For example, from my work on a fibre connection, pinging a local website takes about 2ms, and a US website about 160ms. Double that for residential DSL.
Also, national bandwidth is essentially free, and bandwidth to the USA is $$$.
It's generally billed at the same rate for all traffic without distinction. By hosting in the USA you assign the cost for bandwidth to users.
The economics of our ISPs and hosts are driven entirely by the price of about 3 major pipes out of the country.
My reply was in line with the parent post that the (implied) reason that Aussie business are reluctant to host overseas due to ignorance of options, perceived issues around support etc. From my dealings with Aussie business (of the sort that would host at lower tier hosting firms like the one in the article), they are ecstatic just to have a website. Issues such as latency don't even come into consideration.
http://radar.oreilly.com/2009/07/velocity-making-your-site-f...
So potentially, the money you save by hosting overseas is lost in lower conversion.
It was certainly true 5-10 years ago, and may still be true for older people, but my experience has been that you get better support overseas now anyway. The biggest issue for me has been that scheduled downtimes are usually in the middle of my day, but you can work around that.
It's not Telstra. There's plenty of non-Telstra international transit, and enough (but not plenty) of non-Telstra domestic transit.
The problem is that to run a hosting business in Australia, you don't get huge benefits from scale, and you're having to maintain a high staff member-to-customer ratio. Customers have a lot of protection (a good thing) through Fair Trading, and it seems that (from my experiences working in the industry) Australian users have a higher expectation of customer service.
Plus, there's also just the time-zone thing. Calling up mid-afternoon in Australia puts you at late-night in the US.
I run a blog network (http://ozblogistan.com.au) on a pair of Linode VPSes out of their Fremont centre. I periodically reprice hosting in Australia, but basically bandwidth charges make it prohibitive to host locally for the amount of traffic I get.
I'm talking $100+/mth differences.
Still, independent backups are vital. I use tarsnap.