The final aspect of the government’s action plan for the benefits of high speed broadband covers e-Business.  Like e-Development, this is an area that is difficult to quantify.

The business case for the up to $6Bn spend on high speed broadband is “difficult” according to Telecom New Zealand CEO Paul Reynolds.  Which means that for Telecom to make that investment, they need to be certain of a business return on their capital.  The uncertainty factor of that return is whether there will be sufficient demand for connections to the new fibre-based networks.

In urban areas, the government have assumed the risk of that demand uncertainty by investing $1.5Bn of taxpayer’s funds in a “fibre to the premises” ultra-fast broadband network.  In rural areas, the government are subsidizing Telecom and Vodafone with a $300M capital injection over 5 years.

The net cost of those investments is around $600M according to ICT Minister Steven Joyce.  If that is considered the cost of getting fast broadband to all buildings in the education, health and government sectors, then the government have won a good deal.  The cost of that deal is decreased further, given that the investment also gives the government a shareholding in Telecom Chorus.  Further still, with the development of broadband networks being correlated to increasing GDP, government borrowing costs will reduce as GDP increases.  And further still, tax revenues from businesses will increase when business economic development gains are realized.

That is what e-Business is all about, economic development.

In China, studies have shown that every 10% increase in broadband penetration grows the economy an additional 2.5% as measured by GDP growth.  Other developing countries show similar returns.  In developed countries, that figure is around 1.4%.

In New Zealand, economic gains of this magnitude may no longer be available by simply increasing broadband penetration.

In 2005, New Zealand had 8.1 broadband connections per 100 inhabitants and, relative to other countries in the OECD, our ranking was in decline.  As a consequence of the forced regulation of Telecom NZ in 2006, our broadband connections grew dramatically to 20.4 connections per 100 inhabitants in 2008 and has continued to grow to 24.9 in 2010.

To put this in to perspective, New Zealand is now at the OECD average (24.9) with Holland at the top of the list (38.1), Australia one place behind us at 24.1 and Turkey filling bottom spot at 9.8 broadband connections per 100 inhabitants.

So from where will our e-Business gains come?

Business productivity is expected to improve and high speed broadband is expected to enable business innovation.

Productivity is measured by the income generated per worker in the business.  At high tech companies like Fisher & Paykel, productivity is around $232,000 per job.  Fonterra is earning around $350,000 per job and the manufacturing sector averages around $240,000.  Internationally, Apple earns $1.3M and Hewlett Packard $1.0M per job.

New Zealand has a goal of increasing our GDP per person to match Australia’s.  With earnings required to maintain our GDP per person being around $120,000, any job that earns below this figure will be subtracting from our GDP goal.  Tourism jobs earn around $80,000 and in the wine industry, earnings per job are around $90,000.

The conclusion from this is that New Zealand needs to be focused on developing high tech manufacturing jobs. As an enabling technology for such jobs, high speed broadband networks must become widely available in rural areas.