Governments botching the technology issues

There is much current discussion in Australia of a national optical fibre network: Fibre to the Node (FTTN) or Fibre to the Home (FTTH) (and business premises). There is a consensus that building such a network, allowing extremely rapid transmission of voluminous data is practical and affordable, and would have appreciable social and economic benefits.

Use (and uses) of the Internet is multiplying. Emerging applications in broadband households are multiplayer gaming, swapping music and videos on sites such as Youtube, dialogues on Myspace and other sites, and Voice over Internet Protocol (VOIP). The Internet was initially used largely to transfer text (for example, email). Now households routinely transfer digital photos, document images and videos, activities requiring dramatic increases in the network's capacity.

Business and government have transferred myriad business processes to the Web. Customers can purchase, enquire, and pay online. Firms’ internal communications have moved from paper to the web. In many respects, physical location is irrelevant, the Web can be used to move data and information instantly and accurately anywhere in the world at zero marginal cost. This has had myriad advantages for the community as a whole (paying bills online is a lot less tedious and costly than posting cheques) but those whose work has been outsourced to India may be less enthusiastic.

FTTH would allow households and businesses to exchange document images, provide more elaborate information, execute more complicated transactions, run real-life videoconferencing, and provide a cheaper and more reliable national telephony network.

It would allow households to download movies in minutes, easily interchange photographs and film clips, and run multi-multi-participant games. If FTTH’s inherent capacity and speed was available individuals and businesses, aided and abetted by entrepreneurs, would find more, presently unimagined, applications.

Electricity companies originally saw illumination as the “killer application”, only later tripping over the power point’s connection to myriad appliances.

Besotted grandparents could enjoy an "always on" link to their children's residence. Grandparents could watch and talk to their grandchildren, read bedtime stories to them, and later perhaps use e-mail to communicate with their children. Conversely, it would be easier for we middle-aged to monitor our ageing parents.

FTTH would help medicos monitor the aged. Older or ill people would have less need to occupy a hospital bed, instead staying at home and “plugging into” devices measuring their vital statistics; medical interviews could be conducted by videophone. Immobile people’s lives could be enriched by being able to play online games or talk to each other, either one to one or in groups on videophone.

Education, especially the tired lecture (in which the lecturer's notes become the student's notes without passing through the mind of either), could be rejuvenated and made available to people unable to attend the campus. This would force change in universities and schools. There would be an obvious demand for richer, multimedia educational materials that exploited bandwidth. Economies of scale would inevitably become manifest. If elaborate materials were prepared for a course in, for example, physical chemistry, the course owner could make more money by distributing it round the world. This is the kind of export industry that Australia ought to have.

Australia should build a FTTH network allowing speeds of at least 12 megabits per second (MPS) (FTTN is an unsatisfactory halfway house). Although technically possible, the current argument revolves around how the network should be funded, managed, and controlled. Telstra would have us believe that a Telstra monopoly is the optimal solution. This I doubt.

The government should build a FTTH network. Although nobody knows the exact cost, $20 billion might be a good guess. Those thinking that private capital expenditure is virtuous whereas government capex is disgraceful deserve pity, not blame. The figure is declining with technology improvements. Some suggest $5,000 to retrofit a home compared to $1,000 to install FTTH (and business premises) when new estates are built. The cost depends on the percentage of homes and premises covered (remote country residents would have to be served by satellite) and the terms on which the builder could access Telstra's ducts (now filled with copper wire).

A FTTH network is a natural monopoly that costs a lot to build, not much to maintain and administer, and almost nothing to use. From a whole community point of view, decommissioning Telstra's copper telephony network and transferring telephony to fibre (with much lower maintenance costs) would save serious money. Nobody knows exactly how much as Telstra is very secretive about its costs.

An entrepreneur building a FTTH would have to charge customers serious money to recover a $20 billion investment. Interminable arguments at the ACCC and the courts over competitors’ access and what the network owner should charge competitors for network use would continue. It would be iniquitous for Telstra to own and control the network while competing with other companies using it; vital infrastructure should be available on equal terms to all who want to use it. In retrospect, it was a mistake to lose control of vital infrastructure by privatizing Telstra. A FTTH project would be risky for a private investor as it might conceivably be superseded by a new (wireless?) technology.

The government should not try to recover the capital cost of the network, but set charges for the use of the infrastructure very low, even zero, thereby maximising public utility. A modest annual fee (perhaps $100 per premise) would be much more functional than fees for use.

The network should be used to give Australians free national phone calls and free, fast, access to the Internet. This is appropriate given the zero marginal cost of use. Cheap communication enhances democracy and public discussion. Governments should encourage vigorous competition for equipment (fixed phones, mobiles, PDAs, home networks etc) and services (e-commerce, movies on-line, video phones, always on telephony, e-education, e- health, mobile commerce, local commerce, VOIP, internet services etc) that use the infrastructure.

The estimated $20 billion needed to establish the network in cities looks modest compared with the federal government’s 2007 allocation of about $3.7 billion a year for roads (I am unaware of what the states and municipalities spend on top of this). The situation is analogous to railways. In the 19th century, governments and entrepreneurs spent large sums building railways. The entrepreneurs often went broke, but society as a whole benefited hugely.

The delays over FTTH exemplify Australian governments’ botching technology issues - continued neglect will make Australia less competitive. Bad decisions have often resulted from governments’ indulgence of vested interests. Examples of Australian governments’ technological policy incompetence and backwardness include:

• digital radio, which is available in Britain and America, but not in Australia (except on an experimental basis). Valuable digital spectrum has been given gratis to incumbent radio networks; a sure and certain way of stultifying innovation and new services.
   
  Policy on digital television might as well be written by the incumbent moguls. The government will evidently preserve the incumbents' oligopoly indefinitely, killing consumers' access to new technology, new services, and cheaper prices. Consumers have been treated with contempt;
   
• Australia's management of water resources has become a political football and a politically intractable problem. Governments appear to be much more concerned with the rights of people who possess entitlements to water (but what did these people pay for their quotas?). There is no sense of overall optimisation, or recognition that what happens in Queensland affects Adelaide residents; and
   
• Governments’ habitual support of old industries with political clout (especially automotive and agricultural) costs consumers and cramps new industries. Australia should be manufacturing lasers and computer chips, not stamping out car parts designed overseas.