6 July 2015

Today, some 15 years into the 21st century, most people are familiar with the “Digital Economy”. Don Tapscott’s 1995 best-seller “The Digital Economy : Promise and Perile in the Age of Networked Intelligence” foreshadowed the world we now take for granted.

The symbiotic growth of computer processing power, data storage capacity and data transmission capability has been continuing unabated for over 30 years. Information is available everywhere and at anytime. Communication channels have expanded to include mobile and internet technologies.

But as we look forward the emphasis is changing. The well recognised Digital Economy is becoming a “Network Economy”. No longer do we see pure software or hardware companies grabbing all the technology headlines. Nowadays, innovative companies must leverage the power of software, hardware and the network. The list of companies building huge value on the size and interconnectedness of their customer bases is accelerating. The early disrupters such as Google, Apple, Facebook and Amazon continue to grow, while new “unicorns” such as Netflix, Uber, Airbnb and Spotify demonstrate the innovation potential of the Network Economy.

In short, global networks, where information can be shared instantly and inexpensively, are driving new business opportunities where value comes from the size of the network of people and organisations sharing information.

The Network Economy continues to leverage ever increasing computer processing power, data storage and data transmission capabilities. However, the importance of data transmission in this equation is becoming more critical. The Network Economy relies on large amounts of data being transmitted with minimal delays and minimal data loss.

However, unlike computing power and data storage, the quality and performance of a data transmission network is not subject to Moore’s law. There is a limit to the capacity of older copper phone cables and mobile spectrum and these limits are being reached. The only upgrade path is to install more optical fibre closer to customers – both fixed and mobile. Fibre must be brought within less than 100 metres of offices and households to enable older copper or pay TV network systems to be upgraded to provide Gigabit speeds. More mobile and WiFi base stations must be installed with fibre backhaul. But these network assets are not owned or controlled by the new innovative corporations or the customers that use them. These networks belong to telecommunication service providers (or telcos) who provide these data transmission services to the general public.

But the business case for the telcos is challenging. Much of the value of the Network Economy is going to the new companies listed earlier who deliver their networked applications “over the top” of the telcos networks. Telcos are struggling to see the business case for investing in the expensive new fibre cable plant that is necessary to support the every growing Network Economy.

So how will this play out.

New applications and services will continue to drive the need for better networks. End users and corporations will demand higher speed broadband networks. This demand will drive new investment in fibre and wireless broadband from new entrants if the market is open and competitive. However in some remote and regional areas the business case for more fibre investment may never stack up.

Governments have a large role to play. Large community network infrastructure projects are not new. Our road, water and electricity systems have many similarities to today’s telecommunication infrastructure needs.  The role of government in setting policies that drive and encourage investment in the necessary fibre infrastructure is critical.

Some countries are well ahead in solving this problem – South Korea, Hong Kong, Singapore, the Netherlands and Sweden for example. Some have relied on government investment and others have allowed free market competition to drive investment. What they have in common is a clear ambition to be leaders in the Network Economy and leverage the benefits at both a social and economic level.

To be successful participants in the new global Network Economy, it will be necessary for corporations, end users, telcos and governments to work together to develop the right framework for investment in fibre based broadband networks for each particular market.

Australia is still at the cross roads in this debate. Government investment in the necessary fibre infrastructure for the future is waning with the NBN brownfields fibre rollout coming to an end. Instead the government is funding a massive re-engineering of existing copper telephone and cable TV infrastructure to try and squeeze as much broadband speed out of the existing assets as possible. It is unclear whether sufficient fibre will be installed close enough to the customer in this re-engineering exercise to enable Australia to be a part of the global Gigabit network community.

Competition has not been a serious driver for fixed broadband investment in Australia’s fixed telco market due to the previous dominance of Telstra and now, going forward, NBN Co. In fact competition has been further discouraged as government policy places higher barriers on private sector players such as TPG. Instead, consolidation is the “investment” theme of today’s Australian telco market. It is difficult to see how this is in the long term interests of customers or end users which is supposedly the touchstone of Australia’s telecommunications policy.

Unlike other markets Australia is now drifting with a government back pedalling from fibre investment and the private telco sector consolidating and focusing on short term shareholder profits rather than the long term interest of customers. The ACCC may be able to guard against Australia’s broadband prices rising as competition wanes but it cannot force telcos to invest in more optical fibre.

Australia’s future role in the global Network Economy looks bleak without a change of strategy and direction. Either government needs to regain its appetite for long term fibre infrastructure investment or get out of the way and let competition between a range of approximately equally sized infrastructure companies drive investment.

Australia needs to make a decision on its broadband infrastructure future before it’s too late to join the Network Economy.