Investment into critical new technologies can make a real difference to the productivity of businesses and there is certainly a case for extending the current broadband provision away from the main industrial urban and localities to the more deprived communities and those rural areas which still depend on dial up modems to access the internet.
However, the major weakness within the ERP is that the Welsh Assembly Government simply fails to make a coherent case as to why this is a better form of investment than supporting firms directly, and why government should fund this instead of the private sector.
Let’s start with the rationale that the investment in broadband will give a better return on public funds in terms of the number of jobs created.
One of the most critical reports on the role of broadband in economic development is “The UK’s Digital Road to Recovery” from the London School of Economics. If we extrapolate from the employment generation data presented in the report, then it is estimated that a £240 million investment in next generation broadband would create or retain around 11,000 jobs in Wales for one year i.e. a cost of roughly £22,000 per job.
For those in government, the question is whether such an investment in economic development, which is what this programme is essentially about, represents real value for money. No case is made at all as to whether spending on next generation broadband will provide a better return as compared to other types of support that could be available to develop the economy, such as inward investment, start-up support or help for growth businesses.
For example, if business really wants better broadband, then simply making the £240 million available as a special repayable grant to all businesses in Wales that wish to invest in next generation broadband may be a far more effective method of spending public money.
The second issue is why should government subsidise such services at a time when telecommunications companies are increasing their investment in new technologies?
For example, BT has already announced in May that it will increase its plans for fibre-based fast broadband from 40 per cent to two-thirds of all UK homes, and this without any incentive from the UK Government.
In addition, other telecommunications businesses are coming up with innovations to extend their market share. Only last week, Virgin Media announced that it will trial ultrafast broadband over existing electricity poles in Caerphilly. If successful, this 'non-traditional' approach could significantly accelerate delivery of next generation broadband to millions of extra homes across the UK.
If the private sector is already expanding its broadband infrastructure, then why should the taxpayer subsidise such services? There is, of course, a clear argument to support those areas that are deemed “uneconomical” for further investment by telecomm companies. But surely, the whole point of investing in broadband to rural areas is to ensure that they do regenerate and create businesses that will utilise the technology in the future and pay companies such as BT for the privilege of doing so.
Given this, why on earth should government pay out what is essentially a grant to the telecomms providers to enable them to gain business from those new customers that they will gain as a result of the infrastructure investment by the taxpayer?
The analogy most used by politicians about broadband is that it is equivalent to building the motorways of the future.
Yet, the difference between roadbuilding and broadband and is that, unlike the former, the government is handing over these new information motorways, paid for by the public purse, to a group of private sector firms that will then be charging “tolls” for businesses to use them.
Is that a fair and effective use of public money?
If the principle of the new ERP is to move away from the old style of grants, then why should WAG pay large telecoms companies to essentially extend their broadband networks across Wales and thus increase their profits.
Surely, the only logical way is to treat them the same as every other business in receipt of WAG funding and get them to repay the grant from the increased business they will gain once the networks are in place.
As I wrote last week, to abandon small business support as we come out of a recession and spend £240 million on broadband provision is either the biggest mistake in economic development history or an inspired vision for the Welsh economy.
Yet there seems to be little evidence for the latter conclusion in terms of the impact on job creation and the “value for money” in paying large private companies vast amounts of public money for broadband networks that they are expanding in any case.
Of course, this is not the first time that WAG has invested in such infrastructure having already spent £30 million on a fast broadband service called Fibrespeed in North Wales.
At the very least, one would have expected WAG to have undertaken a thorough evaluation to demonstrate the success of the take-up of this scheme, which is provided for businesses across the A55 in North Wales, before committing hundreds of millions of pounds of Assembly and European funding to expanding this programme across the rest of Wales.
Surely, in the absence of any other meaningful evidence for changing the whole direction of Welsh economic policy, it is the least that the Minister and his policy team can do to show those tens of thousands of small businesses that will no longer be backed by the Welsh Assembly Government that there is some method in this perceived madness.
Comments
There are alternatives, infrastructure is already in place:
http://www.caerphillyobserver.co.uk/news/4110/virgin-media-to-provide-ultrafast-broadband-in-crumlin-over-electricity-poles/?utm_source=twitterfeed&utm_medium=twitter
I have a great deal of sympathy with the questions you raise about government subsidies to highly profitable telecommunications companies, and have posted on that before myself. I think the taxpayer is being taken for a ride by the likes of BT saying that they won't invest in the less profitable areas without government support.
But, if they really do refuse to invest, what does government do? Ignore the problem, leaving rural areas with a second class service?
Personally, I believe that the answer is to look at the Public Service Obligation, and use that to increase the minimum level of service required to be provided. However, the UK Government shows no inclination to do that, and the Welsh Government desn't have the powers.
So, the Government in Cardiff is left to pick up the tab using our money. It grates with me to see the government using scarce cash to subsidise highly profitable companies and help them, as you point out, to make even bigger profits in the future. But as a resident of the rural West, I can see the need for faster action than we'd get without that subsidy.
Rocks and hard places, isn't it?
John - as the article notes, the questions for me is (a) value for money and (b) demand.
I would like to see WAG look at the viability of a range of options for delivering broadband, including giving individual companies the opportunity to pay for the service themselves, supported through some type of repayable grant system.
As a resident of rural West Wales, the question is whether you need superfast broadband at all, or would access to a reliable broadband service, albeit at lower speeds (and lower cost), be acceptable?
The best analogy is probably the Technium network - brilliant in its concept (high technology incubators in deprived areas of Wales) but sadly lacking in its implementation (there was no demand in these areas and, more importantly, no process for increasing demand).
Sadly, the Fields of Dreams saying "If you build it, they will come" doesn't apply to economic development in Wales and we may end up with a fantastic broadband service that very few people will use.
But ok, what if. What kind of broadband infrastructure could we get for that money? How would we compare with not just the rest of the UK, but other EU nations?
How much do you know about broadband strategies in other EU countries and of their successes in growing their economies?
I take it you are or were based in Finland?
I've lived in Finland also, and it's evident from day to day that it's a country that welcomes technological progress with open arms. Its companies and economy have done *rather well* from, amongst other tools, state intervention and exploiting technological progress. Its economy has seen impressive growth since its banking crisis in the early nineties. It was late to industrialize and has been transformed rapidly since being to all extent and purposes an agragrian based economy in the 1930s. It sure is a country that has been studied by those such as yourself to learn why it's been so successful and what could be transfered to other countries.
So what is Finland doing with broadband? Recently the Finnish government made it a *human right* to be able to obtain broadband to your house anywhere in Finland of at least 1Mb at a reasonable cost. Beyond that, the Finnish government has vowed to provide 100Mbps to all by 2015 (see http://www.bbc.co.uk/news/10461048) . It's all part of keeping its economy and companies competitive at a global level.
I would hope that an investment of £240million in Wales could enable it to be just as well provisioned with broadband in order not just to keep up but really transform our country. Would be great if the Welsh assembly government could legislate, following their investment, such as the Finns for universal broadband coverage as a human right within all of Wales. Let's get some new thinking, some vision, that we could have a better broadband provision better and ahead of the rest of the UK and other parts of the EU. Broadband beyond what the private sector alone would provide in Wales after they've rolled out their technologies in other parts of the UK first.
There's a lot of research and development on next generation broadband in the private sector in Wales and in Welsh Universities such as Bangor and Swansea. BT is developing its 21CN (21st Century Network) in Cardiff and Swansea. I would hope all of Wales could be '21CN' with £240million asap. All related technologies (both hardware and software) in the Welsh universities deserve continued support for exploitation and commercialisation within '21CN' type networks.
You can also mention Swansea University's new supercomputer that will cost £52m and create only240 direct jobs. SIF could create 3,500 with that money.
http://news.bbc.co.uk/1/hi/wales/4150285.stm
I should have added to my contribution that the new legislation is only a step towards the Finnish government making 100Mb a human right by 2015 - http://yle.fi/uutiset/news/2009/10/1mb_broadband_access_becomes_legal_right_1080940.html?origin=rss
Are we really happy for our economy to get by with slower and patchier speeds and provision?
If you can prove demand and that it will transform the economy, no, but that simply hasn't happened yet and is unlikely to in the future.
Dylan's point about Fibrespeed in North Wales probably proves his point on this (and he knows it, which is hwy he probably used the comparison in the first place!)
However the substantive point was well made and I replicate it here again.
Dane in Wales said:
"really hope if they go ahead with this that they do look wider
Anon speaks about Finland.
One of the most efficent and cost effective Broadband providers is Tele Danmark the cost are half what we pay for twice the product.lets have an open procurement and may be get another provider in ,competition is good for us consumers"
Broadband is transforming economies and is disrupting traditional markets to no end. Most of what we use / rely on the web today didn't or even couldn't exist 10 years ago in the narrowband days.
When similar arguments about 'demand' were given in those days (mainly by BT) who could have predicted where we'd be by 2010.
If there wasn't a case for higher speed broadband, then countries such as Switzerland, Netherlands, Sweden, Denmark, South Korea, Finland etc. wouldn't be doing anything about it and would be happy for everyone to get by with just 2Mbps.
Finland is exceptional in that its government is not only subsidising universal 100Mbps by 2015 but that they legislate broadband as a human right. Here's another link on the matter : http://www.mrr.gov.pl/aktualnosci/fundusze_europejskie_2007_2013/Documents/Nationwide_NGA_project_in_Finland_Parantainen.pdf where one slide gives you an idea of what applications start to become possible at higher broadband speeds.
Wales can't ignore what's going on in other parts of the world and of how important other countries view broadband as a tool for their economic (as well as social) development and growth.
The question you raise about value for money is an entirely valid one. I don't know whether the government has done a proper study on value for money before committing such a large sum to an expansion of broadband; but I'll at least start by giving them the benefit of the doubt and assume that they have done so. (Guess that just reflects our different political perspectives!)
On the demand side, I'm certanly aware of some companies locally who feel significantly disadvantaged by the poor quality of the service available to them; but a proper value for money study would presumably have identified the extent to which plugging the gap would bring economic benefits. It worries me a little that the bulk of the demand that I'm aware of is domestic rather than commercial. That isn't an argument for not providing the service, of course; but it should make us at least a little wary of using economic development money to provide it. Unless the domestic benefit is nothing more than 'collateral benefit' - i.e. the provision can be entirely justified on the basis of the economic benefits, then it would be paying for it out of the wrong 'pot'.
The point I was, I think, agreeing with you on is that, even if the government can indeed justify, purely in terms of economic benefit, the priority which they are giving to broadband, then it still irks me that money is being given to a company which is already making huge profits. My only justification for that is the purely pragmatic one of saying that it ain't going to happen any other way. Don't have to like it though.
And I agree with the comments made both by yourself and others that paying BT to do it isn't the only way of achieving the objective.
The cost of the 100Mbps project through all of Finland is only 132million Euros.
Hmmm, either we're going to have incrediable broadband for £240 million (which would be no bad thing), or Wales is *a lot* more difficult to wire up.