BACK TO: Information
Technology
25th Australian Conference on Optical Fibre Technology
Australian National University
26 - 29 June 2000
Bandwidth and Innovation
Keynote Address
Workshop on Integrated Broadband Solutions for Metropolitan, Local-area
and Access Networks
Huxley Theatre, ANU Canberra ACT
Two pieces of software, the music file sharing technologies, Napster and Gnutella, are
hot news in the US right now.
They have dragged hitherto arcane debate about copyright and intellectual property laws
in the digital age into the mainstream, pitting rock star against rock star and rock star
against fan. Why? Because they have created a new, anarchical means of publishing and
distributing music. But there is also a hardware story behind these technologies. Their
explosive popularity has begun to bring clarity to the competition between different
broadband technologies.
As the Internet matures, it is becoming clear that not all broadband is not created
equal. Putting the legal row about copyright aside for a moment, applications such as
Napster and Gnutella represent the dream of a world of networked individuals made
manifest. They show that people do want not just to receive online, but to give. To share
digital information.
In other words, to succeed in giving people the Internet they want, the broadband
technologies must offer fast uplink speeds, not just quick downloads. The Internet,
through these new community based applications, is giving people a taste of new freedoms.
And they like it. For all the fear these changes are causing among those who have grown
comfortable in the type of economy we have grown up in, they are the leading edge of the
knowledge economy.
The knowledge economy heralds – increasingly, in fact, demands -- a shift in
values. In this new economic system, the management and commercial exchange of
intellectual property derived from people who think up new ideas ultimately becomes the
source of wealth, rather than the commercial exchange for the products of an industrial
process. Whilst this over-simplifies the landscape, there is no doubt that the changing
proportion of our economy from manufactures to services is by far the most obvious and
powerful indicator of such a shift, with services sector now over 80% of the Australian
economy. The use and refinement of information technologies has at the same time
facilitated this shift by changing the nature of the workforce and allowed the investment
/ return ratios that existed by definition in a manufacturing/ resources based economy to
be completely blown away.
As a result wealth is being created in ways and orders of magnitude that are reshaping
economic hierarchies both within nation state economies and the global economy. The
internet has enabled the emergence of another market, a market that thrives in active
contempt of the traditional corporate culture. Australia’s capacity to think outside
this risk-averse corporate culture has been preceded by recognition that it exists here in
droves. It’s true: an agricultural and resources based economy carries the risk in
the weather and exploration. Therefore the concept of increasing risk in the value-added
aspects of the business did not make good business practice. What was a cultural strength
in a commodity and resources economy has become a cultural weakness in a service and
information economy.
The challenge is therefore to change our corporate culture so we are best able to place
Australia in a position of strength in the global information economy, with the aim of
deriving the benefits from growth for Australians.
The enabling technology industries have established themselves as the drivers of
growth, with the sector being characterised by high value added and high wages. Here in
Australia, the information industry is growing at a rate three times that of the economy.
US Federal Reserve chairman, Alan Greenspan, has stated that the IT&T sector, which
provides the infrastructure fort the information economy accounts for one third of all
recent US growth, and is growing at two times the rate of the overall economy.
Forrester Research has estimated the total value of goods and services traded between
companies over the Internet will reach $2 trillion in 2003. To put this in perspective, a
5% commission on this represents a $100 billion opportunity. (AU$) Business to consumer
e-commerce is also growing at phenomenal rates.
Looked at from another perspective, the prices of Internet stocks continue to trade at
multiples that defy historical metrics. For all the doom-laden headlines of the past three
months, the Nasdaq is trading today around the same level as December last year, a time
when many were convinced it was vastly overheated. What has happened, however, and this is
reflected in underlying trends on the exchange, is the grain has been separated from the
chaff. In other words, the survivors are those with a more robust technology or concept
offering.
Globalisation introduces many challenges to Government, industry and the community.
What is the best path to follow in policy terms and what strategies can offer the best
chance for success and survival of our national economy, and indeed our sense of
Australian identity? Jerry Everard confronts these issues in his book Virtual States which
I had the pleasure of launching last year. He has this to say:
‘ Globalisation is above all a social process, and it operates
unevenly across society and between societies. This differential quality provides dynamism
behind globalisation. It also promotes social inequalities.’
In other words whilst ever there is market driven technological dynamism, there is, by
definition, a role for public policy in countering the social inequities that are an
inevitable by-product. From a public policy perspective, we need to establish, as far as
is possible, what constitutes success. Is it an identifiable economic return to a nation
that can be quantified within trade balance of payments terms? We know that we have a
chronic IT&T trade deficit problem, with recent figures showing a phenomenal worsening
of Australia’s position. So would success be turning this trend around? Or maybe,
given the emphasis on intellectual property, it is the number of patents held by
Australians? Is it the unemployment figures? Whatever the definition of success, the
policy framework to achieve it must address social justice.
Defining success in policy terms will always be difficult. The complex relationships
between a vast array of portfolios including education, industry, communications and the
arts I have found mitigates against defining a clear vision. As a result, assessing the
degree of its realisation becomes very difficult. However, we do know that sustained
economic growth offers greater opportunities for employment, and that education offers
greater opportunities for those seeking employment. Given that employment in a high wage
society offers the best chance to maintain improve one’s standard of living, then
investment in these areas by Government makes political sense.
To highlight this point, in 1996, public spending on Australian education, research and
training increased to almost 3 per cent of GDP from 2.35 per cent. This has since fallen
dramatically to 2.53 per cent in 1999-2000. If the 1996 spending levels had been
maintained, $2.87 billion more would have been spent on education in the last budget. The
impact of public re-investment of this magnitude in Australia's skills development,
research, innovation and, ultimately, industry growth and ultimately, jobs would have been
significant.
We also know that there is a quantifiable relationship between research, development
and commercialisation and economic growth. The higher the R&D expenditure as a
proportion of GDP, the stronger the growth. And nothing could be more obvious than through
the example of internet and technology services based sector.
It is this point more than any other that accentuates why so many Australians were
dismayed when the Government pushed internet censorship legislation through the
parliament. In addition to the potentially disabling effects on bandwidth and networks,
the point made earlier about global positioning is pertinent. As a result of this
legislation, a major US industry magazine labelled Australia the ‘global village
idiot’. This is precisely what we don’t need at we take our place in the
knowledge economy. The announcement yesterday of the Coalition’s intention to
legislate to ban internet gambling will only serve to reinforce this perception.
Legislation such as this will serve as a continual reminder that a focussed, determined
effort by all stakeholders is required to build a knowledge nation. And despite this
embarrassing Act, it’s not like we are starting from a low base.
It is generally accepted that Australia is well placed to be successful in the
knowledge economy. We have high penetration of PCs per head in both business and home and
one of the highest internet connectivity rates in the world. We have a well-educated
population and a history of adopting new technologies quickly. However our capacity to
keep up with technological progression cannot be attributed to any remarkable effort by
government or our corporate sector, rather it has been driven by consumers. This in turn
highlights emerging challenges as the drivers of technological innovation change.
The now-familiar innovation cycle, characterised by Moore’s law, where
improvements in software bits and processing power created momentum for consumer demand
for technological improvement is now being overtaken by a new law. Gilder’s Law
identifies a new set of factors that will take over as the drivers on technological
innovation and change. The new factors are bandwidth and content. The innovative tension
between content demanding greater bandwidth and bandwidth enabling better content will
create the momentum for technological innovation.
With one of the factors, bandwidth, being determined by communications infrastructure,
the capacity for entrepreneurial dynamism to be motivated by consumer demand to innovate
in broad-band technologies is severely limited. Australian consumers will no longer be
able to drive our technological progression. Add the current regulatory framework and
theoretical competitive environment, recent decision relating to spectrum allocation,
tight datacasting definitions and the prospects look dismal.
If half of the innovation cycle is incapacitated, where will that leave
Australia’s capacity to innovate, to participate in the next big thing? Unless an
understanding of the innovation cycle leads to public policy that enables the dynamism to
continue, through a priority on high bandwidth connectivity, then Australia may well be
dealing itself out of the biggest drivers of economic growth for the foreseeable future.
I am reminded of a fellow I met in Narooma leading up to the last election. He was an
engineer and used CAD to design components for an engineering firm in Melbourne. He
purchased the bandwidth he required to electronically transfer his intellectual property
to Melbourne from Telstra, who was the only infrastructure and service provider available.
His requirements were way beyond that of the legislated USO. He told me it took at least
five months to get the connection operating satisfactorily, which nearly shut him down.
Eventually he got it working but still anticipates his growing bandwidth needs at least
eighteen months in advance, just so he doesn’t get burnt again.
This guy’s story taught me as much about bandwidth as it did about regional
economic development. His experience demonstrates that connectivity is more than an equity
and participation issue for Australian citizens. I am talking about public infrastructure
that bears directly on the private sector’s ability to innovate. Gilder’s Law
demonstrates that there are incredibly important economic reasons for placing high
bandwidth universal connectivity at the forefront of public policy.
Will we even know what opportunities are being lost if we don’t invest as a nation
in high bandwidth connectivity? Are we destines to leave Australia in a state of
unassuming mediocrity. There are several reasons why I think not. Two of the most
impressive are here in this region:
Snowy.net and Transact. Initiatives like this give Australia the edge. The philosophy
upon which these networks are based is that of open, non-proprietary networks,
complementing the inherent strength, and indeed the nature of the internet. These networks
offer 100 and 10 times the bandwidth of the best ADSL service offered the incumbent
commercial carriers. That’s real broadband.
From another perspective, electronic commerce, the implementation tool of a globalised
economy presents a significant opportunity for Australian industry to reach new markets.
But it goes both ways and there are strengths and weaknesses in Australia’s position.
Australia faces on the one hand a release from the shackles of geographic isolation, at
least with regard to the distribution of digital products and services. In itself, this is
a remarkable opportunity and one that justifies an increased industry policy emphasis on
growing our digital industries. Digital content, which may be everything from applications
to multimedia to online services, has the enviable status of being an Australian strength
as well as providing the critical service of ensuring a permeating presence of "brand
Australia" on the Internet and in the global market place. It therefore makes good
policy sense to facilitate an optimal environment to encourage diverse, quality, digital
content.
Fortunately for us, the talent and reputation we have has already made Australians
leaders in this field. While in the US recently I met the president of a production
company that makes commercials for Fortune 500 companies. He had just returned from
filming in Australia. He told me his company was able to wear the costs of travel to
access the talent because the internet was facilitating the production process to a degree
that it almost offset the difference.
On the other hand, the implementation of the goods and services tax has the potential
to directly undermine the capacity of local producers of digital products and services to
compete in the domestic market if there are international competitors. Why? Because any
digital product or service produced and distributed locally on-line will attract a GST.
Imports will not – because it is unenforcable even if there were mechanisms for
collection. Domestically produced exports don’t either. Does this mean local
producers will be forced to set themselves up on a server overseas to give themselves
status as an importer, just so they can compete in their own market without a ten percent
cost penalty? Or does it mean that this sector can forget about using the local market as
a base for export growth? Makes it kind of tough for such a critical industry.
Despite having asked the Minister Senator Alston how the Government intends to address
this extraordinary digital products and services market anomaly in the implementation of
the goods and services tax in two days time, I am yet to receive an answer. The collection
of goods and services taxes within electronic commerce environments presents a significant
compliance problem for the Government anyway, for tangible or intangible products and
services. It is a tax invented for isolated national economies, where revenue collection
is structurally linked to domestic consumption. With the internet as the medium and
electronic commerce as the mechanism for economic globalisation, the goods and services
tax is clearly a tax for times past. At this stage it appears that a series of bilateral
and multilateral taxation treaties is the best Australia can hope for in reducing the
revenue loss from their new GST revenue base in a globalised digital economy. It is a tax
for times past.
Preparing the policy foundations for active participation in a global economy requires
foresight and a continual high-level presence in international fora. More than ever the
rules for participation in the global economy will be determined in these environments.
Australia has shown itself to be a global leader and can be again.
As Australia opens it’s doors even wider to new sources of capital – new ways
to fund innovation and build identity and presence in the global information economy will
emerge. Our path to becoming a knowledge nation will be served well served Australian
ideas. An entrepreneurial environment is but one stepping stone along this path, albeit a
crucial one. It also serves to remind us that our future does depend on people and their
capability to participate in innovative ways to build a society that will serve the
community well into the future.
This means education will always underpin opportunity and growth. Governments too must
take their own education seriously and be willing to look around and learn from other
nations in the search for effective policy solutions. Ensuring our infrastructure serves
the needs of the community and innovative industries means a new emphasis on high
bandwidth and connectivity is required. The intrinsic relationship between bandwidth and
innovation is there. It is undeniable. It is why the datacasting decision presents such a
bleak future for content and the innovation cycle that is inherently linked to genuinely
broad-band networks.
We must address the social challenge of the information haves and have-nots. To be able
to use the internet as a mechanism to close the gap, rather than widen it, we must be in a
position of strength in the information economy. Broad-band networks are a foundation
element to this success. The aspiration of universal, broadband connectivity is therefore
an essential foundation to a knowledge nation.
