Broadband and circuses

Dr. Terry Cutler

Originally published: Business Review Weekly December 2001

Hannah has just started her school work experience here at my office. No harm, I thought, in letting a fresh young mind loose on one of my industry's hardest problems - the broadband dilemma.

Here is how I explained the problem to Hannah. It is the paradox of broadband or circuses. On one hand, a lot of people have been saying for a long time that broadband is the future. It is important. Way back in the early 1990s we had a major Broadband Services Inquiry. Telstra and Optus both started rolling out fibre coax networks that would be the start of a broadband nirvana. Only a year ago George Gilder published his book Telecosm: How infinite bandwidth will revolutionize our world. Is Gilder the Arthur C Clarke of network futures, or the purveyor of a Harry Potter illusion?

From the US, reports on the potential impact of broadband on the economy talk about billion dollar benefits.

Our expatriate Bob Bishop, CEO of Silicon Graphics, talks passionately about a fully immersive environment of networked digital screens. Recently I had a rich experience of what this future might look like when I visited Victoria Lynne's new media art exhibition at the Art Gallery of NSW. Rich content waiting to be networked. We will see more of this at the Centre for the Moving Image at Federation Square when it opens next year. Meanwhile the computer games industry develops exciting interactive content waiting to be fully networked. Islands of content.

On the other hand are the nay sayers. They point to the miserable results from experiments like the Broadband Trial in Launceston Tasmania or the slow take-up of DSL and ISDN in Austraslia. Telstra defends its high-priced wariness in the face of all the broadband enthusiasts by asking for positive proof about the demand for broadband. Where is the evidence, they say, that people want it and are prepared to pay for it? Perhaps they should increase their prices even more, muttered Hannah, as they have with my mobile service!

How on earth do we get an angle on this, Hannah asked.

We began by talking about some curious market discrepancies. In North Asia, advanced wireless and broadband markets are booming. (As an aside, I pointed out that the financial results of North Asian telecommunications operators are also bucking world trends, outperforming SingTel and Telstra!) Something interesting has happened with wireless markets. The United States kick started the 1st generation of the cellular boom in the 1980s. Then in the 1990s Europe captured the 2nd generation game plan with the success of GSM digital mobile. Now North Asia seems set to be take the lead with 3rd generation wireless services. Hannah wondered whether something similar might be happening with broadband.

It's true that today South Korea is to broadband penetration what Iceland was to early multimedia and Scandinavia has been to Internet and mobile usage. South Korea heads the world league tables in broadband penetration. Is it simply coincidence that Korea and Japan are also leaders in computer games?

Household penetration of broadband in South Korea is an impressive 42.5% as at 2000. This compares with 8% in the US, and 11% in Singapore. At the end of 2000 only 3% of Australian subscribers were using broadband access.

How do we explain these differences?

Its obviously not simply infrastructure per se. Singapore is absolutely a wired island, yet broadband take up has been comparatively slow. Conventional wisdom has it that Singaporeans simply cannot produce the compelling content to fill those thick telecommunications pipes into their homes.

So what is different in South Korea? Clearly one factor is critical mass. All network technologies need a certain point of critical mass before they take off. The internet, email and facsimile machines are classic case studies of the law of critical mass (or network effects). Typically there is a slow build up, then, boom, exponential growth. United States technology forecasting firm, Jupiter Media Metrix, has now begun predicting that North America is only a couple of years from the point of broadband critical mass and that content producers should be gearing up for the sudden demand that will result. Currently 5.2 million US households enjoy broadband access, representing about 8% broadband households compared with about half the population on dial-up, narrowband Internet access. South Korea, with a much smaller population of 47 million, currently has 7 million broadband subscribers.

Another factor would appear to be attitude: the attitude of the main telecommunications operators. I explained to Hannah that a lot of incumbent network operators were terrified that high bandwidth, "always on", services would cannibalise the profits from their old fashioned voice services. The telecommunications operators in South Korea appear to be taking a different approach.

In a sluggish economic environment Korea Telecom is posting record profit growth. Internet related business now accounts for 60% of its revenues. This is a telecommunications company which has embraced a new broadband paradigm.

Hannah thought we were onto a promising line of enquiry, but now wants to dig deeper. What are the Koreans using broadband for, she wanted to know. A good question. What is the role of regulation? Another good question.

Hannah promises we will have some definitive answers and insights for a future column. Watch this space.