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Research Note no. 52 2004–05
Regional telecommunications: An overview
Jeffrey
Robertson
Economics, Commerce and Industrial Relations Section
14 June 2005 Debate over unequal access to
information and communication technology services between regional and
metropolitan Australia often
focuses on infrastructure. However, as this Research Note explains, infrastructure
is just one aspect of a wider host of problems that reinforces the ‘digital
divide’.
The basic economic argument
Telecommunications are the backbone of the modern economy.
For regional economies, telecommunications can potentially reduce the
obstacles of distance and time, contributing to economic efficiency and,
through indirect effects on education, health and social services, can
also increase productivity.
Regional telecommunications, however, are beset by
fundamental economic problems. Effectively, there is no competitive market.
Demand remains constrained by lower population densities, limits on technological
diffusion, and the absence of high-intensity users. The cost of supply
is high due to regulatory constraints as well as distances to be covered
in infrastructure, service and repairs. In most advanced economies, universal
service schemes (see below) are required to ensure regional access to
basic telecommunications services is maintained.
Infrastructure
In Australia,
infrastructure dominates public debate over regional telecommunications.
This is due to the historical importance of infrastructure in previous
debates, as well as its tangible and highly visible nature.
Infrastructure also visibly illustrates the basic problems
of regional telecommunications. The cost to roll out fibre optic cable
or wireless relay towers increases with distance from metropolitan centres.
At the same time, returns on infrastructure investments decrease as the
concentration of potential users decrease further away from regional centres.
The fact that Australia has lower
rural population densities than other comparable countries such as Canada
and the United States intensifies
these pressures.(1)
Regional telecommunications in Australia
shares with comparable advanced economies, such as the United
States and Canada,
not only the basic problem of infrastructure development, but also similar
problems with regional demographics, deployment and diffusion, and local
coordination.
Regional demographics
Regional demographics affect the demand for telecommunications
services. Firstly, and most significantly, is the so-called ‘sponge city
effect’—the trend of inhabitants moving from smaller outlying regions
into larger regional centres. As an example, between 1976 and 1997, the
population of Dubbo rose 53 per cent whereas the populations of all municipalities
(except Mudgee) within 100kms of Dubbo stagnated or declined.(2)
The ‘sponge city effect’ is repeated across numerous regions in Australia.
For a telecommunications carrier, this makes the supply of services to
outlying areas even less attractive, given that such markets are in steady
decline. It makes greater economic sense for a telecommunications carrier
to serve sponge cities that have growth potential as the concentration
of users increase.
Secondly, demand is affected by age. Outlying regions
have a lower ratio of population in the 15–34 age group, members of which
have a tendency to seek education and employment opportunities in larger
regional centres.(3) The same age group is a key target demographic
in the uptake of new technologies, advanced telecommunications services
amongst them.
Thirdly, demand is affected by education. Outlying
regions have lower numbers of people holding post-school educational qualifications,
which also affects ability and desire to adapt to new technologies.(4)
Deployment and diffusion
The deployment of advanced telecommunications infrastructure
without addressing limitations on the diffusion, or usage of advanced
telecommunications, can lead to further problems. Examples from the United
States and Canada
show that after the deployment of infrastructure, the diffusion of services
can remain agonizingly slow. This has led to situations where communities
fail to take full advantage or even use technologies available to them.(5)
Diffusion can be slow for a variety of reasons, including
regional demographics. In the United States, critics have attacked government
schemes for the deployment of advanced telecommunications services to
regional areas as being narrowly conceived, neglecting the unique social,
economic and political forces of rural communities that are distinct from
metropolitan centres.(6) Ideally, schemes that promote the
deployment of advanced infrastructure should be coupled with locally tailored
solutions, such as education and vocational training, to ensure diffusion
rapidly follows.
Local participation
A weakness that has been repeated in regional telecommunications
policy across numerous countries is the inability to coordinate local
participation in telecommunications policy planning. Telecommunications
development in one region may face totally different barriers to other
regions. Different regional communities have unique existing infrastructures
that may or may not support upgrades; regional demographics, which may
or may not affect demand; and geography, which may affect the types of
infrastructure that can be deployed.
Local participation has also proven to be an economically
viable solution to the problems facing regional telecommunications development.
New Zealand is currently implementing
its Digital Strategy, which will include NZ$24 million seed funding for
fibre optic rollout, to be undertaken in partnership with regional businesses
and community groups. The criteria for funding includes the financial
commitment of partners, demonstration of community needs and benefits,
ability to implement and deliver, demonstration of appropriate technology
for the purpose and adherence to open access principles.
Canadian telecommunications policy has also emphasised
local participation. A central aim of the ‘Smart Communities’ program,
launched in 1999, is the enablement of local communities, particularly
in the more remote far North. The program includes community toolkits
to train communities in the development, monitoring and implementation
of community initiatives such as broadband access. One component of the
program, the Broadband Marketplace, brings together communities to share
experiences, seek advice and look for tenders. The Marketplace also allows
telecommunications service providers to profile their capabilities, provide
advice and submit tenders. Canada,
despite the disadvantage of vast distances, was ranked 5th in broadband
penetration by the Organization for Economic Cooperation and Development
in December 2004. Australia was
ranked 21st.(7)
Local participation in regional telecommunications
also generates significant non-economic benefits, including the accumulation
of social capital. (8)Social capital could be expected to be
high in rural communities that face challenges of drought, fire or flood.
However, the shared experiences of leadership, interaction and coordination
necessary to ensure local participation in regional telecommunications
can add to existing social capital.
Universal service
Universal service is a regulatory measure to ensure
that access to basic telecommunications services is available across different
geographic regions, at similar prices. In most cases this means ensuring
that access to basic services in outer regional areas costs the same as
it does in urban areas, despite the fact that the cost of supply outweighs
the potential revenue.
What actually comprises ‘universal service’ remains
controversial. The current Universal Service Obligation (USO) in Australia
requires regional users to have access to a minimum set of services, including
line rental, operator assistance, directory assistance and emergency services
assistance. Critics argue that regulating the provision of such basic
services in an advanced economy such as Australia
has little meaning. Rather, universal service should focus on ensuring
that more advanced telecommunications services, such as high speed broadband
internet, are accessible in the regions. In Australia,
the Digital Data Service Obligations (DDSO) requires that all users be
able to access services with a download speed of 64 kilobits per second
(kbps). Definitions of what constitutes broadband generally range from
256kbps to 10 Megabits per second (Mbps), depending on subjectivity and
purpose of the definition.(9)
In 2002 the OECD recommended that governments exercise
caution in considering the inclusion of broadband in universal service
obligations until a clearer picture of how technology and competition
could address issues of supply in rural and regional areas.(10)
A subsequent report in 2004 found that in many OECD member economies market
forces were generating innovative broadband services in response to growing
demand; access prices in rural areas were in certain cases lower than
in urban areas; and that competition in regional and rural broadband access
provision was emerging. The report concluded that governments should give
the rural and regional broadband access market time to develop and continue
to facilitate competition.(11)
- Productivity Commission, ‘International benchmarking of remote, rural
and urban telecommunications services’, Research Report, July
2001.
- Productivity Commission, ‘Impact of competition policy reforms’, September
1999, p. 27.
- ibid, p. 29.
- ibid, p. 35.
- Tom Rowley,
‘Rural telecommunications: why your community isn’t connected and what
you can do about it’, TVA Rural Studies Staff Paper 99, 1 January
1999.
- Arturo Macias, ‘Statement on the matter of S2281 of the VOIP Regulatory
Freedom Act of 2004’, United States Senate Committee on Commerce, Science
and Transportation, 16 June 2004.
- OECD, ‘OECD Broadband Statistics’, December 2004.
- Lyn Simpson, ‘Community informatics and sustainability: why social
capital matters’, Journal of Community Informatics, vol. 1, no.
2, 2005, p. 10–3.
- OECD, ‘Universal service obligations and broadband’, 2002.
- ibid, p. 9.
- OECD, ‘The development of broadband access in rural and remote areas’,
May 2004.
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