Broadband Infrastructure facilitates Economic Transformation through Digital Productivity

( Broadband Infrastructure facilitates Economic Transformation through Digital Productivity17/02/2015 17:521

( Paul Budde Consultancy Customer BriefingBroadband Infrastructure Facilitates Economic Transformation through Digital Productivity

Table of Contents

11.Synopsis

22.Economic prosperity depends on digital productivity

33.ICT industry has the drivers seat

34.Transformation requires open ICT infrastructure

45.Brief insights into ICT infrastructure developments

45.1The National Broadband Network

55.2The Changing Data Centre Landscape

55.3The Cloud Computing Revolution

55.4M2M and Big Data Key Global Trends

65.5Smart Grids Transforming the Energy Industry

65.6Smart Cities the Way Forward

76.Comprehensive infrastructure policies are needed

77.Collaborative trans-sector policies

88.Case Study Australia

88.1NBN: a blueprint for ICT infrastructure policies?

98.1.1Effect of Australias NBN on the rest of the world

108.2National Digital Economy Strategy

118.3Australias digital transformation is underway Analysis

128.4The issue is Industry Transformation, not Broadband analysis

138.5The impact on the economy

149.Conclusion

1410.Paul Budde Consultancy

1511.Related Reports

2Exhibit 1 - Transformation business case examples

2Exhibit 2 - Global developments that are forcing transformation

3Exhibit 3 - Regulatory system needs to support transformation

4Exhibit 4 - Smart communities

6Exhibit 5- Internet of Things the next infrastructure inflection point

7Exhibit 6- Trans-sector vs. Cross-sector

9Exhibit 7 - Australia National Broadband Network

10Exhibit 8 - Broadband Commission for Digital Development

10Exhibit 9 - How does broadband relate to economic development?

13Exhibit 10 - Key applications of a digital economy

1. Synopsis

The world in general, and its institutions and businesses in particular, is facing a significant number of challenges: we will soon be 9 billion people; the environment has problems coping with us; whole business sectors are facing digital disruption; healthcare in western economies could consume 40% of national GDP by 2040. Nowadays, people are more empowered they are moving away from traditional behaviour patterns, and new jobs are in the new economy, not the old one. Governments and traditionally organised businesses and organisations have great problems with these developments. They are unprepared to embark on the essential economic and social transformations that are needed to face up to the challenges.

In essence, in order to transform they will need to operate far more horizontally and be far more truly customer/people focussed. And in order to be able to compete with those organisations that have been successful in creating digital productivity, they often need to look at ways to remove 50%, or even more, from their current business costs. It also necessitates cannibalisation of traditional services and revenues, with no certainty of new income from new services to compensate for this.

As a result, many businesses are fighting rearguard battles rather than leading the charge, and whole sectors are resisting the transformation process (retail, healthcare, education, energy, government).

This Paul Budde Consultancy customer briefing incorporates Paul Buddes international experiences in the development of national broadband plans. These national infrastructure projects are an essential part of any countrys industry and sector transformation process, as they are the key enablers of digital productivity. Paul offers consultancy in the form of briefings, expert reports, workshops and training.

2. Economic prosperity depends on digital productivity

The current global problems require a new approach. To continue trying to fix broken systems doesnt work (healthcare, environment, financial, education, etc). The GFC clearly demonstrates the economic consequences of this global crisis. The consequences of environmental problems and the energy crisis send a clear message that they cannot be solved in the traditional way. These significant global developments are giving us an opportunity to make that break with the past and use transformational processes to create totally new ideas, new solutions, new policies and new business strategies.

In economic terms, the end-result of a full industry or sector transformation is digital productivity. This can be achieved by changing processes and systems, operating them more horizontally, with the assistance of big data, in order to make them more efficient and effective often removing 50%+ of the current business operating costs. There are many examples where these cost savings are more like 70%-80%. This makes these changes not just incremental, but transformative.

Exhibit 1 - Transformation business case examples E-health could save $30 billion over 10 years and save 1,300 lives a year (Australia).

Video monitoring will reduce aged care hospitalisation by 40%.

Smart grids can save 25%-30% of energy costs.

Smart communities suit our lifestyle (people want it cost is important but not critical).

Current healthcare, energy, education budgets need to be redirected. No new money is needed except seeding capital to kick-start the process.

(Source: BuddeComm, 2015)

Furthermore, our affluent western society has evolved and people/consumers are now looking for different values and different lifestyles, other than just simply earning more money. At least in these societies there is no longer any need for linear growth; sustainability is becoming a more important issue.

Exhibit 2 - Global developments that are forcing transformation

There will soon be 9 billion people how to manage that?

The environment has problems coping with the worlds human population.

Whole business sectors are facing digital disruption.

Healthcare in western economies could take 40% of national GDP by 2040 unsustainable.

Education system based on principles from the Middle Ages.

People are more empowered and are moving away from traditional behaviour patterns.

New jobs are in the new economy, not in the old one.

(Source: BuddeComm, 2015)

In my work for the United Nations I have said: ICT cannot eradicate hunger and poverty in the world, but one thing is certain without ICT it is never going to happen.This applies to all of the challenges mentioned above. ICT alone cannot solve them, but without ICT none of them can be resolved in an effective and sustainable way without major social and economic disruptions. In the past, such challenges often led to wars or severe economic collapses.

3. ICT industry has the drivers seat

In essence, to bring about the necessary transformation government, industry and other organisations will need to operate far more horizontally, be far more truly customer/people focussed. And in order to compete with the organisations that have been successful in creating digital productivity they often need to look at ways to remove 50%, or even more, from their current business costs. Complex problems will require complex solutions that cross the traditional specialisations we have built up in the form of government departments, business departments and specialised silo-based structures based on highly developed and very sophisticated expertise in agriculture, energy, healthcare, communication, media, manufacturing, finance, and so on.

Open ICT infrastructure (broadband, smart grids, data centres, cloud computing, M2M, smartphones) is the glue that is needed in these transformational processes, which will lead to more horizontal collaborative structures within both individual organisations and broader economic and social structures.

The ICT industry, therefore, is in the drivers seat of the transformation and it should therefore take a leadership role. Many leading ICT organisations are already showing thought leadership IBM, Accenture, Cisco, Intel are some examples. Furthermore, some organisations have used the opportunity left open to them by traditional companies and organisations unwilling to transform themselves (or incapable of doing so) to use ICT in a disruptive way to bypass these old industry models and create new business opportunities for themselves. Google, Facebook, Amazon, Microsoft, Apple, and also many smaller e-companies operating in retail, media, communications and energy, are creating havoc among the traditional players in their markets.

There will be more of these disruptive developments as many industries and sectors are extremely slow to change. The healthcare and energy sector are earmarked as key target markets simply because of their sheer economic size, globally worth trillions of dollars each.

In all of these new business breakthroughs, apart from leadership and vision, ICT has been the deciding differentiator.

4. Transformation requires open ICT infrastructure

Similar to the processes mentioned above, the infrastructure sectors also need to be transformed so as to facilitate the industry and sector reforms.

This infrastructure needs to be available on a utilities basis, and technological advances make it possible to provide this infrastructure at affordable levels.

In markets where there is sufficient competition, market forces will drive prices down to an affordable level simply because of the commoditisation of such infrastructure. In markets where this level of competition is not available, government intervention is needed to create a regulated, open infrastructure at utilities-priced costs.

Exhibit 3 - Regulatory system needs to support transformation

Telecoms: utilities based open network models (structural separation)

Energy: allow for smarts to be included (competition at distributed energy, home energy networks). Force interoperability of smarts

Healthcare insurance to accept video consults/monitoring, e-health in all its forms

Reform media ownership and copyright rules

(Source: BuddeComm, 2015)

The key reason for this is that the social and economic benefits of such infrastructure are significantly larger than the commercial gains of the operator(s). Furthermore, those social and economic benefits do not show up on the balance sheet of commercial infrastructure operators and one cant expect these organisations to make infrastructure investments simply for the good of the country.

Several countries have introduced structural infrastructure separation regulations in order to achieve an open, low-cost broadband infrastructure.

Together, the combination of ICT infrastructure broadband, smart grids, data centres, cloud computing, M2M, smartphones forms the basis for organisations to develop what is known as the smart city or smart community.

Exhibit 4 - Smart communities

Fully collaborative and interactive (personal, care, education, services)

Smart sustainable buildings (energy self-sufficient)

Smart infrastructure (roads, bridges, pipes, etc)

E-cars and smart transport

An economy based on the gains of digital productivity

E-government at all levels

(Source: BuddeComm, 2015)

5. Brief insights into ICT infrastructure developments

5.1 The National Broadband NetworkThe most critical element to the success of national broadband networks is the infrastructure company that runs the network.

It has to make the critical architectural and design decisions for the open wholesale-only services which will form the basis of this new infrastructure for at least the next 25 years. It is essential that the network should facilitate the vision laid down by governments, including multiple use of the network by other sectors such as healthcare, education, energy, etc. At the same time, the company will need to ensure that it remains an infrastructure company and doesnt become another telco.

Australia was the first country to get the overall (national purpose) vision right, thanks to government leadership, and it is currently deploying its national broadband network. The USA soon followed and is now showing real leadership as well. The Netherlands and New Zealand are also on the right track. Economic and trans-sector innovations are now key items on the political agenda of these countries. There is no silver bullet and each unique situation generates its own alternatives, which in turn inform others involved in similar national projects.

The vision gives rise to the creation of social and economic strategies that need to be taken into account in the design and architecture of the infrastructure. Pragmatic solutions need to be developed to maximise the use of existing infrastructure and other resources. Un(der)served areas need to receive priority and local communities and councils can play a major role in this. Wireless broadband can play an important part as well. These early projects could also be an ideal testing ground for trans-sector applications.

It is important for an NBN infrastructure company to be seen as a regulated basic national infrastructure provider and not as a telecommunications company. It is also important to note that applications will come and go, and will continually improve, but that the NBN infrastructure at its most fundamental level should be sustainable, lasting near-forever, and incurring only routine, periodic improvements along the way.

See also: Global - Infrastructure - National Broadband Network Insights (NBN)5.2 The Changing Data Centre Landscape

The data centre market is an extremely complex one, with many diverse aspects to it. There are literally millions of data centres worldwide and 99% of them are embedded in the IT operations of the organisations that generate and use that data.The increasing data storage demands, rising energy costs and pressure on companies to appear environmentally proactive is leading to a growth in the uptake of cloud solutions. This, in turn, is leading to a growing demand for data centres, either operated by the cloud provider or utilised as third-party infrastructure.

In 2015, there is a growing awareness of the ongoing maintenance and energy costs incurred in operating data centres. In late 2012, the introduction of Google Spanner changed the data centre landscape, with its focus on energy use and efficiency squarely placed on data centres in the IT sector.

See also: BuddeComm Intelligence Report - Data Centres - A Key Global Development.5.3 The Cloud Computing RevolutionCloud computing deployment and development is gaining momentum around the world as the true potential of this technology reveals itself. It has become one of the fastest growing areas for the IT sector and cloud-computing solutions are being adopted by enterprises, government and consumers alike.

For enterprises, the development of cloud computing takes the form of a business transition and company strategies and policies need to be changed before its potential can be monetised by businesses. Cloud computing should be seen as a valuable business tool one that will differentiate the company from others.

Cloud security and privacy are issues that require scrutiny, and there are growing concerns about data ownership. If these concerns can be overcome and the right standardisations and infrastructure are put in place, this industry will really thrive.

In early 2013, around 5% of the top 1,000 companies worldwide were using cloud services. Platform as a Service (PaaS) is currently concentrated on the developed markets but will eventually reach developing markets as the technology matures. Safety and security concerns are moving towards companies taking a multi-cloud approach, using two or more cloud solutions in order to minimise risk if one of the services becomes compromised in any way.

See also: BuddeComm Intelligence Report - The Cloud Computing Revolution.5.4 M2M and Big Data Key Global Trends

Machine-to-Machine (M2M) also referred to as Internet of Things, is going to be a real game-changer. It will transform every single sector of society and the economy and it will be out of this environment that new businesses and indeed new industries will be born.

With the development of high-speed broadband and mobile 3G/4G infrastructure now well and truly underway in many countries, it is important to look at what the real value of this infrastructure will be. It offers a range of features such as ubiquitousness, affordability, low latency, high speed and high capacity. It will link millions of devices, such as sensors, that will enable us to manage our environment, traffic, infrastructures and our society as a whole much more efficiently and effectively.

The large amounts of data generated by M2M developments, as well as the increase in user-generated communications via social networks and the like, will be of benefit to big data developments. Organisations are beginning to recognise the importance of storing and processing data efficiently, and also of mining this data for commercial benefit.

Exhibit 5- Internet of Things the next infrastructure inflection point

Making infrastructure smart basically means adding intelligence to the networks through sensors, devices, M2M, etc which generate reliable data that can be processed in real time to provide information to all those involved in making decisions about their energy use, transport movement, weather conditions, financial status, healthcare monitoring etc.

By combining these databases in a trans-sector way linking energy to traffic, to healthcare, to weather, to economics, we will be able to move from the current silo-based structure to a true trans-sector structure. The internet of things allows infrastructure to share data and to process and analyse it in real time.

(Source: BuddeComm, 2015)

See also: BuddeComm Intelligence Report - M2M, IoT and Big Data - Key Global Trends.5.5 Smart Grids Transforming the Energy Industry

Driven by the increased awareness of environmental and energy concerns, the energy industry, as one of the largest emitters of CO2, began to review its operations, with the aim of addressing both the environmental issues (reducing the emissions) and the energy issues (the need for more efficient use of electricity).

The electricity grid was earmarked as a key element for consideration. While the initial reaction was to focus on the physical infrastructure, including smart meters, it soon became clear that both the infrastructure and the structure of the industry itself would be subject to a massive transformation.

The present situation is often compared with the transformation that took place twenty years ago within the telecoms industry. The electricity industry is, today, where the telco industry was 20 years ago. At that time, it offered little or no customer service, hardly any competition, and no choice of devices and applications that suited the user.

The transformation will have to be of a trans-sectoral nature and should include industries involved in renewable energy, electric vehicles, micro-grids, IT and telecommunications. Collaboration and cooperation is the key to the success of this transformation.

As the industry has learned the hard way, customer engagement is critical to effecting market changes, especially in an environment where energy prices are sharply increasing.

Similar to the changes in the telecoms industry, which are giving rise to the digital economy, smart grids will be at the core of the reforms that will lead to the green economy, where many new jobs, companies and indeed a new industry will be created.

There are now several countries making smart infrastructure central to their energy policies they see this as the key to linking the various policy and innovation developments. Germany, the Netherlands and the Scandinavian countries are among the thought leaders in this field and Germany has invested heavily to make this happen.

See also: Global Smart Infrastructure - Smart Grids and Smart Meter Trends and Statistics.5.6 Smart Cities the Way Forward

Smart cities are going to be amazing community hubs that will be sustainable, efficient and supportive of citizens. The concept of smart communities is based on intelligent infrastructure such as broadband (FttH) and smart grids, so that connected and sustainable communities can be developed. Around the world, there are already examples of some smart cities emerging, and many countries have developed plans for smart infrastructure. However, before these smart communities can be built properly, trans-sector policies and strategies need to be carefully considered and developed.

Smart cities cannot be built from the silo structure that currently dominates our thinking. They require a holistic approach, which includes environmental issues such as self-sufficient energy buildings, energy exchanges for renewable energy and e-cars, delivery of e-health, e-education and e-government services as well as digital media and internet services.

Half of the worlds population are already city-dwellers, and the trend towards increased urbanisation is accelerating rapidly. The future for the majority of the worlds citizens is undeniably urban 70% will live in cities by 2050 but how exactly that city of tomorrow will look, and how smart living is implemented and experienced, remains largely uncertain.

In many cities around the world, high-density living is the norm and attention is now turning towards making this style of living more sustainable. Technological innovations include water harvesting and re-use, solar collection and energy-efficient appliances, including heating and cooling. Sustainable urban transport systems are also on the agenda for many governments. See also: Global Smart Infrastructure - Smart Cities and Smart Transport Trends and Statistics.6. Comprehensive infrastructure policies are needed

Obviously, the ideal situation would be for countries to develop a national plan for such developments. The problem is that in the absence of a cohesive national blueprint, policies are increasingly being driven by government reactions to developments that require urgent actions - the sort of muddling along strategy you see in Europe and the USA. Without a national blueprint, government actions are open to lobbying from people who have vested-interests to protect and who are often resisting change. This also leaves the door wide open to often very powerful single-issue communities (eg healthcare, energy, mining, finance), unwilling to get out of their protected silos and ivory towers.

In order to allow ICT to assist in creating more holistic solutions, the highest policy priority should be to establish a first-class high-speed digital infrastructure as a national utility that allows for:

businesses and institutions to utilise digital productivity to remain innovative and competitive;

much higher levels of citizen participation in relation to government and business affairs;

increasing the transparency of the decision-making process and the development of policies.

7. Collaborative trans-sector policies

As mentioned, a key element of the process of transformation is the move away from silo-based solutions to a more encompassing horizontal approach.

One of the reasons we have so many social and economic crises is that we can no longer make any progress within the silo-based structures that exist in businesses, industry sectors, politics and government. The complexity of modern societies and economies requires a horizontal approach, but the reality is that there are many obstacles to this, as people are very protective of their silos and ivory towers. They will use all sorts of threats, such as security, privacy and disruption, to stop a more transparent attitude being adopted in a collaborative environment with others. In his research into this problem, Professor Nico Baken of the University of Delft in the Netherlands coined the term trans-sector.

Exhibit 6- Trans-sector vs. Cross-sector

It is important to identify the difference between cross-sector and trans-sector. Cross-sector means that two or more sectors are trying to work together. This often leads to situations where people will say:

I like to work with you as long as you do it my way.The trans-sector approach calls for business and government leadership at the very top, directing the various silos to work together in order to find new solutions.

In government, this needs to be reflected in policies relating to energy, environment, healthcare, education and so on.

The sharing of national infrastructure is a key element in these policies.

(Source: BuddeComm, 2015)

To embark on the transformation process, an intelligent infrastructure is needed ultimately based on fibre networks with a large number of wireless access points.

If a holistic government policy were to be developed that directed the various sectors under its control to use one shared national ICT infrastructure significant savings would be made by tapping into the digital productivity that such a shared infrastructure can provide. Then sufficient funds would flow from their budgets into digital infrastructure projects to create a good business case for the deployment of high-speed ICT infrastructure in all but the more remote parts of the country. It has been argued that savings in healthcare alone could pay for such a national infrastructure.

Here are some examples of why a trans-sector policy is needed to drive the transformation:

In healthcare alone, there are hundreds of silos, with specialists unwilling to share information and work collaboratively.

By law, utilities are not allowed to share data that would make it possible to manage their water, energy, gas and other infrastructure more effectively.

Regulations also make it impossible for other industries to generate energy for example, on their factory roofs and share it with the neighbouring community.

The current energy network is completely unprepared for the management of PV systems and for the approaching marketing blitz of electric vehicles.

Privacy laws need to be rewritten to make data sharing possible in keeping with permission-based policies (the users should own their own data, not the utility, health provider, etc).

The 17th century-based International Property Right system needs to be changed, opened up to innovation and flexibility, and aimed at advancing knowledge, thus advancing our society in order to face the challenging future.

Governments should develop clear vision statements on how they will use smart ICT tools and infrastructure to build smart countries, cities, communities and buildings.

8. Case Study Australia

8.1 NBN: a blueprint for ICT infrastructure policies?

One example of large-scale integrated national infrastructure is taking place in Australia, where the government is building the national broadband network (NBN), which will link all Australians to affordable high-speed broadband (93% of them to fibre-to-the-home networks). This is directed not solely at supplying high-speed internet access, but primarily at facilitating trans-sector policies aimed at developing the digital economy, e-health, e-education, smart grids, smart transport, and so on.

With its national broadband network, Australia is leading the world in these developments, and interesting lessons can be learned from the Australian experience. However, this does not mean that the Australian example can simply be copied. Each country will have to develop its own plan, based on its own unique society, political system, geography, economic development and financial situation. However, smart infrastructure and trans-sector policies are a crucial element in the process whether the country is one of the poorest or one of the richest in the world, the basic problems are the same and we can all learn from one another.

In order to facilitate industry and sector transformation the new infrastructure will be made available on a utilities basis. The Australian government does not see this as a telecoms policy; it is regarded as a national infrastructure similar to electricity, gas, water, roads, etc.

Exhibit 7 - Australia National Broadband Network

After the September 2013 election in Australia, and with a new government in charge, a number of reviews were announced that would shape the future direction of the NBN. For a start, the Minister asked NBN Co to carry out its own review first, based on the original specifications of the NBN it being a majority FttP rollout.

The outcome was that at a strategic level, the NBN will most likely continue smoothly. There will most certainly be changes made to the rollout, but these could quite possibly be implemented by NBN Co itself, now that it has largely been relieved of the political pressure under which it had to operate during the onslaught of attacks by the then Opposition, which started off with a policy to kill the NBN. At this stage, at least the NBN has bipartisan support.

The recent announcement regarding the protection of the NBN against cherry picking was another good step forward.

Also, because of the likely continuation of the NBN, many of the issues that existed under the previous government remain unchanged, and therefore will require the attention of the present government, and/or will need to be taken into account in future policy developments. BuddeComm has already indicated support for certain changes to the NBN in relation to greenfield developments and multi-dwelling units (MDUs) and these issues will now receive significantly more attention than they were given in the past. Again, earlier comments and analyses made on these issues remain relevant under the new government.

The rollout has seen delays, but at this stage, there are no indications that this will affect the longer-term outlook for completion of the project. The review will obviously shed more light on this, but so far the issues seem to be more one-off and/or resolvable for instance, by being more flexible in the use of technology, for example, in MDUs.

A serious omission remains that there is no policy or information that takes into account the importance of the NBN for the digital economy, the opportunity to use it to increase digital productivity, and where this infrastructure fits in relation to e-business, e-health and e-education.

This is an untenable situation as important decisions regarding a project that will run over a 20-30 year period are being made in a policy vacuum. Costs and technologies have been discussed ad nauseam, but so far, nobody has addressed the enormous economic and social benefits, essential in running a modern society. We put the question forward can we afford not to have an FttP-based NBN?

There is still a misalignment between the social and economic benefits of the NBN and NBN Cos business plan. The new government wants to prioritise the underserved areas and is looking at other technologies to create some early wins. The question, however, is how much can be changed at this late stage and also whether it will really lower costs and speed up the rollout.

Australia is highly reliant on its income from natural resources and, like other resource-rich countries, it needs to diversify its economy. Interestingly, it is these resource-rich countries that are leading the rollout of FttP around the world. The main reason for those governments becoming involved in digital infrastructure is to increase their countrys competitiveness and productivity in areas other than resources.

(Source: BuddeComm, 2015)

For further information, see separate report: Australia - The National Broadband Network 2.0 - Stats and Updates early 2014.8.1.1 Effect of Australias NBN on the rest of the world

The eyes of the telecommunication and digital economy world are on Australia. I was privileged to become the strategic advisor to the Australian Minister for Broadband in the developments of the NBN. In the following years, as a consequence of the NBN policy that was put in place and executed upon, I was invited to also advise governments in the USA, UK, Netherlands, New Zealand, Ireland and Qatar on the development of NBNs and digital productivity policies for their countries.

In the White House in Washington, I gave a presentation of my views on how America could profit from such an approach, and provided input into the development of the FCCs National Broadband Plan for America. I was also invited to assist the United Nations to set up the Broadband Commission for Digital Development to which I am now a special advisor.

The high-level policy requirements as outlined in this report have now also been accepted by the United Nations, which wants to see the development of national broadband plans as an international priority. By mid-2013, over 125 countries had signed up to this initiative.

Exhibit 8 - Broadband Commission for Digital Development

The role of The Broadband Commission is to define practical ways in which countries at all stages of development can provide access to broadband networks for their citizens, in cooperation with the private sector. The Commission reported its findings to the UN Secretary-General in September 2010, immediately before the New York summit that reviewed the work towards achieving the Millennium Development Goals by the target date of 2015. Broadband networks are an essential and uniquely powerful tool for achieving those goals and lifting people out of poverty worldwide. In 2011, the Commission set targets for 2015 and introduced its manifesto.

BuddeComm believes a trans-sector approach to infrastructure is essential, and it is important to look across infrastructure projects and sectors to create synergy.

The Commission has helped achieve some notable policy successes for example, it has succeeded in boosting ICT and broadband on the global policy agenda, as well as in the outcome of the proceedings of the Fourth United Nations Conference on the Least Developed Countries in Istanbul in May 2011. It has also inspired enthusiasm for greater engagement with the UN among key business figures and provided the model for the World Health Organizations Commission on Information and Accountability for Womens and Childrens Health.

(Source: BuddeComm, 2015)

For further information, see separate reports:

Global - Infrastructure - The Broadband Commission for Development.

Global - BuddeComms International Broadband and Trans-sector Activities8.2 National Digital Economy Strategy

Parallel to the rollout of the national broadband network (NBN) the government also has its National Digital Economy Strategy.

Based on the trans-sector model the NBN has become the shared infrastructure for a range of sectors such as e-health, e-education, smart grids, e-government, digital economy and digital media. The first release sites are playing an important role in testing this concept, while at the same time allowing organisations to obtain first-hand experience in building the digital economy.I am convinced that convergence offers unprecedented opportunities if the NBN is linked to trans-sector innovation, creating a true digital economy.

This approach will most likely result in economic and social benefits worth many billions of dollars and, as we are already seeing, it will create significant new business opportunities for Australian companies. In healthcare alone, there is talk of savings worth more than $10 billion and $2 billion in smart grid.

For more details of these policies and the many trans-sector projects underway see: Australia - National Broadband Network - Digital Economy Exhibit 9 - How does broadband relate to economic development?

Access, adoption and utilisation are not the same concepts Just because people have access to broadband infrastructure does not mean people are connected to the network; just because people have adopted broadband does not mean they are using the available internet-enabled solutions that increases their productivity and business competitiveness.

It is not just about investing in broadband infrastructure, but driving utilisation Not only is driving utilisation critical to network sustainability, it is foundational to realiasing full economic and community benefits from the network investment.

Bolstering rural economies Broadband is essential infrastructure for effective participation in the economy for urban and rural areas alike, with adoption driven by personalizing the value of broadband to individual businesses, organisations and households.

A broadband lifecycle approach Maximum returns on broadband investments require looking beyond the supply-side to make sure that each step of the process is addressed with a holistic planning approach. This is accomplished by building access, encouraging adoption, and tracking utilisation, focusing on the demand-side of broadband and understanding how individual businesses, organisations and households are using the network.

(Source: Blandin Foundation)

8.3 Australias digital transformation is underway Analysis

One of my arguments in relation to getting a national broadband network underway as opposed to just discussing it has always been that it will be impossible to come up with a fully-covered cost benefit plan stretching 10 or 20 years into the future. Based on lessons learned from Australia, the best way is to agree to a plan that:

has widespread (not necessarily full) support;

is based on a national vision; and

has a flexible strategy attached to it to cater for the changes that will undoubtedly occur over the period of its implementation.

Back in the 00s I argued that such a leadership approach would lead to action and would stop the endless political discussion and associated procrastination that takes place in so many countries. When it is just a plan people tend not to pay much attention, as there is no urgency for them to address the issue. But as soon as implementation commences people have to start thinking about what it means for them personally. By mid-2013 nearly half the population had information on when they could expect the NBN to connect to their home or business.

From the first discussions about the NBN in 2007 to mid-2013; the infrastructure plans had the full support of the industry and the telecoms engineering community, as well as of 70%-80% of the general population and businesses of Australia.

Once the physical implementation began and people started to see infrastructure activities in their towns and suburbs the discussion moved to the social and economic aspects whats in it for me?

The reality of the rollout and the fact that by now everybody believes that FttH is the end solution is now producing the outcomes we foreshadowed; people are waking up and starting to think about what this means for them. The effect of this turnaround in thinking is enormous.

And across society organisations also are now looking at what the new infrastructure means for them. This is helped by the experiences organisations have already had regarding the impact of the internet, plus the fact that the current financial and economic climate is forcing cost-cutting and improved productivity. This is particularly critical for resource-rich countries, such as Australia, that have been enjoying a golden period. But the wealth created in that sector has made them less competitive and less productive in other areas. This is one of the reasons all the resource-rich countries are now investing heavily in broadband infrastructure they need to improve their productivity in other sectors to rebalance their economies.

It is great to see that the debate has shifted to what is needed to transform society and the economy in order to obtain the benefits of digital productivity.

The NBN is no longer the story. Instead, it has created other, new stories in the many different components of our society and our economy.

With slow-growing and stagnating developed economies and increased competition from the highly productive developing economies there is no way the developed economies can maintain their current economic and social lifestyle other than to become more productive; and there is no better way to do this than by utilising smart digital technologies.

Within that context, perhaps the single most important element will be the smart use of big data. As my research company, BuddeComm, has been saying for many years in our research reports, this is also why we need the NBN not for the sole purpose of getting faster access to the internet, but to build the right digital infrastructure infrastructure that has the capacity, reliability, security, etc to allow the country to increase the amount of data needed to create digital productivity, to create a smart country not just more data but also the capability to connect that data to achieve smart outcomes. The growth in M2M will be phenomenal.

Organisations are starting to understand this, and this is certainly stimulating the shift in the debate. It reflects the increased understanding of people in general regarding the benefits of the digital economy. We therefore applaud the initiative of Australias national R&D organisation, CSIRO, in investing $40 million annually into a Digital Productivity and Services National Research Flagship, which is aimed at adding $4 billion per annum to the national economy by 2025.While that is an impressive figure we believe that the real benefits are more far-reaching, as the initiative will play a key role in the overall transformation of the economy, a transformation that is desperately needed to maintain the lifestyle we have created for ourselves since WWII. Most people have shifted their personal view of their own future from earning more money to securing their current lifestyle. Unfortunately most economists base progress on productivity gains, not on lifestyle issues.

One example alone should make everybody sit up and take notice. Currently, 20% of the national budget (all levels of government combined) is spent on healthcare, and this is set to double over the next 40 years. This, of course, will not happen, as it is totally unsustainable for example, it would mean that the total State budgets would have to be spent on healthcare alone.

While it will not happen, the alternative, in a linear scenario, will have to be a very dramatic decrease in the level of services and the affordability of medical services. For many years BuddeComm has earmarked healthcare as the key sector that will profit from the gains we can make in digital productivity.

8.4 The issue is Industry Transformation, not Broadband analysis

After some five years of public debate about the national broadband network, it is heartening to see that more and more people are getting the message that the network means more than just fast internet access. Increasingly, key decision-makers in business and government are reaching an understanding of the transformation that is underway in the economy.

It started with the music industry, followed by the publishing industry. Also, the retail sector is learning its lessons the hard way, but it is now beginning to understand the new environment. The entertainment industry is still trying to stop the tsunami by employing armies of lawyers, but it, too, will soon be engulfed by the changes. The banking sector is making a much smoother transition, while the demise of Kodak is another example of missing the boat.

One by one, all sectors of the industry are being confronted with the business transformation that the internet is bringing, and yet, incredibly, the ICT industry itself is still struggling with it (Sensis (YP), Nokia, Microsoft, Motorola, Nortel, etc).

Progress in e-education is moving at an enormous pace and already some schools are limiting the number of printed textbooks some are going totally e-book. With over a million children now with laptops, it is only a matter of time before the education system switches over. The savings in books and other printed material alone will pay for this digital revolution. South Korean schools will be entirely e-book-based by 2015.

Changes in e-health are following the same path, with electronic patient records slowly being introduced and health insurance schemes starting to re-fund e-health services. This will be a user-driven development as it is more likely that the users will be able to adapt to e-health much faster than the healthcare system can deliver it.

This will clear the way for a whole new e-health industry, worth billions of dollars. One only has to look at some of the e-health systems linked to the high-end private hospitals in the USA to see what is in store. They use their e-health facilities as a major marketing tool to attract customers not just to the actual hospital, but to all of the other facilities around it. The add-on revenues are significant.

In Australia, the high dollar is having a negative effect on many business activities in traditional industries such as mass manufacturing, retail, banking, airlines, etc. At the same time, the unemployment rate remains low. This suggests that it is not so much an economic decline as a shift towards new jobs in new and different sectors, using new technologies and creating innovations and value-adds.

A digital infrastructure is essential to manage this transition. One only has to look at manufacturing Germany, for instance, remains one of the leading global manufacturing countries, thanks to technological innovations that give it the edge over the countries whose manufacturing industries continue to operate in more or less traditional ways.

The digital infrastructure plays a key role in German innovation and manufacturing leadership.

Exhibit 10 - Key applications of a digital economy

Economic growth (digital economy, new high-quality employment);

Healthcare from home (certain services);

Work from home (for certain kinds of work);

Education at home;

Shopping from home;

Interacting with the government from home;

Public safety;

Civic participation;

Energy independence/efficiency, management of renewable energy;

Entertainment.

(Source: BuddeComm, 2015)8.5 The impact on the economy

The initial use of broadband has been to utilise the internet for information search and email communication. However, the ubiquitous adoption of very high-speed broadband services will enable all sorts of innovations across different sectors of the economy from business to business, business to the home, and machine to machine. In turn, these applications will help address social and economic challenges.

The impact of broadband on the economy is widely understood by the ICT industries.

Interesting statistics surrounding the internet/digital economy include:

It is forecast by the Boston Consulting Group (BCG) that by 2016 the internet economy will reach $4.2 trillion across the G-20 economies;

BCG also established that the internet economy already accounted for 4.2% of GDP across the G-20 in 2010 (the equivalent of $2.3 trillion);

A study by the McKinsey Global Institute in 2011 established that the internet economy accounted for 3.4% of GDP across the G-8 nations, as well as Brazil, China, India, South Korea, and Sweden.

Returning to our case study, Australia a 2009 Access Economics report commissioned by IBM predicted that the widespread adoption of smart technologies in the key sectors of electricity, irrigation, health, transport and broadband communications would increase the net present value of Australias GDP by $35-$80 billion over the first 10 years of their deployment.

A more recent study by Ericsson, covering 33 OECD countries, found that doubling the broadband speed for an economy increased GDP by 0.3%. This built on a previous report from the same company, which found that for every 10-percentage point increase in broadband penetration, GDP increased by 1%.

A Deloitte report commissioned by Google found that the value of the internet to the Australian economy rivals iron-ore exports today. The report found that the internet contributed $50 billion in 2010, equivalent to 3.6% of Australias GDP, and predicted a growth of 7% over the next few years, to reach $70 billion by 2016.

For related information, see separate report:

Australia - National Broadband Network - Digital Economy.

9. Conclusion

People are voting with their feet. They want national broadband networks, mobile broadband, smartphones, PV systems on their roof, energy management systems in their homes and, soon, smart cars, to give just a few examples.

But governments do not have a cohesive national policy in place to reap the social and economic benefits of all of this they, themselves, are trapped in silo thinking. The Australian government has set an example that governments can take a leadership role in assisting the transformation of their economy, creating the opportunity of digital productivity and remaining competitive, while supporting the lifestyle that people have become used to.

But looking around the world, it is not the people but the politicians who are failing to make these societal changes happen. As we saw in the Arab Spring and the Occupy Wall Street (OWS) movement, people are increasingly going to bypass their governments and the companies that are blocking progress. And they will use their ICT devices and services to create their own new structures to make it happen.

Major change is taking place in society today and to a large extent it is being initiated by the people themselves. This may be an example of the human instinct for survival, but, whatever it is, our leaders should start taking much more notice of this. They will need to show leadership in addressing the current challenges and they can only do this by breaking with the past, demolishing the silos, and building new horizontal, collaborative structures in partnership with their citizen and their communities.

10. Paul Budde ConsultancyPaul Budde provides consultancy services to governments, investment companies and businesses in relation to the development of National Broadband Plans and the social and economic opportunities that can be derived especially through digital productivity. Paul provides these services through briefings, assistance with business and investment plans, customised in-house workshops and trainings.

Key topics include:

Transformation of the telecoms industry investment focus After deregulations and privatisation, governments are back in telecoms again policy focus Global developments international focus

Industry and market opportunities industry focus

For more information see: Paul Budde Consultancy11. Related Reports

Australia - Smart Grid Market Overview;

Australia - Smart Cities, Smart Infrastructure; Global - BuddeComms International Broadband and Trans-sector Activities; Australia - National Broadband Network - Changing the media model; Australia - National Broadband Network - Digital Economy; Australia - National Broadband Network - Industry in transition.Copyright Paul Budde Communication Pty Ltd, 2015. All rights reserved.

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All BuddeComm research reports are intended to provide general information and strategic insights only, and they do not constitute, nor are they intended to constitute, investment advice. BuddeComm and its employees disclaim all and any guarantees, undertakings and warranties, whether express or implied, and shall not be liable for any loss or damage whatsoever, and whether foreseeable or not, arising out of, or in connection with, any use of or reliance on any information, statements, opinions, estimates or forecasts contained in the reports.

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