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Broadband's big spenders

Feb 9th 2011, 12:32 by I.M.

VISITORS to South Korea cannot fail to be impressed by the speed of the

country's online connections. While even basic broadband access is unobtainable

across parts of the developed world, most South Koreans can enjoy high-speed

fibre-optic services for just $30 a month. Closing this broadband gap has

become a priority for some governments. In April 2009 Australia unveiled a

hugely ambitious plan to bring superfast broadband connections to more than 90%

of the population by 2018, at a cost to the public purse now estimated at

around A$27 billion ($27 billion). The British and American governments also

want to use taxpayers' money to plug the broadband holes in their rural

communities.

Why do governments feel such a need for speed? Many private-sector companies

insist there is no commercial case for investment in high-speed networks.

Although internet usage is soaring, network operators earn no more from traffic

on bandwidth-gobbling sites like YouTube, which functions better over faster

connections, than from customers accessing simpler web pages. Yet authorities

increasingly see broadband as integral to economic prosperity, with the energy,

education and health-care sectors among those set to benefit from the roll-out

of improved infrastructure. That means broadband is bound up with governments'

political fortunes, too.

The question is whether such vast public-funding commitments as Australia's are

desirable, or even effective. Critics say taxpayers' money would be better

spent elsewhere and that broadband development is best left to the private

sector. Others argue for less heavy-handed public-sector involvement.

South-East Asia, notably, appears to have built its broadband lead by

encouraging companies to stump up the huge investments required.

A new study from the Economist Intelligence Unit, our sister company, makes

some judgments about what governments should and should not be doing. While

broadband rankings typically measure factors such as the speed, availability

and retail prices of existing services, a measure created for the study, the

government broadband index (gBBi), looks instead at the components of the

highest-profile public-sector plans. Besides targets for speed and population

coverage, these include the cost to the taxpayer as a percentage of annual

government revenues and the deadlines for universal access. The gBBi also

considers the regulatory aspects of the various plans. Here are the results:

The index leaders are countries that usually perform well in more traditional

rankings of current broadband capability. South Korea tops the index with a

score of 4.4 out of 5, with Japan in second place and Singapore in third. What

is perhaps surprising is just how badly marked are those countries most

desperate to catch up. Australia's plan ranks ninth out of the 16 that feature

in the index, with a score of 3.4. The plans announced in Britain and America

fall even further down the list.

What factors unite the countries that do well? Ambitious targets for speed and

coverage are certainly important, as is an ambitious timetable for network

deployment. Japan is now eyeing services of one gigabit (ie, 1,000 megabits)

per second, compared with targets of 100 megabits per second in Australia, and

wants them made available to at least 90% of the population by 2015. South

Korea hopes to realise a similar goal next year. Perhaps more importantly, the

index rewards countries that are not hurling taxpayers' money at the broadband

agenda, and penalises the big spenders. Public-sector broadband spending as a

percentage of annual government budget revenues is just 1% in South Korea and a

paltry 0.06% in Japan. In Australia, in contrast, the figure is a whopping

7.6%.

To some observers, a low level of public-sector funding could simply indicate a

lack of broadband ambition, especially given the huge civil-engineering cost of

laying fibre-optic lines. But the gBBi index's rationale is that governments

are most effective when they avoid such big financing commitments, focusing

instead on appropriate market regulation and incentives for private-sector

investors. Sweden's plan mandates that fibre ducts be laid in parallel whenever

any electricity or water networks are expanded or upgraded. Finland offers tax

breaks for those hooking up to high-speed, fibre-optic connections. Each

country has similar speed and coverage targets to Australia but is providing

much less in public-sector funding. Besides performing well in typical

broadband-comparison tables, both rank highly in the gBBi.

Meanwhile, in Greece, the gBBi's lowest-ranked plan has suffered long delays. A

public-sector consultation has already identified potential problems with

regulatory aspects of the proposed scheme, while its public-sector funding

commitment is also a stumbling block for such a debt-ridden country. At a cost

of more than 12 times the commitments in South Korea (per household covered),

that is hardly a surprise.