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"The Economic Evidence Remains Uncertain,"
Thursday, 23 June 2011 20:28
sam_paltridgeTaylor Reynolds and Sam Paltridge at OECD are two of the most respected economists covering broadband. Like me, they are strong advocates of more broadband but are also committed to accuracy in presenting data. Their influential new report on national broadband plans reflects what every unbiased economist in the field knows: many claims are made for economic benefits of broadband but the evidence behind them is weak. I've included their section below, which points to some substantial claims but does not confirm them. 
    Some of the best work cannot find any effect large enough to measure. There essentially is not enough data for a meaningful analysis on the situation where 60-75% are connected and availability is over 95%. The U.S. and Western Europe are now in a very different situation than when few had broadband. Nearly everyone economically active has a connection. Additional investment will mostly be about higher speeds, and there is essentially zero evidence anywhere in the world that higher speeds have a large effect on economic growth. (I hope they do, but it's more likely to be a very small effect.)
    A second paper, Next Generation Access Networks and Market Structure, is painfully wonkish but very thoughtful. They go far beyond the usual cliches about competition. One key takeaway is that developing facilities-based competition is extremely challenging in fiber to the home/basement environments unless coax cable is already in place. This is a key battle in Australia and New Zealand, both building national fiber networks to nearly every home. Australia's NBN is government-built, with Telstra becoming "just another reseller." Telecom New Zealand is being split into wholesale and retail (structural separation). The resulting entity has near monopoly power. Britain has shown the problems, including price raises by BT Wholesale and Openreach. Cable is only in 50% of the country with no competitor for the rest. UK retail deregulation has worked very well, with advancing services and some of the best pricing in Europe. But the wholesale price is high and has gone up. The result is prices 10-15% above comparables in France.
    People active in policy need to read them.
 
The economic effects of broadband access
Among the benefits suggested for the wider adoption of broadband Internet access are an increase in
economic growth and improvements in labour productivity. While these are frequently recognised in the
NBP, economic budgets and policies are much less likely to mention this benefit. Such measurements are
far from simple, as the many years taken to resolve the Solow Paradox showed.15
There are relatively few instances of key performance indicators in NBPs that would allow
monitoring of the achievement of the economic goals.
Some economists have found that investment in broadband Internet access directly correlates to
growth in GDP and gains in productivity. For example, the World Bank found that in low and middle
income countries every 10 percentage point increase in broadband penetration accelerated economic
growth by 1.38 percentage points, significantly more than in high income countries and more than for other
telecommunications services.16,17 McKinsey & Company suggested that a “consensus” view was that a
10% increase in household penetration of broadband boosted GDP by 0.1% to 1.3%.18 The variation was
accounted for, to some degree, by differences in the methodologies used, for example, measuring
penetration in terms of individuals and households.
Booz & Company found that a 10% higher broadband penetration in a specific year correlated to 1.5
per cent increase in labour productivity growth over the following five years.19
The economic evidence remains uncertain, not least since the data available are often only for ten
years and generally with initially fairly low penetration rates and related to the slower broadband speeds,
rather than for higher-speed broadband networks. Consequently, it will continue to be important to collect
and to analyse data in order to monitor the progress being made in harnessing the many potential economic
and social benefits, which have been identified as being possible.
(2011), "National Broadband Plans", OECD Digital Economy Papers, No. 181.
doi: 10.1787/5kg9sr5fmqwd-en
Last Updated on Thursday, 23 June 2011 22:59