Broadband Projects An Embarrassing, Expensive Failure

Perhaps John Howard is right – State Governments are stupid. When NSW Premier Morris Iemma announced its ambitious program to blanket Sydney with WiFi coverage, providing it for free to consumers, he explicitly referred to a San Franciscan project as one to emulate.

But it is becoming increasingly apparent that the Californian project is imploding. US internet provider EarthLink may pull out of San Francisco’s municipal WiFi project. Australian governments should take note – local politicians are not always the best investors in communications technology.

After the ACCC had torpedoed Telstra’s proposal to build a Fibre-to-the-node network late last year — but before the major federal parties had announced their intentions to simply pay for the high-speed networks themselves — State governments one by one proposed their own solutions to the broadband controversy.

Leading the charge, Peter Beattie proposed that a private firm finance, build and operate a fibre-to-the-home network in Brisbane, but this was little more than a wishful press release.

Other states drew on overseas broadband proposals. Western Australia’s $1 billion fibre proposal was modelled on Alberta’s SuperNet. By all accounts, the Canadian network has been a relative success, but both SuperNet and the WA plan focus on building network backbone to essential services rather than piping internet direct to consumers.

Certainly, there are a wide range of international comparisons to call upon. Particularly in the United States, local governments are taking it upon themselves to get into the broadband business, with or without private support. But the experience has been rocky.

Local WiFi projects are often underutilised, underperforming, and expensive. Local councils may assume that free broadband would be popular, but one citywide project in Orlando, Florida was shut down in 2005 when the city realised that only 27 people were using the service per day.

Uptake rates have been more positive in other cities, but are in the range of one to two percent of the population, comparing poorly with the forecasted demand of between 15 and 30 percent.

The most high-profile network – and one which Iemma praised when announcing the Sydney plan – has also been the biggest debacle. San Francisco’s joint venture with EarthLink and Google is no closer to deployment than when it was announced in 2005. Indeed, the project’s failure was abundantly clear at the time when the NSW government was examining it.

The Google-EarthLink plan has been derailed by political theatre and contractual disputes. And even if EarthLink doesn’t pull out, the network speeds offered will be a paltry 300kbps – a speed which has been widely derided in Australia as ‘fraudband’. Contrast this with the 60 mbps nationwide fibre-to-the-home network that Verizon is investing in at a cost of US$18 billion.

It is tempting for politicians to offer things to their constituents for free, especially something as popular as broadband. But local government broadband projects are proving to be an embarrassing, expensive failure.

The Value Of Secrets To Pollies And Journos

In 1870, the editor of the Chicago Times got his job description down nicely: “It is a newspaper’s duty to print the news, and raise hell.”

So it is hard to sympathise with Peter Costello’s claims that his now famous dinner was off the record. After all, the demand for salacious gossip about senior politicians is almost infinite. And for journalists, the market for information is highly competitive.

When these combine, it must be tough for journalists to resist disclosing juicy political confessions. The potential personal benefit for the reporter and commercial benefit for their employer is enormous. And nobody wants to be the one who sat on a big story while their competitor makes their reputations disclosing it.

Such briefings with seemingly sympathetic journalists are common enough when tilling the ground for political change. By going public with the details of the dinner, some may claim that damage has been done to the sacred reporter-politician relationship. And the journalists involved will struggle to get invited to dinner with the next aspirational treasurer.

However, whatever country club mentality remains in the relationship between these two opposed professions is bound to erode away over the course of the next few years.

The news media has been highly competitive since the invention of the daily newspaper nearly three hundred years ago. But the even greater competition brought about from recent technological change has exponentially increased the value of a scoop.

Outlets like Crikey explicitly market themselves as purveyors of inside gossip and rumours – when Crikey readers are offered “the inside track”, it is in contrast to what is seen as an overly conservative traditional press corp.

In the United States, bloggers who self-identify as online journalists are routinely granted the legitimacy of press passes and interviews. With none of the institutional and reputational support that comes with a masthead, these writers can only sell themselves on original content. For this reason, some US bloggers are becoming formidably competitive at sourcing news, often shining their dead-tree counterparts.

If on the internet, nobody knows you’re a dog, then in the real world, nobody knows you’re on the internet. In the era of widespread social-networking, people don’t even need a blog to break news. We shouldn’t be surprised if in the coming years some stories are broken in the status updates of Facebook profiles.

Politicians can hardly expect secrets to be kept when there is so much value from disclosure.

Laws Against Concentrated Media Ownership Hurt, Rather Than Help

The Australian reports today that the Australian Competition and Consumer Commission has begun its inquiry into Fairfax’s acquisition of Southern Cross Broadcasting’s TV and radio assets.

The ACCC has been given a greater role in the regulatory adjudication of media mergers after Helen Coonan’s partial deregulation of ownership law in September last year.

For consumers, these reforms should have been welcome. Laws against concentrated media ownership hurt, rather than help, the cause of media diversity.

Media ownership laws rely on a crude, and possibly erroneous, model of the relationship between ownership and content diversity. Their premise is simple: concentration of ownership is a proxy for concentration of content.

But a growing body of empirical evidence suggests that this link is not as well established as the critics of media deregulation might assume.

Perhaps counter-intuitively, concentration of ownership can increase media diversity. A reduction of the number of owners in a newspaper market often leads to an increase in product differentiation. Firms in these situations find it is more profitable to lure consumers with new products than by trying to ape established ones.

Another classic example here is subscription television, where a single firm offers consumers dozens of highly diverse channels. But the diversity available on pay TV indicates a source of the dull homogeneity of much of Australia’s television – the protectionist management of the broadcasting spectrum. If we are serious about encouraging media diversity we should be at the very least liberalising the number of television licences.

Across the media sector, firms are searching for new business models. The announcement that PBL Media would be taken over by a private equity firm indicated just how aware ‘old media’ firms are of their new competition and their audience’s changing media consumption patterns.

In this context, media concentration and consolidation might more usefully be seen as a ‘circle the wagons’ strategy by firms in traditional markets. As audiences fragment, many firms feel that they have to expand their empires just to keep up.

This may not end up being a successful strategy. In the United States, a wave of consolidations a few years ago has been followed by widespread break-ups and divestitures.

But in such a competitive environment, these firms need to be allowed to experiment with business structures as much as possible. Applying economy-wide rather than sector-specific competition law to the industry is a step in the right direction.

Monitoring Porn: Not Government’s Responsibility

Prime Minister John Howard used last night’s webcast to Christian groups across the country to announce a $190 million “crackdown” on pornography, terrorists and child sex predators online.

When politicians equate pornography with terrorism and child abuse, you know they aren’t approaching the matter soberly. The “think of the children” mindset is a powerful drug.

Pornography is consensual and legal. Terrorism and child abuse are reprehensible violent crimes. From a public policy perspective they require two distinct approaches.

Terrorism and child abuse require strong police action – trying to compel internet chat room to “detect” child predators is a remarkably feeble defence against child abuse. Chat room operators lack the expertise and resources to detect possible future illegal activity. It is, after all, the role of government to protect people from harm, not the role of private companies.

Anti-terrorism should also be the focus of law enforcement, not communications regulators and ISPs.

The government has been telegraphing this announcement for some time.

After hearing that a school child had been suspended for downloading pornography onto his 3G phone, Communications Minister Helen Coonan last year condemned the technology as “pipelines for perversion”. Unsurprisingly, yesterday’s Telstra results show a dramatic increase in 3G phone sales.

But until today, the Liberal Party had been much more sensible about online pornography than the Labor Party. In the 2004 election, the relatively measured approach adopted by the Coalition contrasted well with Mark Latham’s ambitious and misguided SafetyOnline filtering program.

Now ISPs are going to be compelled to offer consumers a “family friendly” broadband package, which will filter out sites that do not meet the approval of the Australian Communications and Media Authority. Such ISP-level filtering will be powerless against pornography distribution over peer-to-peer networks, chat sites or even email. Teenagers eager to get their hands on some porn will not be at all deterred.

For this reason, parents have to bear the primary responsibility for monitoring their children’s online activity. They already have a remarkable array of tools to do so. Many internet service providers already offer their customers free or subsidised content filters as part of their broadband package.

Terrorism and child abuse are the responsibility of governments, but monitoring the exposure of children to pornography should be the responsibility of parents and guardians.

It appears that online content regulation is another example of the general jettisoning of good public policy that has characterised the government’s last twelve months.

Being creative has never been “un-Australian”

Holden’s blimp over the MCG during the AFL Grand Final might have upset Toyota, the AFL’s official sponsor, but it was hardly “un-Australian” marketing.

Holden saw a captive audience of thousands at the MCG, and took the opportunity to market to them. Since when has it been “un-Australian” to be creative? Holden was simply using public airspace to advertise its product and it broke no laws in doing so.

Cricket Australia are thinking about asking the government for legislation to stop the same thing happening during the Ashes. But is it the role of government to protect advertisers from other advertisers?

Even less is it the role of government to hand over an asset — in this case the rights to airspace — to an advertiser for free.

The solution lies in property rights. If advertisers wanted to stop competitors from flying giant blimps over their events they should pay to buy the airspace.

As it stands, the air has been designated by the government as a public asset, rather than property, and Holden has every right to fly through it. In a truly free-market economy, organisations and individuals would be able to purchase or lease the rights to airspace and utilise it in whatever way they chose.

There already exists a wide range of legislation designed to protect against many forms of ambush marking. The Trade Practices Act protects against ambushing companies engaging in deceptive or misleading conduct, or falsely representing sponsorship deals. Holden did none of these things.

“Ambush marketing” is the market in action. And it’s kind of funny.