Will broadband boost productivity?
Rob O'Neill believes broadband will boost productivity, but can’t prove it
Wednesday, February 17 2010 || Comment || BY Rob O'Neill
The Australian National Broadband Network (NBN), the equivalent of our government’s ultra fast broadband (UFB) initiative, may be in trouble on a number of fronts, but there appears to be a lot more discussion and debate over there about the real economic benefits of broadband investment than there is here.
Perhaps it’s because we plan to invest $1.5 billion taxpayer dollars rather than a whopping A$43 billion that we are taking cost-benefit analysis a little lightly.
Several early studies modelling broadband investment have come out of Australia, while the OECD and Nick Minchin, the former shadow minister for communications, have called for more cost-benefit analysis.
Before we start in on that, some cards on the table: I believe broadband will boost New Zealand’s productivity and open opportunities for innovative Kiwi businesses. How much of a boost government investment will provide, or whether there are other investments that could deliver a better return on investment, is another matter entirely.
Way back in May 2007, Sydney-based IBRS analyst Guy Cranswick questioned models developed for quantifying the return on broadband investment. Earlier this year, as governments on both sides of the Tasman prepared to sign network cheques on behalf of their taxpayers, he was still asking the same questions.
Growth of broadband users does not correlate to economic growth per se, Cranswick says. It’s almost too obvious for words — for broadband to boost productivity, it has to be used productively.
In February the Research and Education Advanced Network New Zealand (REANNZ) released a report showing $4 of benefits for every $1 invested in its Karen research network. Karen is a dedicated network and arguably not equivalent to what the government is planning to provide — fibre to the home.
In early November, Waikato University and Motu Economic and Public Policy Research released a paper that found a 10% productivity gain when switching from dialup to broadband, but no real gain in moving from slow to fast broadband. Ernie Newman, the CEO of the Telecommunications Users Association (TUANZ), said the study was conducted too early as applications to take advantage of fast broadband have yet to be fully deployed.
That report ended up being exported to Australia where shadow minister Minchin used it to demand a more rigorous cost-benefit investigation of the NBN.
At a TUANZ rural broadband conference, also in November, the emphasis was firmly on applications. There were several examples presented that demonstrated substantial productivity benefits, though the question of how big a pipe was required for these applications was somewhat fudged.
In late November, a Coalition-dominated Australian Senate committee recommended a rigorous cost-benefit analysis, and was ignored by the Labor government on 11 out of 12 recommendations.
So, what are we to make of this? First, both the Motu and REANNZ studies show a connection can be made between improved network speed and productivity, though you can argue about how much speed is really required for most business applications.
Productivity applications over time will become richer and require more bandwidth. One example is near lights-out dairy processing plants that would require remote video monitoring.
Decent bandwidth will also allow more centralisation of corporate ICT infrastructure and that too will help reduce costs. There are likely to be substantial productivity and service benefits in health and education as well.
There are real benefits, but what the studies so far don’t tell us is how investment in broadband stacks up against other potential investments in diverse areas such as international marketing, diplomacy, or even in the mix of rural versus urban broadband or investment in international rather than domestic connectivity.
One common measure of return used to choose areas of capital investment is ‘payback period’. I’ve yet to hear that term used in relation to UFB. It’s ironic that at a time when government is demanding much greater rigour from the public sector on spending, it is backing a proposal that on the analysis seen so far would be unlikely to win sign off in most government departments.
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