What will decent broadband bring to regional communities?
While there is some disagreement between the Labor and Liberal parties in relation to how high speed broadband should be rolled out across Australia, they both agree that they will subsidise this important infrastructure. Both parties have made this promise on the basis that it will give an economic boost to regions, as well as improving the efficiency of service delivery. Is there any evidence for this?
Firstly, better connectivity is a two way street – likely to bring both winners and losers. The ‘high speed’ tag for internet traffic reminds me of road traffic, and I get the sense that digital capacity is bringing the same challenges to local economies that sealed roads did in the 1960s and 1970s. Everybody wants the roads improved, but the improvements inadvertently helped retail and service consolidation in centres and reduced the diversity of small town main streets.
The digital capability jump is bringing the same two edged sword, allowing local suppliers to sell global and local buyers to buy global. Jack Archer, General Manager – Research and Policy at the Regional Australia Institute (RAI), agrees, writing that “If you are competitive and have a great product it is easier to expand your reach but if you don’t geographical barriers to entry may be much lower [for competitors].”
One difference between broadband and sealed roads is that broadband enables services to be traded too – not just goods. Many websites offer easy access to professional services for one-off jobs from providers around the world. This brings regional businesses access to top flight professional services, but it’s not hard to imagine this extending into legal, and financial services and potentially taking the rug out from under many long term local providers too.
Secondly, I’m convinced that improving hardware alone (connectivity infrastructure) is not enough. There’s been some good work by the EU of late on sequencing investment in various kinds of infrastructure (education, transport, digital communications etc) that shows that it doesn’t pay to get any one of these too far ahead of the others. Canberra got ‘fibre to the node’ in the early 2000s and there was a great expectation that the arrival of the big pipes would itself drive digital business explosion. But it didn’t, one or two firms led by world class entrepreneurs did very well from the pipe arriving a year or two before similar capacities were available in other cities, but that’s about all.
There’s been some great research in the US on this issue – availability, take-up and application of faster connections. One study showed that across US regions, those with higher rates of broadband adoption (measured by the percentage of households that have a broadband connection) had higher income growth and better rates of business formation. But there is a chicken and egg problem here, as high adopting regions may well have already been on a path for higher income growth. So to look for causality, the researchers compared ‘like with like’ regions by looking at growth rates in regions with similar ‘before broadband’ economies, differentiating between regions that had high take-up rates versus those with low take-up rates. The results here still showed that there were gains from adoption in terms of higher income growth, and better unemployment and business formation outcomes. But the differences are quite small.
“Non-metro counties that had high levels of broadband adoption (greater than 60%) in 2010 had significantly higher growth in median household income – 23.4% versus a little over 22% – between 2001 and 2010 when compared to counties that had similar characteristics in the 1990s but were not as successful at adopting broadband.”
The US recession in the decade studied (2000-10) means that the other indicators (unemployment and business formation) were all on a ‘less bad’ basis – as most counties showed higher unemployment and lost businesses over the decade. So the impact of better broadband adoption was less bad unemployment growth and less bad loss of businesses. And again the differences were modest.
A significant finding that relates to the ‘build it and they will thrive’ philosophy is that this research found that:
“Interestingly, when we repeated this analysis for levels of broadband availability (versus adoption), there were almost no results to report. The only positive result was that when very high download speeds were available (greater than 10mbps), the growth in creative class employment between 2001 and 2010 was larger. All other measures related to simply providing broadband showed no significant differences between the two groups of counties.
These results tie back to our suggestion from the previous article in this series that government policies dealing with rural broadband may need to have a more explicit focus on actually adopting (and effectively using) the technology. The traditional focus of these programs on simply providing infrastructure may not be enough to encourage true economic growth.”
Will broadband help?
I think the short answer is yes, though the likelihood of net gains (factoring in some expected economic losses) will be better if:
1. Availability is matched by adoption
2. Adoption is matched by effective use
3. Effective use is linked to world class entrepreneurship.
The applications are many and varied, and it’s not just about retail and service delivery. Applications in health and education are important, and the SenseT project in Tasmania is using data gathering and diffusion to help in businesses as diverse as vineyards and orchards (microclimate and other sensors) and oyster growing, where biosensors can provide “a real-time, perspective of the behaviour, welfare and health of the animals that combined with environmental conditions including water temperature and salinity will enable farm managers to make better decisions for the short and medium term management of commercial stock”.
Successful regionally-based internet retail businesses do exist already, (www.birdsnest.com.au is one), and readers will probably have examples from their own regions too.
What we are lacking in regional Australia is the grass roots help to potential entrepreneurs to make effective use of faster broadband, and to turn that into long term business success. Regional small businesses are already at a disadvantage in not being surrounded (physically, at least) by the same ‘entrepreneurial soup’ found in metro hot spots.
The technical support infrastructure too is an important part of extracting the most from broadband availability. It’s hard to measure, but as a starting point RAI has included workers and businesses in ICT in the Technological Readiness Theme of [In]Sight – Australia’s Regional Competitiveness index. This shows the levels of expertise available in different communities, and results are available for any Local Government Area or RDA at the Regional Australia Institute website.
The web itself can overcome the physical isolation of working in a regional setting, and can bring access to world class business building services, but I think that entrepreneurial acumen and the strength of the local entrepreneurial ecosystem is going to play a more important role in business growth in the web-based future, not less.
This article first appeared on Australian economist Kim Houghton’s blog ‘The economist who makes sense’