Robert Kenny and Charles Kenny

Superfast: Is It Really Worth a Subsidy?

November 2010

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Robert Kenny (rob@commcham.com) is a telecoms and media consultantwith Communications Chambers.Charles Kenny(charlesjkenny@gmail.com)is a Senior Fellow at the Center forGlobal Development and a Schwartz Fellow at the New America Foundation.The views expressed are those of the authors alone.The authors would like to thank Taylor Reynolds, Christine Qiang, CarloRossotto, Tom Glaisyer, Richard Feasey and Kip Meek for their valuablecomments on earlier drafts of this paper. We are all the more appreciative of the time they spent since some of these individuals are in strongdisagreement with our conclusions

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Executive summary

Governments around the world are investing multiple billions to support theroll-out of fiber to enable high speed broadband. These subsidies are basedon the premise that fiber to the home (FTTH) brings substantial externalities.It is argued that FTTH will support economic growth and is key to nationalcompetitiveness; that it will benefit education, healthcare, transportationand the electricity industry; and that it will be the TV platform of the future.In this paper we argue that the evidence to support these views issurprisingly weak, and that there are several errors that are made repeatedlywhen making the case for FTTH. In particular:

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The evidence that basic broadband contributed to economic growthis decidedly mixed, and some of the studies reporting greaterbenefits have significant flaws

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Time and again, data that basic broadband brings certain benefits isused to justify investment in fiber

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but the investment in fiber mustbe based on the

incremental

benefits of higher speed, since (in thedeveloped world) there is already near universal basic broadband

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This error is compounded since other high speed broadbandinfrastructures (such as cable, and in time wireless) are often simplyignored when making the case for fiber

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Fibre is credited with bringing benefits that would in fact requiremajor systems and social change in other parts of the economy, suchas a widespread shift to home working, or remote medical care. Inpractice, these changes may never happen, and even if they do theywill have significant additional cost beyond simply rolling out fibre

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Frequently business or government applications, such as remotemedical imaging, are used to make the case for FTTH. But theseapplications require fiber to certain major buildings, not to entireresidential neighborhoods (and these buildings often have highspeed connections already)We do not argue that there is no commercial case for rolling out fiber, nor dowe argue that fiber brings no societal benefits. But we do believe that thosebenefits have been grossly overstated, and that therefore, particularly in atime of tight budgets, governments should think very hard indeed beforespending billions to support fiber roll-out. A decade ago telcos wasted billionsof sharehold

ers’ money

on telecoms infrastructure that was well ahead of itstime

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governments are now in danger of doing the same with taxpayers’

money.