The new bloodline for economic growth

The new bloodline for economic growth Shailendra Maurya, Development Manager at Cerillion, looks at the investments being made in national broadband networks and their impact on the global economy.

There was a time when a road or rail network used to be the bloodline of a country. To be able to govern a country and to keep it working together you had to keep it connected. ‘Being connected’ has come a long way since then. Economies now increasingly depend on being connected via the Internet and being able to carry out business without having to physically travel to the other party. E-commerce, distribution of digital goods, online collaboration tools and virtual conferences are just some of the ways in which businesses can operate and flourish in an online world. Of course, flow of information doesn’t quite replace the physical movement of goods, not until Direct Digital Manufacturing has matured anyway, but until then we can rely on our excellent postal and courier services when shipments are required.
 
To realise the goal of a fully connected country and perhaps the world, we need a high-speed broadband network to connect every home and business. Currently to be connected comes at a base cost for the broadband service which can often be selected from one of several independent suppliers. The cost depends largely on the bandwidth, which in turn depends on the coverage and how many competing providers operate in each geographical area. Consequently there is huge variation in the accessibility of services, particularly in rural areas where distance from the local exchange limits broadband speeds and often means it may not be possible to consume High Definition (HD) video for example.
 
If we compare the cost of building a national high speed broadband network based on Fibre To The Home (FTTH) / Fibre To The Premises (FTTP), it comes at a fraction of the cost of building a network of roads and train tracks. Neither of these services comes at a separate direct cost for having a road in front of your house or a railway station in your town/city, they are simply regarded as part of the basic national infrastructure and funded by taxes. So in the digital age, why should broadband be any different?
 
In Singapore, the government has already funded the rollout of its national broadband network which will have full nationwide coverage by 2013 and offers speeds of up to 1Gb/sec. Another of the high profile national broadband commitments is in Australia, where the creation of the National Broadband Network (NBN Co) became something of a hot potato with the politicians during the last elections. This rollout is now also underway and funded by public money. However, Australia poses many more geographical challenges compared with Singapore, and this will take 10 years to complete using a mixture of fixed and satellite technologies.
 
It is important to consider both the public and private investments needed to build the broadband infrastructure. Whilst some countries have already committed public money into these projects, others are faced with more difficult decisions due to the fragile situation of the global economy. With austerity measures being taken by many governments in the Eurozone and beyond, who can still throw money into large national infrastructure projects?
 
Well according to some recent research by Ericsson, Arthur D. Little and Chalmers University of Technology, doubling the average broadband speed for an economy increases GDP by 0.3%, and a 10 percentage point increase in broadband penetration increases GDP by 1%. I think you’ll agree this makes a pretty strong case for broadband investment.
 
In addition to Singapore and Australia, many other countries have clearly defined their strategies for national broadband infrastructures, and a useful summary can be found on Wikipedia. Critical to many of these plans are public / private partnerships, however whilst the governments benefit from wider economic growth, the private investors also need to see a return on their investments.
 
At the moment, there is something of a ‘build it and they will come’ mentality to high-speed broadband networks. Nobody is quite sure what the next generation of services will be that need such high speeds, but until we have the infrastructure the innovation is being stifled. What is clear though is that in the same way you’re unlikely to buy a car from the companies who build the roads, those who build the broadband networks are not necessarily the right ones to design the applications and services that they will carry.
 
Certain businesses do feel at risk of consumers moving to new content delivery models based on Over-The-Top (OTT) services. For example traditional cable suppliers being worried about their investment around TV services, but in the end they will have to change their business model to compete in the brave new world or risk being left behind. OTT services are likely to prevail and as discussed in this previous blog post, partnerships between the Communications Services Providers (CSPs) and OTT providers will be crucial for all concerned. In fact, recent news shows that this is beginning to happen as Comcast and Verizon have announced partnerships with Microsoft to embed their Cable offerings into the Xbox 360 platform. An interesting move indeed.
 
The GDP impact of increased broadband speed and penetration makes a compelling case for investment in national broadband networks. How these are funded and constructed will vary greatly by region, according to the political regime and the legacy infrastructure to be replaced or upgraded. And dramatic geographical differences also means that fibre, satellite and 4G mobile technology will all have key roles to play in developing this new infrastructure.
 
High speed national broadband networks are becoming the new bloodline for economic growth, bringing new business models and opportunities for all members of the value chain. In the current economic climate, the only question is how quickly countries can secure the necessary funding and create the right regulatory environment for the rollout to happen.