Report raises doubts about $1.5b splash-out

Any time the three biggest industry players come into alignment on an issue - particularly players in the ultra-competitive world of telecommunications - you've got to ask: what's the agenda?

While the Castalia report - commissioned by TelstraClear, Telecom and Vodafone - doesn't put a figure on what it thinks the Government should be spending on broadband its conclusions clearly suggest that the $1.5 billion promised pre-election is too much.
The report raises the spectre of rushed "Think Big" style investment in a fast moving sector fraught with the risk of building a technological white elephant.

It also highlights the potential for a nationwide fibre optic network to be underused by New Zealanders who, en masse, say we want instant movie downloads but don't yet back that up by paying for the fastest broadband packages available.

And more seriously it highlights evidence from around the world that big state spend-ups on high speed internet have not delivered the gains in economic productivity that would justify the cost.

That the industry is wary of Government intervention is a reason the big players will be happy to promote this report's findings.

In an environment when all new spending is under the watchful eye of company CFOs they are quite reasonably concerned that government spending may undercut returns on their own investment plans.

That's a reasonable proposition for their shareholders anyway. Whether that is a reasonable proposition for the many small businesses outside of the Auckland and Wellington CBDs - still crying out for faster speeds is another matter.

The industry players argue they are already doing enough to meet business needs for the next five years. Others will disagree. But regardless of the interests of its funders the Castalia report is an important document and the Government will be taking it very seriously.

Bill English and John Key will already be having serious doubts about their ability to commit $1.5 billion.

The world has changed dramatically since Maurice Williamson - then opposition spokesman on telecommunications - made the $1.5 billion promise.

The constraints on what the nation can afford have changed in a few short months and the risks this report raises should be debated vigorously.

And cost-benefit debate needs to focus on jobs not, unfortunately, speed for the home user.

Last month a report by the Economist noted two studies which found some evidence of increased broadband spending equating to increased employment.

Washington-based Brookings Institution concluded that for every percentage point increase of broadband penetration, employment increases by 0.2 per cent to 0.3 per cent per year. But that is not huge growth.

In the European Union, greater availability of broadband internet connections could create more than 2 million jobs by 2015, according to a study by Micus and WIK-Consult, two German consulting firms.

But the Economist also argues that many stimulus plans are strong on the idea of promoting broadband but short on detail about how it will be used.

And there are other often cheaper ways a Government can help. A report for the British Government highlighted the acceleration of the release of radio spectrum, fostering competition and relaxing rules that prevent companies from stringing up overhead cables.

For the sake of the future it would be sensible for our Government to target the high-tech sector with a sizeable proportion of whatever it intends to spend on economic stimulation. But if we are borrowing to do that, we must aim to avoid wasting a single dollar. The Government should still look to subsidise in some areas. That could mean fibre optic cables into schools or in rural areas.

In theory that could still mean fibre optic to every home. But let's be brutally realistic. If what we are talking about is ability for New Zealanders to download movies on demand then now is not the time.