By John Bryson, Professor of Enterprise and Economic Geography, Department of Strategy and International Business
The Shadow Chancellor, John McDonnell, has released a £20bn plan that would ensure that free full-fibre broadband is available throughout the Kingdom. Labour’s plan would make broadband ubiquitous and free. The £20bn cost is perhaps an underestimate. The plan to nationalise the digital arm of BT – Openreach – would transfer liabilities from the private to the public sector.
The Consequences of Free Broadband
In December 2016, Ofcom’s report on UK infrastructure noted that 78% of UK households have an internet connection. More than 95% of these connections are provided by one of the big four ISP providers – BT, Virgin Media, TalkTalk and Sky however, it is BT that dominates the market. BT fixed line and wireless networks provide it with network advantages. Scale is important here as broadband networks are expensive to construct and to maintain; more network users reduces the unit cost of provision.
Free broadband provision, provided by a nationalised Openreach, would result in significant market distortions. This would have two consequence, first, for the new UK Government, Openreach would be a monopoly provider funded completely from tax revenue. If managed correctly, this could result in significant economies of scale. Second, all existing providers of Broadband services would be displaced from the market resulting in a reduction in choice and significant unemployment. It is always interesting when a Labour policy has embedded within it job losses for potential trade union members. I assume that these jobs losses have been included in the policy calculations.
I used the word ‘Kingdom’ deliberately; this plan is best described as a fairy-tale policy for two reasons. First, the benefits will be available to all irrespective of their ability to pay. Thus, this is a very strange policy for a party that should be targeting taxation expenditure at the most vulnerable. Second, the nationalisation of broadband services would stifle innovation in the development of broadband services. Can we trust our politicians to have the vision to develop a long-term approach to broadband innovation?
There is no question everyday living now requires access to broadband services. The policy challenge is ensuring that access is available to all. This includes providing subsidies in areas in which there is no return on the investment required to provide broadband. These are the not-spots places in which it is currently impossible to obtain broadband. Many not-spots are in rural areas, but they exist in major conurbations.
Our analysis of community-based broadband initiatives highlights both the problems communities experience not having access to broadband services, but also the strategies that communities can adopt. Thus, Broadband 4 the Rural North(B4RN) is a community-led organisation that has planned, installed and operates its own high-speed broadband service for residents in a rural part of the north of England. It provided residents with access to broadband services as well as uniting the community.
Was The Labour Party Right To Promise Free Broadband?
The key question is how to balance government expenditure? Should government expenditure to support inclusive access to broadband cover all citizens or should this target not-spot areas?
There are many problems with UK democracy. First, it is illegal for companies to collude together to fix a market, but evidently perfectly legal for political parties to collude together to fix an election outcome within a ward. Why is one an example of irresponsible business and the other evidently responsible? Second, in UK elections political parties try to influence electors by ‘buying’ votes by promising benefits. Free broadband is one such initiative. My own view on this is that all political parties should release a fully costed election manifesto on the same day and at the same time. Once released, no additions could be made. This would prevent one party trying to out bid another.
The broadband for all initiative is just another example of a democratic process that has becoming increasingly irresponsible. There are many elements to this irresponsibility. The key one perhaps is the opportunity costs related to any decision to invest citizen funds raised from taxation in any policy area. These costs include the loss of other alternative outcomes that are removed when one alternative is selected over another. At the end of the day, I will follow my grandmother’s advice – there is no such thing as a free lunch. In this case, there is no such thing as free broadband.
The trope that nationalisation ‘stifles’ innovation is common, but… how true is it? Not much, I’d say, and the internet is a good example of why. Without state-subsidised, collaborative research taking place free of the profit-motive, the internet as we know it would not have taken shape. ARPANET, the precursor to the internet, and the first communication network to use TCP/IP, was founded by the US Dept of Defence. It had nothing to do with the private sector.
The Labour policy is being called ‘Broadband communism’, but it was actually under communism that an internet–the All-State Automated System (OGAS)–was designed in capitalistic conditions of unregulated competition. It failed. In the words of media historian Benjamin Peters, network innovation was a product of ’cooperative capitalists, not (…) competitive socialists’ (https://mitpress.mit.edu/books/how-not-network-nation, p.2).
If there is ‘innovation’ in today’s broadband (and I have to say I fail to see it when I compare the 108mbps broadband I pay for with the 2mbps I receive, thanks Virgin Media) then, like with rail, medicine, housing etc, credit is being taken by the private sector for knowledge that was developed in the public sector–people just don’t know about it.