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Do Increased Boadband Speeds Boost Economic Benefits?

Broadband Speeds and Economic Development Benefits Challenged in UK Report

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A new report published by The Economist Intelligence Unit in the UK challenges the popular assertion that ultrafast broadband speeds deliver increased economic benefits. The emphasis of speed as a factor in increasing the benefits broadband already provides is critical as local and state governments consider investing in high speed broadband networks. Google and Verizon also have invested heavily in fiber broadband networks designed to deliver superfast broadband service.

The United Nations has been encouraging countries to develop national broadband plans, and have emphasized the important role speeds play in economic development. In its recently published report entitled The State of Broadband 2012: Achieving Digital Inclusion for All, the UN report asserted the following:

Today’s Internet economy is large and growing fast by every measure. In 2012, the Boston Consulting Group estimated the size of the Internet economy in the G20 countries at around US$ 2.3 trillion or 4.1% of GDP in 2010; by 2016, this could nearly double to US$ 4.2 trillion. In 2011, McKinsey estimated that the Internet accounts for 3.4% of total GDP and one fifth of all growth in GDP for the G8 countries plus five major economies (Rep. of Korea, Sweden, Brazil, China, and India – McKinsey Global Institute, 20113). Taking into account the spillover effects of broadband could boost these estimates further, as broadband connectivity is also argued to impact positively labor productivity (e.g. Booz & Company, 20094) and job creation (e.g. Ericsson, Arthur D. Little, 20125, Shapiro & Hassett, 20126).

In another UN related initiative, The Telecommunication Development Sector of the ITU published a comprehensive report analyzing National Broadband Plans around the world to reach conclusions about broadband and economic development. In April 2012 this body joined with UNESCO to launch the Broadband Commission for Digital Development to encourage governments to adopt national broadband plans.

Consider the following widely cited reports:

  • For every one percentage point increase in broadband penetration in a state, employment is projected to increase by 0.2 to 0.3 percent per year. Source: The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data. Robert Crandall, William Lehr and Robert Litan, the Brookings Institution
  • An increase in the broadband penetration rate by 10 percentage points raises annual growth in per-capita GDP by 0.9 to 1.5 percentage points. Source: Broadband Infrastructure and Economic Growth, 2009. Nina Czernich Oliver Falck, Tobias Kretschmer and Ludger Woessmann
  • According to the U.S. Department of Commerce, between 1998 – 2002 communities that gained access to broadband service experienced an employment growth increase of 1% to 1.4%, a business establishment increase of 0.5% to 1.2%, and a rental value increase of 6%

Broadband as an Economic Driver: What Are the Economic Benefits of Broadband?

While most reports point to the major role broadband deployment plays in economic development, and typically imply that higher speeds are better, the correlation between speeds and economic development have not been extensively studied before the Ericsson and Economist Intelligence reports.

Ericsson's Need for Speed Report Emphasizes Strong Correlation Between Broadband Speeds and Economic Impact

The Telecommunication Development Sector of the ITU published a comprehensive report analyzing National Broadband Plans around the world to reach conclusions about broadband and economic development. Part of this effort culminated with the publication of a comprehensive report entitled "The Impact of Broadband on the Economy: Research to Date and Policy Issues.

The ITU report specifically mentioned broadband speeds as a factor in economic development:

"Policy makers and researchers agree that the speed of Internet access matters. So far, research has proven that the move from dial-up to broadband (be it DSL or cable modem) has a positive impact on productivity. However, it is yet unclear whether there is a linear relationship between speeds and economic impact. The question is: at what speed should broadband be offered in order to maximize economic impact?

In order to answer this question, regulators need to keep data on the number of subscriptions by speed. For one, this would greatly facilitate cross-country comparisons. It is unrealistic to assume that the average broadband customer in a developed country has the same service quality as his counterpart in a developing nation. Yet, because these data are not available economic studies are forced to make this assumption. This may have created a large range of problems. For example, studies disagree whether broadband is more useful to urban areas and developed countries. However, more developed countries often offer faster broadband services, so it is difficult to tell whether the effects increase because the impact of increasing access speeds is very large or developed countries can more successfully use broadband services. Data compiled on the number of subscriptions by range of speed will help researchers quantify the marginal returns on speed. In turn, this will help countries optimize their broadband plans.

Broadband in The United Kingdom: Falling Behind or Keeping Pace with the World? UK Broadband Report Raises Question of Readiness to Adopt

For example, it will become clear whether policy should focus on the development of new technologies (such as fibre to the home deployment) or increasing coverage of basic technologies. There is no point in investing in 100 Mbit/s services if they don’t offer any socio-economic gains relative to 10 Mbit/s services.

With overwhelming evidence to the contrary, why do the authors of the UK Report: Superfast Britain: Myths and Realities About the UK's Broadband Future challenge the popular assertion that increased broadband speeds mean increased economic development? Surprisingly, the primary reason is the UK's readiness to actually adopt to higher speed networks. The report specifically cites the limited number of skilled workers available to fully utilize high speed networks, and the lack of policies to address the use of telemedicine and electronic health records. In addition to the UK's readiness to adopt, the report also challenges the incremental benefits achieved with each speed level. The authors point out that the maximum benefit broadband speeds provide are advancing from dial-up speeds to broadband. Benefits beyond initial economic gains are marginal after that point, according to the report.

Broadband as an Economic Driver: What Are the Economic Benefits of Broadband?

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