gains technology can deliver. In the arguments over broadband, facts are disputed; the interpretation of tables and the consequences of policies all muddle perspective. Therefore, to understand the situation, and be able to make decisions, it’s necessary to return to the basic facts and then examine how the data is compiled, so that the logic of a business case is based on unbiased material.</p>
<p>Observations: There are three major variables put forward to demonstrate where and why broadband in Australia is a failure for the nation, for business, for consumers. These variables are:
1. price
2. speed and access of service
3. types of plans</p>
<p>Apparently, in all three the country is failing, and the evidence cited most is from the OECD, (Organisation of Economic Cooperation and Development) which produces access statistics. Again, the number accessing broadband proves that because subscription to broadband is lower than in other countries, all of the key variables above are the source of Australia’s failings and, most importantly, that productivity may or will suffer as a direct consequence. The OECD does not produce, but will probably in a year, an economic impact analysis of broadband. It does not infer economic effects from access statistics alone.</p>
<p>By most empirical data and reckoning, Australia sits in the middle of the international broadband landscape. The types of plans and speed and access of broadband is similar to many European countries. That is access is composed of both speed and usage caps to end users. The two markets that are not – that is in numerical terms similar – are Japan and South Korea with the US. The marketing of broadband in those countries has offered consumers uncapped plans and uncapped speeds. They are atypical. This analysis suggests that items 2 and 3 above are not critical variables and so it is unprofitable to focus on them.</p>
<p>The development of broadband usage in Australia exploded when Telstra changed its price in 2003 when dial-up subscribers dropped below 90% of all subscribers. Since then, the reporting of broadband has shown very strong growth as prices have been modulated to tailored packages i.e. light, moderate, heavy and very heavy users. The market has splintered along price and access segmenting various users.</p>
<p>The major ISPs encourage this segmentation and choose the lighter user, not someone who is gaming online. There are sound business reasons why they do and they are inscribed in the ‘acceptable use policy’ of the contract which, generally, states how a user can use the service: essentially not to take too much bandwidth even if their plan allows for it. It’s stated so as to share the resources between all the subscribers and minimise the capital cost for ISPs.</p>
<p>In summary, Australia is a median broadband market with access to serve the moderate user. For some reason this situation is not satisfactory to, in particular, the leaders of large media organisations who are vociferous critics of the broadband market. Senator Coonan has dealt with these uninformed criticisms by alluding to some of the analysis covered in this article. The issue of the status of the infrastructure, ownership and investment is separate to the one discussed here.</p>
<p>Finally, the only criticism worth consideration is the proposed impact on productivity. Many voices and organisations claim that without world class broadband Australia will be uncompetitive and GNP will falter. This argument segues from the OECD access statistics, but it is an error of interpretation and due to a simple logical mistake.</p>
<p>Setel is one organisation that is adamant that the condition of broadband is very bad and uses some apparently convincing statistics to make its claim good. One of these is the time to download a movie in Australia compared with Canada. Last month, Fairfax’s CEO said downloading movies was slow over broadband to press his case for better broadband. It is a specious example within the argument of productivity because the duration of an activity is a single variable.</p>
<p>Data transfer, up or down, is not a criterion of productivity. Take another example: the government of Victoria published a report on the effects and gains from broadband for the state economy of Victoria. It was a thorough analysis and the discussion states that it is difficult or nearly intangible to measure how broadband would improve productivity. One reason for the difficulty is that the method to derive a measure of economic output is contentious; and the other reason is how the term and concept of productivity is being employed in context. Convenience and economic output have to be distinguished to report real gains. Downloading files quickly is generally better but it may not yield higher productivity, for a person or an organisation.</p>
<p>Lastly, the Productivity Commission does not measure broadband as a variable in productivity gains, and the Australian Bureau of Statistics has not reported a broadband productivity dividend since adoption grew apace in the last three years. Both these organisations may change their policy on reporting in the future.</p>
<p>The record of debate and insight into Australia’s broadband market has been confused by poorly understood data, unchecked methodologies, arguments accepted prima facie and self-interest. Demonstrating a causal link for productivity gains is not precise, but any claim that there is one, is unlikely to be accurate.</p>
<p>Next Steps: To avoid obvious errors look for third-party data and never use information supplied by vendors. Apart from bias, vendor documents make claims about productivity that are invariably wrong.</p>
<p>Examine how you build a business case for an investment at the same time as examining measures of IT effectiveness. And, finally, ensure the business understand what technology can do – as output - for the organisation.</p>
<p>Media Contact:</p>
<p>Rob Stirling
Markom Marketing Pty Ltd
+61 2 9977 8922
rob_stirling@markom.com.au</p>

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