The Dual Risks of Digital Exclusion and Unaffordability of Telecommunications in Lower‐Income Australian Households

• Published date: 01 December 2024
• Author: Ewa Orzechowska‐Fischer,Emily Rose,Robert Breunig
• Date: 01 December 2024
• DOI: http://doi.org/10.1111/1467-8462.12569

The Australian Economic Review, vol. 57, no. 4, pp. 319–350 DOI: 10.1111/1467-8462.12569

Article

The Dual Risks of Digital Exclusion and Unaffordability of

Telecommunications in Lower‐Income Australian Households

Ewa Orzechowska‐Fischer, Emily Rose and Robert Breunig*

Abstract

We analyse household telecommunications

spending in Australia over the period

2006–2021 using Household Income and

Labour Dynamics in Australia (HILDA)

survey data. We find the affordability of

telecommunications is improving, and that

telecommunications spending behaves like

other core necessities, such as food. We find

households in which members are not em-

ployed, have relatively low education, are

elderly, Aboriginal or Torres Strait Islanders

or immigrants, speak English poorly, reside

alone, or have long‐term health conditions are

at heightened risk of digital exclusion due

to lower spending on telecommunications.

Households located in rural areas, with

children or with members that work from

home are at higher risk of digital exclusion as

a consequence of overspending on telecom-

munications. Overall, the number of people at

risk of digital exclusion from inadequate

spending or overspending is quite small in

Australia. The risks appear to have decreased

during COVID‐19. Telecommunications is a

core necessity but given the small number of

people at risk of exclusion, policies addres-

sing affordability should be highly targeted.

JEL CLASSIFICATION

D12; E21; I39

1. Introduction

From attending lectures and working from

home, to facilitatingentertainment and keeping

in touch with family and friends, access to

telecommunications is increasingly integral to

everyday life. The affordability of telecommu-

nications affects digital inclusivity, potentially

creating a ‘digital divide’that leaves some

Australians unable to fully participatein digital

life. Knowing the characteristics of households

facing affordability barrier s is essential to

addressing digital exclusion.

This paper uses data from the Household

Income and Labour Dynamics in Australia

(HILDA) survey to examine household

spending on tel ecommunications and the soci o-

economic factors that affect the affordability of

telecommunications. It extends earlier research

by the Bureau of Communications, Arts and

Regional Research (BCARR 2017, 2020) and

Breunig and McCarthy (2020) by identifying

socioeconomic factors linked to the afford-

ability of telecommunications—measured by

the share of a household's disposable income

spent on telecommunications.

The main contribution of our paper is to

extend the analysis of Breunig and McCarthy

(2020) through 2021, covering the main years

of the COVID‐19 pandemic period. Another

* Ewa Orzechowska‐Fischer and Emily Rose: Bureau

of Communications, Arts and Regional Research—

Department of Infrastructure, Transport, Regional

Development, Communications and the Arts, Canberra,

Australian Capital Territory, Australia; Robert Breunig:

Tax and Transfer Policy Institute, Crawford School of

Public Policy, Australian National University, Canberra,

Australian Capital Territory, Australia. Corresponding

author: Breunig, email robert.breunig@anu.edu.au

© 2024 The Author(s). The Australian Economic Review published by John Wiley & Sons Australia, Ltd on behalf of The University

of Melbourne, Melbourne Institute: Applied Economic & Social Research, Faculty of Business and Economics.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and

reproduction in any medium, provided the original work is properly cited.

contribution is that we consider the effects of

education and student status, which were not

considered in that paper.

We have a number of key findings. First,

we find that, in general, telecommunications

affordability is improving over time as

Australian households spend a lower propor-

tion of disposable income on telecommunica-

tions. Large affordability improvements were

experienced by the two high‐risk groups

identified in this paper. Expenditure, as a

share of household income, decreased by

about one‐third over the 15 year period of

our study. This trend continued during the

COVID‐19 period despite the large increase in

use of telecommunications during the pan-

demic and the heightened necessity of tele-

communications during COVID‐19.

Second, a household's spending on tele-

communications resembles their spending on

other necessities such as food, supporting the

idea of telecommunications as a necessity

good. Third, our analysis identifies house-

holds that typically spend less on telecommu-

nications. These are households where mem-

bers are not employed, have a relatively low

education, are aged 65 and above, Aboriginal

or Torres Strait Islanders or immigrants, speak

English poorly, reside alone, or have one or

several long‐term health conditions.

Finally, we identify characteristics of low‐

income households with potentially unsustain-

able spending on telecommunications.

Identifying these households is important, as

they too are at higher risk of potential digital

exclusion.

1

Our analysis identified households

at higher risk from overspending on telecom-

munications if members worked from home,

were younger or middle aged, in financial

stress, had children, were Aboriginal or Torres

Strait Islander, were immigrants from a non‐

English speaking background, and/or if the

household size was larger or in a rural area.

The paper is set out as follows. Section 2

reviews the small number of studies exam-

ining the drivers of telecommunications

spending in Australia. Section 3 describes

the data we use, and key trends in spending on

telecommunications by all households and

low‐income households. Sections 4 and 5

discuss the socioeconomics characteristics of

households spending more or less on tele-

communications and of low‐income house-

holds with unstainable spending on telecom-

munications. Section 6 concludes and dis-

cusses some limitations of this research.

2. Related Literature

A small body of literature examines the

patterns and socioeconomic drivers of tele-

communications expenditure in Australia.

Previous BCARR studies drew on HILDA

data to identify groups of households that

spend a higher than average proportion of

their disposable income on telecommunica-

tions. These were households with at least one

member who was: Aboriginal or Torres Strait

Islander; not employed; aged 65 or older; a

student; and households in rural areas

(BCARR 2017, 2020).

Breunig and McCarthy (2020) progressed

this analysis and modelled the relationship

between a household's characteristics and its

share of disposable income spent on telecom-

munications using HILDA data over a 10‐year

period (2006–2015). They found households

with younger people spent more on telecom-

munications (as a share of their disposable

income), while households with older people

spent less. In general, higher income house-

holds spent a lower proportion of income on

telecommunications. Controlling for income

and household size, poor health, Indigenous

status, speaking English poorly, being an

immigrant from a non‐English speaking

country, and not being employed (unem-

ployed or not in the labour force) were all

associated with lower‐than‐average telecom-

munications spending (as a proportion of

household income). In contrast, living in

remote or rural areas and being in financial

stress were associated with higher‐than‐

average telecommunications spending.

Breunig and McCarthy also found that

telecommunications spending behaves like a

necessity—households on low incomes spend

a high share of their disposable income on

telecommunications, but this share becomes

smaller as household incomes grow. Further,

320 The Australian Economic Review December 2024

© 2024 The Author(s). The Australian Economic Review published by John Wiley & Sons Australia, Ltd on behalf of The

University of Melbourne, Melbourne Institute: Applied Economic & Social Research, Faculty of Business and

Economics.

they identified two groups of low‐income

households with unsustainable patterns of

spending on telecommunications: one group

overspending, and the other group under-

spending. The first group spends a very high

share of their household budget on telecom-

munications to the detriment of other needs;

while the second group spend ‘too little’and

may miss out on the benefits associated with

using telecommunications. Both groups,

Breunig and McCarthy argued, were at

heightened risk of digital exclusion because

of their spending patterns (see footnote 1).

Using the same dataset, Ali et al. (2020)

examined the relationship between the

affordability of telecommunications and

household income distribution and socio-

economic inequality. The authors tested two

measures of telecommunications afford-

ability: a measure of household annual

expenditure on telecommunications, and a

composite index measuring aspects of

digital inclusion, such as the share of

household income spent on telecommunica-

tions and the total internet data allowance

per dollar of expenditure. Using both

measures, they found that socioeconomic

advantage translates into digital advantage

by impacting affordability of telecommuni-

cations. In particular, the greater a house-

hold's socioeconomic advantage, the grea-

ter its affordability of telecommunications.

Further, Ali et al. (2019) found that while

affordability was negatively correlated with

age, being located in a major city or an

urban area had a positive effect on afford-

ability. Older individuals may pay more

because they get stuck in expensive

plans and do not update their spending

patterns to take advantage of reduced costs

over time.

Thomas et al. (2023) used the Internet

Usage Survey to construct a measure of

telecommunications affordability for input

into the Australian Digital Inclusion Index.

They found that in 2022, on average,

4 per cent of all Australians would need

topaymorethan10percentoftheir

household income to gain quality, reliable

connectivity. This proportion increases to

27 per cent in the lowest income quintile

(households with a total income of less than

$33,800 per annum). In this group the

affordability of telecommunications ser-

vices is particularly low. Lower afford-

ability was also found for those who were

unemployed, aged above 75 years, renting

from a public housing authority, without a

complete secondary school education,

living with a disability, receiving income

support and/or Aboriginal or Torres Strait

Islanders.

3. Data

Our analysis uses data from the HILDA

survey, a longitudinal survey that collects

information on respondents’economic and

demographic characteristics. The survey

has been conducted annually since 2001.

In 2021, the year of HILDA this analysis

uses, the sample comprised 16,549 indivi-

duals in 9,358 households.

2

See Watson

and Wooden (2010) for an in‐depth discus-

sion of the HILDA data.

Using HILDA data, we classify house-

holds into two groups to reflect the possible

characteristics of the household: ‘some’

where at least one household member

exhibits a given characteristic and ‘all’in

which all household members exhibit

the given characteristic. For example, a

household could have one member from a

non‐English speaking background and one

from an English‐speaking background. This

household would be classified as hav-

ing ‘some’members from a non‐English

speaking background.

3.1 Telecommunications Spending in HILDA

HILDA has collected information on house-

hold spending on telecommunications since

2006, allowing for 15 years of data to be

analysed. The key variable of interest is a

HILDA variable (_hxytlii) that captures

household annual expenditure on telecom-

munications. This variable is based on

responses to the HILDA Self‐Completion

Questionnaire on monthly expenses on

321The Dual Risks of Digital Exclusion and Unaffordability of Telecommunications in

Lower‐Income Australian Households

© 2024 The Author(s). The Australian Economic Review published by John Wiley & Sons Australia, Ltd on behalf of The

University of Melbourne, Melbourne Institute: Applied Economic & Social Research, Faculty of Business and

Economics.