The technology laws of telecommunications economics: Law 3
Law 3: "Telecommunications efficiency is driven by scale economies"
Like any transport business, the efficiency of a telecommunications network increases with the size of the transport entity, providing the networks are well utilised. I don’t think that anyone would deny that overall (in terms of cost, greenhouses gases, etc) a large bus filled with people is much more efficient than each of those same people driving separately in small cars.
By corollary, it is only efficient to build large infrastructure when the demand is high enough. We have large freeways where there are major traffic thoroughfares, but clearly it would not be economic to build 4 lane highways to each and every front door in the city. Similarly, while there are many airports around Australia, the airlines do not fly jumbo jets to each and every one of them.
In some senses, broadband is analogous to the road leading up to our house. We are trying to increase the speed from a single lane suburban street to a 4 lane highway. Of course there are many ways in which the analogy breaks down, but in the economic sense the thing that does not change is that the willingness of the consumer to pay for the service has to exceed the cost of delivering it.
In a White Paper published in 2006 entitled “Australia’s Communications: preparing for the future”, Juniper Networks presented a quantification of this notion by defining 2 measures (which originate from CIMI Corporation (www.cimicorp.com) in the USA):
- Demand Density: is roughly equivalent to the ability, per unit area, to pay for telecommunications services. Not surprisingly high population densities, high income and large family units all contribute to a larger ‘Demand Density’. Australia’s Demand Density, according to the Juniper White Paper is roughly a tenth of the US’s and about 30 times smaller than the EU.
- Access Efficiency: is the cost of connecting users to the telecommunications networks. Australia’s Access Efficiency is 15 times less (worse) than the US’s and about 24 times worse than Europe’s.
In short, anyone who expects the cost of broadband access in Australia to be the same as Europe or the USA is probably innumerate or living in the wrong country.