Build it, but can they afford it?

Summary:There’s a long-held belief that price is the only thing stopping more broadband uptake in Australia. That’s still the case, but it’s also a lot to do with availability.

I know from my days of dreaming up broadband plans that if you want to sell more, drop the price. It's not rocket science. In those days — a decade ago — people would compromise speed to spend less, and choose the internet service provider (ISP) with the lowest entry-level price. Remember Telstra's AU$29.95 broadband deal?

So it's natural to assume that when fixed broadband sales plateaued, it was because it was costing too much to appeal to the remaining section of the population. That seems unlikely, though, when we compare Australia to the rest of the world. We've got an internet penetration rate of just 24 fixed subscriptions per 100 inhabitants — well below most major economies that have continued to show growth in adoption rates.

Fixed (Wired) broadband subscriptions per 100 inhabitants
Image: Phil Dobbie/ZDNet

In fact, compared to most OECD countries, we've seen one of the lowest growth rates over the last few years; just 2 percent growth between 2008 and 2011. With virtually no change in subscriber numbers, it would be easy to assume that the market has reached saturation point — yet, why would we level off at 24 percent when places like Korea, France, and Germany are in the thirties and still going up? Why would their saturation point be so much higher than Australia's?

It can't be down to affordability. After all, our gross domestic product (GDP) per capita is one of the highest in the world, and whilst our adoption of fixed broadband has been going nowhere, our economy has been blossoming. We've also got a narrower rich-poor gap than most. In the US, I suspect that many people don't have broadband because they don't have a house to put it in. Aussies have no such excuse.

buildit02
Image: Phil Dobbie/ZDNet

As the above graph shows, there is absolutely no relationship between the growth of an economy and the growth of broadband.

That means it must come down to availability — after all, DSL is not everywhere. There's a heap of exchanges with no broadband coverage, or where there's no extra rack space to extend the current number of connections. Then there's the Remote Integrated Multiplexer (RIM) issue, helped in part by 1,850 "Top Hats" .

Of course, irrespective of our economic health, price is a big factor, too. Broadband is expensive here, and we have artificial limits on usage based on how much you're prepared to pay. Perhaps that's the main reason why Cisco's Virtual Networking Index predicts that Aussie consumers will download 13.3 Petabytes of data this year, less than 1 percent of the US total. Or, to put it another way, they are downloading 20 times more per fixed broadband connection than we are.

buildit03
Image: Phil Dobbie/ZDNet

I know the figures seem low in this graph, but the same methodology was applied in each case, so the comparison is valid. I simply took the ITU penetration rate, applied it to the population to get a total number of connections, and divided it into Cisco's total download figure. Forget the absolutes; just look at where Australia sits.

If we had greater availability of fixed broadband, would we see take-up increase? Almost certainly, but price would still be a factor. If we had faster broadband, would our usage increase? Well, that's what NBN Co is reporting — in houses that have been connected to its new network for more than a year, consumption is twice the national average. You could argue that this is because they are early adopters, but the take-up rate is 35 percent — too many to be geeks alone.

This is all great news if the NBN carries on as planned. We'll have ubiquity, which will increase broadband penetration, and the faster speeds will increase usage. The bad news, of course, is that it'll be expensive, and getting more expensive the farther we head down NBN Co's corporate plan. That could put the kibosh on the whole thing and keep us where we are now: Somewhere quite embarrassing in the league table of broadband usage.

That's why Malcolm Turnbull was spot on when he said that we need to reduce the subscriber cost — an AU$66 per month retail price in 2021 is better than AU$90 under the NBN plan, but is it low enough to bring on board all those who think broadband is too expensive?

Topics: Broadband, Australia

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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