60 GROWTH National South Australia and the Level 13, 440 Collins Street Northern Territory Australia’s Melbourne 3000 VIC Level 7, Qantas House GPO Box 2117 144 North Terrace Melbourne 3001 VIC Adelaide 5000 SA Broadband Future: Telephone 03 9662 3544 PO Box 8248, Station Arcade Fax 03 9640 0849 Adelaide 5000 SA Telephone 08 8211 7222 Four doors to greater New South Wales Fax 08 8211 8222 and the ACT Level 14, The John Hunter Building Victoria and Tasmania competition 9 Hunter Street Level 13, 440 Collins Street Sydney 2000 NSW Melbourne 3000 VIC GPO Box 2100 GPO Box 2117 Sydney 2001 NSW Melbourne 3001 VIC Telephone 02 9299 7022 Telephone 03 9662 3544 Fax 02 9232 7559 Fax 03 8677 1138 Queensland Western Australia Level 10, 175 Eagle Street Suite 1, 32 Edward Street Brisbane 4000 QLD Perth WA 6000 GPO Box 2900 PO Box 8623 Brisbane 4001 QLD Perth Business Centre 6849 WA Telephone 07 3229 9955 Telephone 08 9228 2155 Fax 07 3229 8166 Fax 08 9228 2166 www.ceda.com.au GROWTH NO 60 SUPPORTED BY DECEMBER 2008 GROWTH NO 60 Australia’s Broadband Future: Four doors to greater competition About this publication Growth 60: Australia’s Broadband Future: Four doors to greater competition © CEDA 2008 ISBN 0 85801 271 5 ISSN 0085 1280 The views expressed in this document are those of the authors, and should not be attributed to CEDA. CEDA’s objective in publishing this collection is to encourage constructive debate and discussion on matters of national economic importance. Persons who reply upon the material published do so at their own risk. This research project is supported by IBISWorld, a CEDA member company. Edited by Minh Bui Jones Designed by Robyn Zwar Graphic Design Printed by Braemar Graphics Photography by istock.com About CEDA For nearly 50 years, CEDA has informed, influenced and raised the standard of discussion about the issues shaping Australia’s economic and social development. We do this by: • publishing independent research • providing a forum for debate and discussion • offering a membership network to people and organisations that value knowledge, insights and ideas in Australia’s best interests. CEDA is an independent not-for-profit organisation. Our funding comes from membership fees, events, research grants and sponsorship. CEDA – the Committee for Economic Development of Australia Level 13, 440 Collins Street Melbourne 3000 Australia Telephone: +61 3 9662 3544 Fax: +61 3 9663 7271 Email: [email protected] Web: ceda.com.au 2 CEDA GROWTH NO 60 Contents and contributors Foreword 5 David Byers, Chief Executive, CEDA A word from the sponsor 7 Phil Ruthven, Chairman, IBISWorld 1. The ‘Four Digital Doors’ – a CEDA Research perspective on digital competition 8 Michael Porter, Director, CEDA Research Australia’s proposed National Broadband Network must deliver real competition between the ‘four doors’ through which premises and people receive digital and information services. These four doors are copper, coaxial cable, fibre and wireless. 2. Building the broadband network 18 Martin Cave, Professor and Director of the Centre for Management under Regulation, Warwick Business School The National Broadband Network must adapt to the different competitive endowments of Australia’s vast geography, with its varying population density and commercial opportunity, to maximise competition. 3. Creating an efficient national broadband network 26 Joshua Gans, Professor of Economics, Melbourne Business School The rollout of broadband in Australia needs to be based on many local solutions, rather than a single national solution. The most efficient path for investment should be followed – whether it be a ‘big bang’ catch up with other advanced economies or a gradual rollout across Australia. 4. A policy framework for a new broadband network 32 Henry Ergas and Eric Ralph, Concept Economics The new National Broadband Network must be based on a policy framework that leads to the efficient rollout and ongoing use of next-generation networks, and remove the risks to investment inherent in current regulatory arrangements. 5. Broadband in the US – myths and facts 48 Jeffrey Eisenach, Chairman, Empiris LLC The widely-criticised US approach to broadband policy has, in fact, produced high levels of investment and innovation, nearly ubiquitous broadband availability, high and increasing levels of penetration, falling prices and high levels of consumer satisfaction. 6. The European experience – regulating broadband services 60 Jim Holmes, Director, Incyte Consulting Governments and operators worldwide are driving initiatives to establish broadband infrastructure and services – with varying degrees of success. Assesments of different competitive frameworks reveal that while Australia can take some cues from overseas, it is in unchartered territory in terms of industry and competition policy. AUSTRALIA’s broADBAND FUTURE: FOUR DOORS TO greater COMPETITION 3 4 Foreword For almost 50 years CEDA For CEDA’s part, we believe that broadband has been at the forefront of policy cannot be separated from the wider digital ideas and action on Australia’s information policy agenda. Information services can economy – informing, influenc- be delivered at speed and volume through each of ing and raising the standard of the ‘Four Digital Doors’ of telecommunications infra- discussion about the issues structure – copper telephone lines, wireless, coaxial shaping our economic and cable and fibre. Technology is advancing in ways that social development. cannot be predicted. Regulation cannot keep pace. In recent years Australians High levels of investment and innovation are required. have begun to realise the contribution that telecom- The task is to promote real broadband competition munications and competitive media can make to across the four infrastructure ‘doors’, allowing rivals the development of a prosperous and socially viable to differentiate their services and compete more nation. With that realisation, broadband has moved vigorously along their supply chains. If there is to be to the centre of the policy agenda. The potential to public subsidy associated with a fibre network rollout, undertake large and complex information processing it may be better targeted at the delivery of education, tasks facilitated through networked information tech- health and other services through the network rather nology offers the promise of a transformed economy. than at the establishment of the network. This is particularly so in the services sector where We thank IBISWorld for its support for this collec- there is obvious potential to generate new efficiencies tion, and its support for advancing policy ideas on in the way that health, education, and government broadband and digital information policy. Thanks services are developed and delivered. also to Minh Bui Jones who edited this volume and Australia’s Broadband Future: Four doors to secured the contributors. greater competition focuses on the current Australian Many facets of this issue remain unexplored by this broadband debate. While as a nation we may cur- volume. CEDA intends to keep broadband and digital rently be fixated on the rollout of a national optical information policy at the centre of our research and fibre network, we need to remind ourselves of the real policy agenda for some time to come – facilitating question at stake: How do we deliver the best infor- serious discussion of policy options and advancing mation services to customers in differing situations further ideas of our own. across the country? This report reflects alternative views, from Aus- tralian and international experts, on what is required to achieve this. We greatly appreciate their contribu- tions. While their precise arguments may be different, there is broad agreement across the chapters on the virtue of promoting infrastructure-based competition David Byers and diverse solutions rather than a single national Chief Executive, CEDA solution. AUSTRALIA’s broADBAND FUTURE: FOUR DOORS TO greater COMPETITION 5 6 A word from the sponsor When Australia’s New Age IBISWorld is delighted to sponsor this valuable began in 1965, information research effort. As an online information company technology and telecommuni- operating worldwide, we have a vested interest in cations became the new utility seeing far greater capacity and speed available to our for industry and households – clients, suppliers and employees in Australia and else- just as electricity, gas and water where. We suspect once householders are exposed became the new utility for the to truly high-capacity, high-speed broadband – in Industrial Age a century earlier. excess of 100 Mbps – it will open up another chapter Forty years ago we could in their lives in terms of education, health, entertain- not have imagined the extent to which this new ment and visual telecommunications; perhaps acting utility would impact on businesses and our lives, and as surrogate transport in many instances and thereby perhaps most people still have difficulty in guessing helping to ameliorate the global warming dilemma. what it can do for us in the decades ahead. But to We commend Australia’s Broadband Future: Four see the take-up of mobiles and the connectivity to the doors to greater competition to all concerned: it puts internet by students, workers, researchers, home- things in perspective, outlines options and progresses bodies and the retired is to see a new world opening the debate. in front of us. When motor cars arrived on the scene over 100 years ago they were few in number, slow and cumbersome; made worse by roads designed for the horse and cart. The parallel with today’s ICT sector is stark. Our hardware, software and information explo- sion are way, way ahead of the channels for their use: the ‘roads’ are inadequate. We have the equivalent of unsealed roads when the demand is growing for free- ways and tollways that can carry vastly more traffic at Phil Ruthven higher speeds. Chairman, IBISWorld So, CEDA’s continuing research into Australia’s broadband future is to be commended. This study is timely given the intended rollout of broadband in 2009 and beyond.