NBN to hit retail and wholesale profits

As genuine broadband moves consumers closer to producers, a leading economist predicts retail and wholesale profits will dip

A leading economist has predicted the National Broadband Network (NBN) will boost all industries but also hurt retail and wholesale companies.

Centre for International Economics director, Kerry Barwise, said while all industries would benefit from greater efficiency from the NBN, retail and wholesale companies will suffer as the gap narrows between producers and consumers.

“Even though they gain from the efficiencies they will actually lose out as the consumer dollar moves somewhere else,” Barwise said at the Broadband World Australia conference in Sydney this week.

With consumers going directly to the producer, retailers may suffer as they are bypassed.

“It will be tough in the retail sector for the next couple of years,” he said. “The only real difference being that some states are likely to have a larger concentration of some of the industries that don’t do as well as others.”

With a high concentration of retail and wholesale activities in NSW and Victoria, these states will likely be most affected as capital flows to where there is most growth in places like QLD and WA.

“The economics are going to be driven by the way broadband is used and what it does to the economy at large,” Barwise said.

“There has been a lot of analysis about the labour productivity gains that businesses obtain from broadband; it allows businesses to do more with the same amount of people.”

Barwise said genuine broadband requires a significant fibre backbone capable of symmetric speeds over 10Mbps, with a development platform allowing for up to 50-100Mbps in the future.

“We have some empirical evidence in Australia where we observed that firms with narrowband broadband [up to 54Kbps] got a little productivity gains, when they moved to early broadband [over 200Kbps] they got more than three times that gain, and when they moved to genuine broadband [over 10 Mpbs] they doubled their productivity again.

“Together with the OECD and our previous experience we should expect from the further use and rollout of genuine broadband the same productivity gains we got in the nineties, that is 0.1 to 0.2 per cent multifactor productivity growth per annum.”

Barwise said that translates to a GDP gain of around 1.4 percent, or $15 billion extra per year. The real benefit is the growth is sustainable as it drives prices down.

“A year ago we were worried that we were growing too fast and that prices were growing – this is the opposite, we can grow and reduce prices,” he said.

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