Hot Topic Reporting season
Hot Topic Reporting season
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Is there a case for ultrafast broadband?

The government is making a huge bet with our money.

Ben Kepes
Sat, 18 Jun 2011

Ben Kepes is a director a number of companies involved in manufacturing, property, technology and consultancy. He is an international commentator on Cloud Computing and, in a hat tip to "the Knowledge Economy" he earns around 90% of his income outside of New Zealand, while sitting on a 12 acre lifestyle block in North Canterbury.

He is often frustrated by the sub-optimal internet speeds that living 70km from a major city brings, but despite this manages to function on less than 1Mbps when working from home. He's a fan of ultrafast broadband, but wants to make sure that if New Zealand as a nation invests in it, that it does so after an effective cost/benefit analysis that looks at alternative expenditure.

Ben blogs at but realizes that no one really reads blogs so is also an enthusiastic and emphatic twit here.

Ever since I was asked to present to the joint Australia-South Korean-New Zealand KANZ Broadband Summit a month ago I’ve been ruminating  about the justification for governments spending huge sums on rolling out ultrafast broadband in a country.

A post I was alerted to by my friend Chris Auld spurred me into jotting down some thoughts.

The Australian and New Zealand governments are spending up large on ultrafast broadband (UFB), spending $37.5 billion  and $1.5 billion respectively – massive sums, especially for New Zealand where it equates to a significant proportion of GDP, and where we’re also faced with a $20 billion or so repair bill from the recent Christchurch earthquakes.

One would want to be pretty goddam sure that an investment of those sorts of levels would make an appreciable difference to society, and specifically the economy (since much of the justification for UFB is in fact a productivity increase leading to heightened GDP).

1Mbit/s sufficient
Now I have to say I’m not a luddite – I’m part of the knowledge economy that works remotely and brings US dollars into New Zealand – 90% or so of my earning are from outside of New Zealand and they’re enabled almost entirely by the internet – as such one would expect that I’d be right behind ultrafast for all? Well not so fast – I live a long way from a city and hence don’t have fantastic connectivity. I average around 1Mbps – not ultrafast by any stretch of the imagination, but still sufficient to enable me to do whatever I need to – conference calls, video chat etc. I’m not sure what a few more Mbps would offer me, apart from quicker uploads to YouTube, something that would be nice of course, but not really transformational.

At the same time as our Government is investing heavily in uber internet for all, a group of private investors [Pacific Fibre] is contemplating building a new undersea cable between New Zealand and the US. Their rationale for doing so is the monopoly that currently exists due to having only one provider, Southern Cross Cable. While I have concerns about the chances for Pacific Fibre (after all, as soon as it looks close to happening won’t Southern Cross just open up under-utilized capacity and kill Pacific Fibre’s financial business case?) the fact is that it is a private enterprise with private funding – so long as our government doesn’t get a rush of blood to the head and decide to invest in what is essentially a private business (I’m talking to you Minister Joyce) then all luck to them. (For reference it is worth checking out Pacific Fibre founder Sam Morgan’s rationale for the business here).

Government making a huge bet with our money
The UFB project on the other hand is different, it’s a case of our government making a huge bet with our money on a perceived future benefit.

So does it stack up? Well I need to point to the headline on the Crown Fibre website which says – “Crown Fibre Holdings – Increasing our Productivity”. So does it? Well according to a working paper from independent and well respected economic think tank Motu, there is no empirical evidence for this. Paul Walker goes into detail about the report over on his blog but the crux of the argument can be summed up in Motu’s conclusion which states;

…we conclude that a shift to broadband connectivity (from dial-up) appears to raise firm productivity but a move from slow to fast broadband may have no effect on productivity at all.

I absolutely understand the kind of “build it and they will come” arguments as espoused by Morgan in his interview (link to video above). As he rightly contents, we cannot predict the future and it is impossible to intuit where the game changing developments might come from and, by extension, what requirement they will have for connectivity. But in the same way it is impossible to know what technological advances will provide alternatives to traditional approaches towards broadband – maybe the demand profile will change, maybe we’ll build data centrers in New Zealand and hence avoid large amounts of international traffic, maybe we’ll discover ways of gaining amazing connectivity without laying cables under the sea.

With that many unknowns, is it right for governments to make a bet on UFB? As one commenter points out, it seems the Government has a strange cause and effect mindset going on here;

The wonderful causality effect is alive and well and flying in the face of excellent research, common logic and market forces. The government have their cause and effect backwards (ie: high GDP countries have high speed broadband, therefore if we have high speed broadband we will have high GDP).

I’ve stated before that I’m not a luddite – I would love New Zealand to be in a position to build the sort of businesses that have a use-case and a need for ultrafast broadband (although I would say that many of those businesses would also be happy to be located where there is already great broadband anyway so the transformational aspects of UFB are further diluted). But until I see proven empirical evidence for the spend, I’m sitting firmly on the fence on this one.

Ben Kepes
Sat, 18 Jun 2011
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Is there a case for ultrafast broadband?