Thursday, May 01, 2008

Digital Dividend or Free Spectrum?

So what's the value of the "digital dividend"?

The question arises because that silly expression is so ineradicable in the political lexicon. A "digital dividend" is out there somewhere, we just have to (as Senator Conroy put it) "put in the hard work" and we'll reap the rewards.

The commercial data that led to America's recent spectrum auctions raising $19 billion aren't on the public record. We don't know how many people Verizon and AT&T consider to be the addressable population of their spectrum. But the price tag provides a hint: the premium paid for the spectrum tells us that the spectrum will be used to deploy broad-based services. The "Internet socialist" ideal, that TV spectrum could deliver broadband to those without fast wired services, won't come true in America.

If we assume that the spectrum is destined for broad-based services, then population is a good way to look at the value of spectrum from the outside. The auctions raised $19 billion; America has just over 300 million people; so the per-person value of the spectrum is about $63.

And if that figure is applicable to Australia, the digital dividend would be just over $1.2 billion - or three years' interest on the Communications Fund.

While $1.2 billion is a lot of money, it's not much in terms of the total economy, which is close to $650 billion - and there's no guarantee that investors in Australia would put the same value on new spectrum anyhow.

There was, however, a very interesting nugget in Senator Conroy's speech to the ACMA RadComms conference last week: the Ofcom estimate that radio spectrum contributed £42 billion to the UK economy. It's not actually news (the report was published in 2006), but still interesting.

Instead of focussing on the price tag, though, the employment impact is worth noting: Ofcom claimed that spectrum use contributes to 240,000 jobs in Britain, or 0.7% of the workforce. That would be about 70,000 jobs in Australia.

The way to maximise jobs growth based on spectrum would be to make spectrum applications irresistibly attractive.

If you accept that the likely "digitial dividend" is going to be small (and $1.2 billion only sounds big), perhaps the idea that the spectrum should be opened up for free (or close to it) isn't so silly. Those who entered the fray would be able to focus on infrastructure and services rather than having to design the business plan around recovering money over-spent at auction.

Look again at the US experience. What are Verizon and AT&T going to do with their expensive spectrum? Verizon is talking 4G cellular services, while AT&T is talking about a network that can support 3G iPhones.

Somehow, it's hard to wax lyrical about spectrum bought to support a network-locked toy phone (with no apology to Apple fanboys) in a new cellular network. Whatever is claimed for new mobile networks, they remain focussed on the urban market, because that's where the people are.

The widespread belief that the digital dividend will bring new rural and remote services is a delusion. Unless political thinking changes - and unless somebody pops the wishful expectation of a huge payoff to general revenue - the digital dividend will end up with the same urban focus as is clearly emerging in the US.

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