Australia has slow Internet access when compared to other first-world countries. The costs of hosting servers are larger and the cost of residential access is greater with smaller limits. I read news reports with people in other countries complaining about having their home net connection restricted after they transfer 300G in one month, I have two net connections at the moment and the big (expensive) one allows me 25G of downloads per month. I use Internode, here are their current prices  (which are typical for Australia – they weren’t the cheapest last time I compared but they offer a good service and I am quite happy with them).
Most people in Australia don’t want to pay $70 per month for net access, I believe that the plans which have limits of 10G of download or less are considerably more popular.
Last time I investigated hosting servers in Australia I found that it would be totally impractical. The prices offered for limits such as 10G per month (for a server!) were comparable to prices offered by Linode  (and other ISPs in the US) for hundreds of gigs of transfer per month. I have recently configured a DomU at Linode for a client, Linode conveniently offers a choice of server rooms around the US so I chose a server room that was in the same region as my client’s other servers – giving 7 hops according to traceroute and a ping time as low as 2.5ms!
Currently I am hosting www.coker.com.au and my blog in Germany thanks to the generosity of a German friend. An amount of bandwidth that would be rather expensive for hosting in Australia is by German standards unused capacity in a standard hosting plan. So I get to host my blog in Germany with higher speeds than my previous Australian hosting (which was bottlenecked due to overuse of it’s capacity) and no bandwidth quotas that I am likely to hit in the near future. This also allows me to do new and bigger things, for example one of my future plans is to assemble a collection of Xen images of SE Linux installations – that will be a set of archives that are about 100MB in size. Even when using bittorrent transferring 100MB files from a server in Australia becomes unusable.
Most Australians who access my blog and have reasonably fast net connections (cable or ADSL2+) will notice a performance improvement. Australians who use modems might notice a performance drop due to longer latencies of connections to Germany (an increase of about 350ms in ping times). But if I could have had a fast cheap server in Australia then all Australians would have benefited. People who access my blog and my web site from Europe (and to a slightly lesser extent from the US) should notice a massive performance increase, particularly when I start hosting big files.
It seems to me that the disadvantages of hosting in Australia due to bandwidth costs are hurting the country in many ways. For example I run servers in the US (both physical and Xen DomUs) for clients. My clients pay the US companies for managing the servers, these companies employ skilled staff in the US (who pay US income tax). It seems that the career opportunities for system administrators in the US and Europe are better than for Australia – which is why so many Australians choose to work in the US and Europe. Not only does this cost the country the tax money that they might pay if employed here, but it also costs the training of other people. It is impossible to estimate the cost of having some of the most skilled and dedicated people (the ones who desire the career opportunities that they can’t get at home) working in another country, contributing to users’ groups and professional societies, and sharing their skills with citizens of the country where they work.
Companies based in Europe and the US have an advantage in that they can pay for hosting in their own currency and not be subject to currency variations. People who run Australian based companies that rent servers in the US get anxious whenever the US dollar goes up in value.
To quickly investigate the hosting options chosen for various blogs I used the command “traceroute -T -p80” to do SYN traces to port 80 for some of the blogs syndicated on Planet Linux Australia . Of the blogs I checked there were 13 hosted in Australia, 11 hosted independently in the US, and 5 hosted with major US based blog hosting services (WordPress.com, Blogspot, and LiveJournal). While this is a small fraction of the blogs syndicated on that Planet, and blog hosting is also a small fraction of the overall Internet traffic, I think it does give an indication of what choices people are making in terms of hosting.
Currently the Australian government is planning to censor the Internet with the aim of stopping child porn. Their general plan is to spend huge amounts of money filtering HTTP traffic in the hope that pedophiles don’t realise that they can use encrypted email, HTTPS, or even a VPN to transfer files without them getting blocked. If someone wanted to bring serious amounts of data to Australia, getting a tourist to bring back a few terabyte hard disks in their luggage would probably be the easiest and cheapest way to do it. Posting DVDs is also a viable option.
Given that the Internet censorship plan is doomed to failure, it would be best if they could spend the money on something useful. Getting a better Internet infrastructure in the country would be one option to consider. The cost of Internet connection to other countries is determined by the cost of the international cables – which can not be upgraded quickly or cheaply. But even within Australia bandwidth is not as cheap as it could be. If the Telstra monopoly on the local loop was broken and the highest possible ADSL speeds were offered to everyone then it would be a good start towards improving Australia’s Internet access.
Australia and NZ seem to have a unique position on the Internet in terms of being first-world countries that are a long way from the nearest net connections and which therefore have slow net access to the rest of the world. It seems that the development of Content Delivery Network  technology could potentially provide more benefits for Australia than for most countries. CDN enabling some common applications (such as WordPress) would not require a huge investment but has the potential to decrease international data transfer while improving the performance for everyone. For example if I could have a WordPress slave server in Australia which directed all writes to my server in Germany and have my DNS server return an IP address for the server which matches the region where the request came from then I could give better performance to the 7% of my blog readers who appear to reside in Australia while decreasing International data transfer by about 300MB per month.