Why is Broadband Expensive in Australia?

According to this thread on the Whirlpool Forums, you can get 45Mbps down stream and 3Mbps up stream ADSL with no traffic quota and cheap VoIP phone for around ¥4,138 per month, which is just a bit more than AUD$50 today. At the same time, I am paying AUD$55 per month for Swiftel's 512kbps/128kbps plan with 4GB download quota. So I am getting one Macca's small value meal less every month (not that I need it) for 1/90 of download speed and 1/24 of upload speed - with a data cap at 4 gigabyte of quota every month that I need to watch for (that is 4,000 megabytes, according to the conversion rate every ISP has agreed upon). No wonder people are making comments about how behind Australia is in terms of broadband telecommunication.

But Australia is not Japan. There are reasons behind the high price of broadband Internet in Australia. Here are my analysis of this issue.

First of all, there are geographical reasons that makes Australia different from the other countries.

  • According to Wikipedia, Australia has land size of 7,686,850 km2. Large land area certainly makes telecommunication infrastructure building expensive. Especially when you started to lay copper/fibre for subscriber lines, every square metre costs. That brings Australians in big disadvantage in comparison with those in Japan, South Korea or Hong Kong.
  • It is around 11,935 km (7,416 miles) from Sydney to San Francisco, the data hub for Australia and United States. There's Pacific Ocean in between, and laying cable in the sea would probably be much more expensive than laying on the dry land. Guess how much money Australian Internet users would have to pay to utilise the Southern Cross Cable (SXC)? In comparison, Canada pays minimal to exchange data with the states.

But why is the United States so important? Because they have the content we want. Here's some demographical reasons behind it.

  • The majority of Australians speak and read English. So whenever an Aussie logged onto the web, he/she will most likely download content from a server that provides English content. That means majority of people will exchange packets with an overseas server (most likely in US) over one of few expensive pipes across the Pacific Ocean. That would again drive up the price when these pipes need to be constantly upgraded to cope with ever-increasing traffic. That is why countries in the Eastern Asia are not that worried about their links with the states, because people's Internet usage are generally localised, be that Chinese, Japanese or Korean. I have actually used my parents' ADSL connection to access US contents when I was in Taiwan last year, and the speed was quite disappointing. But not many people over there care.
  • Australia also has a relatively small population (just a bit over 20 million) for its land size. At the end, telecommunication companies pay a high premium to set up the infrastructure on this big piece of land, but they cannot reap the same amount of reward due to a small population which produces small demand.
  • Some people argued that Australia is relatively urbanised - majority of people are living in the major metro cities - therefore the infrastructural cost might not be that huge due to concentrated population. However, it does not mean that there is no one living in the rural side of the state. What would these people say if Telstra decided not to enable their phone exchange with DSL support? Those regional infrastructural building will continue to cost more than reap, but on the other hand they are still necessary.

Talking about the economical reasons, supply and demand - which one usually comes first? Should there be good supply if there isn't enough demand?

  • Broadband in Australia are still considered as an item of luxury than commodity. Most people I know (which are mostly university students) don't have broadband Internet at home. They simply find no need for it. A dial up is enough for them to do emailing, Internet banking and weather checking. Most people certainly won't download more than a gigabyte of data in a month, and there is just no demand for a fatter pipe for them. Price stays high when the demand stays low...
  • But is broadband that expensive? Considering AUD$39/month 256kbps/64kbps 1GB plan is not that much more expensive than a $20/month "unlimited" dial up account when you factor in call costs (at 17-25 cents per call), blocking the line while dialling in, better speed, etc. After all, $39 pm is what people paid for those "unlimited" dial ups 4-5 years ago anyway. However, the set up cost is another matter. It is something costs virtually nil on dial up plans that would set you back hundreds of dollars on ADSL. You need to pay at least $150 initial cost to get your line connected + a budget DSL modem. That is just one reason why some people I know get scared off ADSL broadband.

There got to be some other reasons - what about the market monopoly? What about the government?

  • Yes. Telstra still owns most of the phone exchanges across Australia, and it is the Telstra Wholesale that sets the pricing for down stream ISPs. They are in the monopoly situation - but funny that the "competition" cannot give us more competitive pricing to break down the monopoly. Optus Cable? DSLAM roll out by Internode and iiNet? Other DSL providers like XYZed? Maybe the infrastructural cost is really that high.
  • Wouldn't government stands up and grants telecommunication companies some "fund" to improve the infrastructure? Would you do it if you are John Howard? Would you vote for the party that slams tax payers' money to telecoms infrastructure? Who would it benefit, from an average tax payer's point of view, other than enabling his 13 year old son to download the warez at 10x the speed? There are other areas that need funding - health system and education just to name two. Considering our Johnny boy might attempt to lower the income tax rate for the up-coming election. Spending money on telecoms infrastructure? Maybe not.

But at the end, is broadband in Australia really that expensive? Well, yes it is relatively expensive. Affordable? Affirmative - it is still affordable by the general public I think. We do need the public to be aware of the benefit and actually subscribe to it, so hopefully the price will come down gradually when the demand picks up.

Moreover, many broadband ISP in Australia offers extra features to compensate lack of bandwidth, like virus/spam filtering, static IP address, and users are free to host servers/P2P services on their boxes, which I think might be rare on the other side of Pacific.

At the end of day, I would like my broadband access to be cheaper, faster and more reliable. But I do already enjoy what I have got at the moment, and hopefully the future is going to be better.

Update 11 Jan 2004: Slashdot ran a interesting story on broadband pricing across the world, and people in different countries reported how much they have paid for their DSL/Cable access. I reckoned Australia is okay regarding to the cost of access, but expensive comparatively in traffic cost, as most overseas ISPs provide a flatrate pricing.