Government Broadband Internet Plan Doomed To Failure

Let me say first of all that at the moment your correspondent is skeptical about the necessity of providing broadband internet to everyone.
We are even more skeptical about it being provided to everyone by the government. Currently it is only a Labor Party policy but we can be certain that the coalition government will pick up the idea if they see votes in it.
As useful and interesting (sometimes) as the internet is, it is not really an essential service. And it is most definitely not a service that the government should be concerning itself with, whether on its own or through a partnership with the private sector.
It is also a danger to listen to the private sector when they start encouraging state intervention to fund a broadband network.
For at least the last two years we have had Rupert Murdoch and James Packer declaring that Australia’s broadband internet is a disgrace. Why should they care? What does it have to do with two media companies? If they are so concerned and they see the opportunity why don’t they do something about it?
Well, it goes back to what your correspondent detailed on Tuesday. News Corporation and PBL have the content, or access to the content and so they just require the distribution network in order to disperse their product and make a bunch of cash.
But there’s the problem. Murdoch and Packer aren’t backwards in coming forwards to snap up opportunities if they think they are on a winner.
Why aren’t they actively working to fund a national broadband network with Telstra for instance, whom they both already have a relationship with over Foxtel?
Could it be that News Corp and PBL aren’t entirely convinced that there is a demand for their online content just yet? Why put shareholder funds at risk when they can put government funds at risk instead?
The fact is that at the moment the majority of broadband internet subscribers are not using broadband to its full potential. Sure there are plenty of people who use it to download music, or who watch brief video clips on services such as Youtube. But if your correspondent’s experience of broadband is indicative of the average user it has just meant that we can download news from Bloomberg or the BBC in 3 seconds rather than 10 seconds as we used to do with our old dial-up access.
There is only so much that the majority of the population will cope with from broadband internet. Only the most avid fans would prefer to watch entire television shows on their desktop computer.
The real advance will come when television/movies/multimedia is delivered straight to the TV via broadband in the same way that terrestrial and cable TV is delivered now.
Anything other than that is not likely to have the mass appeal; in fact, anything less would be seen by most people as regress rather than progress.
The experience of the dot-com boom and bust has shown that you can lay as much broadband and fibre optic cable as you like, but if the service over it is no better than what is available elsewhere then there will be limited interest.
Think back to all those internet service providers (ISPs) that cropped up from nowhere. Remember EISA? The ISP that made a failed attempt to buy Ozemail. Within months of making the bid it had gone bust. Without Ozemail’s subscribers it wasn’t able to keep up the payments on financing its debt brought on from expansion.
The Labor (and probably soon to be Coalition) plan to build an AUD$4.7 billion network of broadband access is doomed to failure.
It is another example of government thinking it can do bettere than private enterprise. In the long run it will likely lead to poorer service (as private companies are unable to compete commercially or fairly with a state run body, eg. Telstra MkII) followed by an increase in costs as the inefficient state run company is unable to keep pace with technology developments and by the then it will take years for private sector companies to re-enter the market.
A state sponsored broadband internet service should be avoided at all costs.

Kris Sayce
Markets and Money

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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3 Comments on "Government Broadband Internet Plan Doomed To Failure"

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Finally, some sensible commentary on Kevin Rudd’s broadband plan. Why can’t the mainstream media devote at least a few lines towards some common sense on the issue ?!

Well its election year, and the chequebooks are out already. I sure hope the Liberals don’t try to outbid the ALP.


So which is worse?

The monopoly profits that Telstra is currently generating (Return on revenues of 20% versus majority of telcos in other markets at about 11-12%) and an environment where the latest technology is not available anyway, or a state regulated market where the natural monoploy components of a service is strictly controlled (such as the UK).

For a definition of monopoly profit have a look at:

“The real advance will come when television/movies/multimedia is delivered straight to the TV via broadband in the same way that terrestrial and cable TV is delivered now. Anything other than that is not likely to have the mass appeal; in fact, anything less would be seen by most people as regress rather than progress.” Hi, I strongly disagree with this statement. As it is, people in countries with decent internet speeds and no ridiculous 20GB/month quotas are downloading high quality TV episodes minutes after they are made available. Sure, they’re on “grey” P2P services, but like Napster->Itunes it’s only a… Read more »
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