Broadband telecommunications

Brian Dalzell, Economics Section

Broadband

Broadband connectivity can be facilitated via copper lines (utilising digital subscriber line or DSL technology), cable, fibre-optic cable, and a range of wireless technologies which include, but are not limited to, satellite, mobile, wireless local area networks, and wireless fidelity. Broadband is often referred to as high-speed broadband or high-speed Internet because it usually involves a high rate of data transmission. The term broadband is not strictly defined however. The OECD indicates that broadband refers to Internet connectivity which provides access with download speeds of at least 0.256 Megabits per second (Mbps). By contrast, the International Telecommunications Union (ITU) states that the term broadband does not refer to either a certain speed or a specific service. Rather, broadband combines connection capacity (bandwidth) and speed. Despite this, the ITU has produced a recommendation that broadband be considered connectivity with a transmission capacity faster than 1.5Mbps.

Broadband is less developed in Australia than in other developed countries as demonstrated across the range of OECD’s available broadband measures. For instance, in terms of broadband subscriber numbers at December 2009, Australia ranked 17th out of 31 OECD countries, with 24.3 subscribers per 100 inhabitants. The availability of broadband in Australia is not yet widespread and it does not offer the level of quality and speeds available in other developed markets, while simultaneously subject to high prices and data caps. This is largely due to the historical context of Australia’s telecommunications sector.

Historical context

Prior to 1991, the Australian telecommunications sector broadly comprised a fixed-line monopoly provider. The Telecommunications Act 1991 allowed for limited network competition in fixed-line and wireless phone services. This was facilitated via the selection of Optus Communications as a second general telecommunications carrier to compete against the government-owned Telstra, in both fixed-line and digital wireless services. Vodafone (which merged with Hutchinson to form VHA in 2009) was later licensed to provide digital wireless services in competition against both Telstra and Optus. General telecommunications competition following the Telecommunications Act 1997 led to entry by a large number of resellers of internet, fixed-line telephone and mobile telephone services. While these resellers have invested in particular network elements, no new significant network infrastructure providers have emerged since 1997.

The incremental reforms since 1991 have resulted in a triopoly network structure that remains highly concentrated. Telstra continues to dominate fixed-line network ownership and control of the wireless telecommunications sector is shared by Telstra, Optus and VHA. While there is more competition in fixed-line broadband services (Telstra and Optus have a total share of retail fixed-line broadband services of 58.4 per cent and 16.4 per cent, for 2007–08 respectively), most competitors provide DSL services that depend on Telstra’s public switched telephone network (PSTN) in order to access end users. Put simply, almost every Australian retail customer relies on Telstra’s PSTN as an input for their fixed-line telephone and internet services.

The Australian Competition and Consumer Commission recently indicated that this concentrated market structure has resulted in muted competition and that the core competitive impediment is the concentrated ownership of the network infrastructure. In particular, the reforms since 1991 have resulted in highly concentrated ownership of network infrastructure in a sector that is subject to high barriers to entry and is heavily dependent on regulatory mechanisms to promote and maintain competitive outcomes. This market structure continues to result in relatively high prices, data caps, and annual consumer complaint levels that grow on a yearly basis.

Telecommunications, growth and productivity

While Australia lags international peers in terms of broadband development and telecommunications prices, the incremental reforms to date (which moved the sector away from a Government owned fixed-line monopoly structure) have been a significant factor in the demand for, and development of, Australian telecommunications. The growth of telecommunications services more broadly has been explained by a number of factors such as advancements in telecommunications technology, market liberalisation, and privatisation. Advancement in telecommunications technology is one of the driving forces of reduced communication costs, as well as globalisation and growth of the world’s economy. Technological innovations in telecommunications have been driven by increased competition levels stemming from telecommunications sector reform.

In relation to sectoral reform, the economic literature confirms that privatisation and liberalisation (competition in local services) have improved economic growth, and increased the productivity and efficiency performance of a country’s telecommunications, relative to those countries which have not undertaken such reforms.

Future broadband policy considerations

With a view to maximising outcomes, policy makers may wish to take into account the evidence-based research in relation to the following areas: government provision of public and non-public goods and positive net social return; externalities and government intervention in telecommunications markets; government owned fixed-line monopolies; government business entities, competitive neutrality and the crowding out of private investment; social equity, universal service obligations and cross subsidisation; structural separation, access regimes and investment incentives; and the benefits of increased infrastructure based competition in the Australian telecommunications sector.

Library publications and key documents

I Martin, ‘The promised land: costs and benefits of the NBN vision’, Telecommunications Journal of Australia, vol. 60, no. 2, 2010, http://publications.epress.monash.edu/doi/pdf/10.2104/tja10030

JS Gans and SP King, ‘’Big Bang’ telecommunications reform’, The Australian Economic Review, vol. 43, no. 2, 2010, pp. 179-180, http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8462.2010.00591.x/pdf

Organisation for Economic Development and Co-operation (OECD), Broadband growth and policies in OECD countries, OECD, 2008, http://www.broadbandcommission.org/resources/BB%20GROWTH%20IN%20OECD.pdf

P Lam and A Shiu, ‘Economic growth, telecommunications development and productivity growth of the telecommunications sector: evidence around the world’, Telecommunications Policy, vol. 34, no. 4, 2010, http://www.sciencedirect.com/science?_ob=MImg&_imagekey=B6VCC-4YBMTGJ-1-1&_cdi=5951&_user=4962121&_pii=S0308596109001311&_origin=search&_coverDate=05%2F31%2F2010&_sk=999659995&view=c&wchp=dGLbVlb-zSkzS&md5=d69c5156308fed14cf1ba09d16b7decb&ie=/sdarticle.pdf

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