Is Investing in Broadband a Fair Use of Public Money?

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ONE of the key decisions of the Economic Renewal Programme (ERP) is the abolition of funding and support for the majority of small businesses in Wales.

Instead, the savings made will go towards the pounds 240m required by the Welsh Assembly Government (WAG) to invest in a "next generation" broadband infrastructure for Wales by 2016. Investment into critical new technologies can make a real difference to the productivity of businesses and there is certainly a case for extending the current broadband provision away from the main industrial urban and localities to the more deprived communities and those rural areas which still depend on dial up modems to access the internet.

However, the major weakness within the ERP is that the Welsh Assembly Government simply fails to make a coherent case as to why this is a better form of investment than supporting firms directly, and why government should fund this instead of the private sector.

Let's start with the rationale that the investment in broadband will give a better return on public funds in terms of the number of jobs created.

One of the most critical reports on the role of broadband in economic development is "The UK's Digital Road to Recovery" from the London School of Economics.

If we extrapolate from the employment generation data presented in the report, then it is estimated that a pounds 240m investment in next generation broadband would create or retain around 11,000 jobs in Wales for one year, that is, a cost of roughly pounds 22,000 per job.

For those in government, the question is whether such an investment in economic development, which is what this programme is essentially about, represents real value for money.

No case is made at all as to whether spending on next generation broadband will provide a better return as compared to other types of support that could be available to develop the economy, such as inward investment, start-up support or help for growth businesses.

For example, if business really wants better broadband, then simply making the pounds 240m available as a special repayable grant to all businesses in Wales that wish to invest in next generation broadband may be a far more effective method of spending public money.

The second issue is why should government subsidise such services at a time when telecommunications companies are increasing their investment in new technologies? For example, BT has already announced in May that it will increase its plans for fibre-based fast broadband from 40% to two-thirds of all UK homes, and this without any incentive from the UK Government.

In addition, other telecommunications businesses are coming up with innovations to extend their market share. Only last week, Virgin Media announced that it will trial ultrafast broadband over existing electricity poles in Caerphilly.

If successful, this "non-traditional" approach could significantly accelerate delivery of next-generation broadband to millions of extra homes across the UK.

If the private sector is already expanding its broadband infrastructure, then why should the taxpayer subsidise such services? …