The Economic Cost of Internet Censorship in Australia

Much has been written about the social cost of the proposed Australian Internet censorship regime, but far too little on the economic cost.

As the Rudd Government attempts to pass a $42 billion AUD stimulus package in an attempt to stave of recession, it continues to back a plan that has negative economic consequences for Australian businesses.

Calculating the cost isn’t easy; most studies consider the economic benefits of increased broadband speeds, as most sane Governments would never look at slowing internet speeds down, but that is exactly what will happen in Australia when internet censorship is implemented.

The first test paper released by the Australian Communications and Media Authority (ACMA) found that under trial conditions (so not a full black list), filtering reduced speeds between 2% and “in excess of” 75%, with three of the 6 products tested coming in at between 20-30%. Since that report it has been suggested that the filters with the lowest success rate are the quickest, so a proper implementation of a censorship regime would likely, at best cause a 20% drop in internet speeds, but likely significantly higher again.

Direct cost

Australian ISP’s have already stated that they are likely to pass on the cost of filtering data directly to users (ref). Further, a broad scale filter proposed by the Government may also drive up related costs, such as data center staff needed to deal with an increase in customer complaints when they can’t access sites.(ref).

No hard figure has been proposed by the industry, but even a small increase in internet charges would create a negative impact on the Australian economy.

At the end of June 2008, there were 7.23 million internet subscribers in Australia (ABS). An increase in costs of only $10 per month would immediately cost Australian internet users $867.6 million a year in additional direct costs. A $25 increase in internet access would result in an additional $2.169 billion in direct costs.

Indirect costs

Australia already has some of the slowest internet speeds in the developed world. A 2008 study (link) found that average internet speeds in Australia was 1.7 mbps, up from 1 mpbs in 2006, when Australia was ranked 26th out of 27 developed countries (ref).

The amount of the indirect cost will depend very much on the amount speeds drop. A 75% cut would bring the average speed down to 425kbps, where as a 25% cut to 1.275mpbs.

The cuts in speed would punish small businesses and the less well off more deeply than large businesses and those who can already afford high speed access. The June 2008 figures from the ABS found that only 43% of Australians have speeds higher that 1.5mpbs, and 21.7% of “broadband” subscribers only have speeds between 256kbps and 512kbps. A 75% cut on a 256kbps account would result in a 64kbps connection, basically dialup.

Remarkably, some 2 million Australians are still using dialup, with a maximum speed of 56kbps.

Slower speeds mean quite simply that it takes longer to do business, and that has a negative effect on productivity.

Inverse benefit

It’s slippery to presume that the loss of internet speed in Australia will result in the direct opposite of the benefits gained by increasing them in the first place, but we can take some of those figures as some indication of a potential loss caused by slower speeds, particularly when the net result of the censorship regime will be slower speeds.

The Federal Government sponsored Broadband Advisory Group found in 2003 that high speed (or “next generation”) broadband could produce $12-$30 billion per annum to the Australian economy. (KPMG pdf)

Paul Puddle Communications in 2004 put the figure at $90 billion (KPMG pdf)

The American Government found in a report Measuring Broadband?s Economic Impact (pdf) that “the results support the view that broadband access does enhance economic growth and performance, and that the assumed economic impacts of broadband are real and measurable other economic indicators.”

It’s not a huge leap then to suggest that crippling speeds would have an inverse effect to increasing them.

Competitiveness

Even if we may struggle to put a solid figure on the indirect economic cost on internet censorship in Australia, we can consider factors reducing speeds have on various aspects of business.

A report from the Australian Local Government Association by consultants National Economics (ref) found in 2005 that

“If Australia falls behind, an increasing number of exporters may well feel that they cannot operate as efficiently in the supply chains as other firms elsewhere in the world who do have access to best practice infrastructure”

“This will result in the enterprise being dropped from the supply chain at the cost to the nation’s export performance.”

Governments also recognize the benefits of high speed broadband, and the pitfalls of not having it, remembering that the censorship proposal will slow significantly slow speeds. Auckland City Council (link): “Economic development in any city depends upon access to fast, high capacity broadband infrastructure and services. Due to the lack of high-speed broadband, Auckland is losing economic opportunities.”

Australia is already at a disadvantage in terms of distance from major markets; making businesses less competitive through slower internet access can and will cause lost opportunities, and even lost jobs.

Downward pressure

Julie Schwartz for the Progressive States Network (link) says that broadband access “Can help rejuvenate a lagging economy: Spurs economic development, increases economic equality and increased job opportunities.”

Would then reducing broadband speeds, and making it more expensive not have the opposite effect?

Conclusion

There are many fine reasons why the Australian Government should not introduce the Great Firewall of Australia, and yet freedom of speech doesn’t seem to be high on the Prime Minister’s agenda. The economy though is, and any basic analysis of the figures, even when we may not be able to pin down the exact costs, show that introducing Internet censorship in Australia will have a negative effect on the economy, both in direct and indirect costs.

At a time of economic crisis, Australia cannot afford to risk the introduction a scheme that will contribute to costs and work against the economy.

(img credit: Tamar Leaver)