Connecting America
Broadband Policy Issues and Options for State Legislatures
Pre-Conference Invitational Seminar
NCSL Annual Meeting
Boston, Massachusetts
August 4-5, 2007
Session Date: August 5, 2007
Session Summary: The Economic Benefits of Broadband: Marvin A. Sirbu
By Michelle Larson-Krieg, Intern, Legislative Information Services, NCSL
This summary is provided for information purposes only. NCSL does not endorse any views it contains.
Summary: Plenary luncheon speaker Marvin Sirbu informed attendees that although the economic impacts of broadband can be difficult to measure, organizational level studies have shown that broadband usage leads to faster information processing and decision-making. Broadband usage can also improve businesses’ communication with their customers. Users who transform their business processes to take further advantage of broadband speeds and applications can realize even greater productivity gains.
Studies have found that communities that have had broadband since 1999 create more jobs, more overall businesses, and more businesses in IT-intensive sectors than communities that did not adopt broadband as early. Real estate prices in communities where broadband is available also tend to be higher.
Most of the U.S. is online, but not everybody. Adult adoption rates have plateaued at about two-thirds. There has been a significant switch from dial-up. Now, most Americans access the internet via broadband (45 percent), only 15 percent still have dial-up.
There are wide variations in internet use by age, education, and race. Less than one-third of seniors use the internet. Variations in broadband adoption by race and other factors aside from age have begun to diminish.
Income is still a big factor. Lower income equals lower broadband penetration.
There are many reasons to expect that broadband will have an economic impact. However, it is hard to measure the impact of information technology. One difficulty is that investments made five years ago are not the equivalent of investments made today.
The services industry has been the most impacted by broadband, but is also the most difficult to measure. Examples include services provided by departments of motor vehicles and bank clerks. Micro level studies indicate that broadband has sped up the metabolism of services. There is faster decision-making and better communication with customers.
One study divided users up into two groups – ordinary users and transformational users. Transformational users are those who institute process changes, and don’t just do the same things faster.
Broadband impacts workers, but these impacts are uncertain. We don’t know how middle management is affected, if broadband leads to increased automation, or if knowledge workers' jobs get outsourced. We do know that broadband can improve human capital through access to online courses and the ability to telecommute. Job hunting and shopping are two additional areas where broadband can have an impact. Contrast what is happening on the internet with the impact broadband is having on brick and mortar stores.
Broadband has many definitions. Speed is a qualitative difference. 200 kbps is a limited definition of “broadband.”
The national data on broadband deployment and use is poor. The FCC collects broadband deployment data by availability in each zip code. A single user per zip code is translated to mean that broadband is available in that zip code. Data on the actual number of broadband users is collected at the state level. No disaggregated data is available. Information at the local level is limited.
First generation studies were prospective and hypothetical. These include a study by Krandall and Jackson, which defined broadband between 100 and 500 kbps. Another first generation study was done by the Millennium Research Council. This study found that broadband generated 1.2 million jobs.
In 2003, actual case studies in communities provided anecdotal evidence. One study compared what happened in Cedar Falls, Iowa, a community with broadband, with what happened in Waterloo, Iowa, a nearby community without broadband. The results showed that more businesses located in Cedar Falls. Another study in Toronto also showed the positive impacts of broadband.
Larger studies were conducted in 2005. Dr. Ford examined retail sales in Lake County, Florida, a community with municipal broadband. He found that sales tax revenues grew faster there than in comparable communities without broadband.
Another study compared communities at the zip code level. This study sought to determine if communities that had access to broadband since 1999 evolved differently than communities that did not. The data for this study came from the U.S. Census Bureau, the U.S. Department of Agriculture, and the Federal Communications Commission. The researchers found that jobs, number of businesses, and number of businesses in IT-intensive sectors all grew faster in communities with broadband.
Another study used data from the decennial census and used rent as proxy for real-estate values. They found that rental rates were higher in communities where broadband was available. A Corning study revealed that where fiber is deployed, there appears to be about a six percent difference in housing sales prices.
Further findings include: rental rates are six percent higher in communities with broadband; new business growth is ½ to one percent higher; and there is a ½ percent shift in IT-intensive businesses. The number of small firms tended to decline in communities with broadband.
Employment statistics generally track the rate of population. The unemployment base rate is four percent. In communities with broadband, employment was a full one percent higher.
A negative impact was that the growth rate of salaries in communities with broadband was 1 percent slower. One hypotheses to explain this is that the study used a measure which included the salaries of part-time employees. A measure of full-time salaries only would be more accurate.
Another reason may be that telecommuters enlarge the available labor pool, thereby constraining salary growth. A further explanation may be that multi-location firms can reduce the number of management level staff. We don’t know for sure which explanation is correct.
An Ontario study demonstrated the benefits of fiber and fast broadband. One category where businesses experienced a positive effect was in improved access to both customers and suppliers. One example was in the car parts industry.
Broadband appears to create efficiencies in multi-location firms. For example, in the Pittsburgh Public Schools, a connection among 96 public schools has allowed the schools to centralize support services and buy user licenses in a centralized fashion. The broadband connection may also be able to provide student-specific storage capabilities that track a student throughout his or her academic career.
All of these applications require more than 200 kbps.
For many firms, broadband access is a competitive necessity, not just an advantage. Firms in Burlington, Vermont told officials, “If you don’t have fiber, we can’t stay.” They also indicated a need for fiber to the home so that employees could work from home as well.
There has been a significant increase in telecommuting. All JetBlue operators now work from home. The increase in telecommuters also results in transportation cost savings.
Broadband access can also provide education, health, and recreational benefits to individuals.
The policy issue associated with broadband can be condensed into three Cs:
1) Coverage – Many rural communities have no access or only limited access. Backhaul is a major issue for rural deployment.
2) Cost – U.S. broadband prices are relatively high. Cable may not be available to businesses and they may have to use an incumbent carrier. For residential broadband, some telcos have low-cost offerings as a result of the merger between AT&T and BellSouth, but that’s not widely available. Cable has higher speed service and doesn’t want to compete on price.
3) Competencies – Compare Portugal to Finland to see why competencies are an issue. Finland has a 95 percent high school graduation rate and a very literate workforce. Portugal has broadband access, but many of its citizens don’t have computers, and therefore don’t use the available access. You have to have both broadband access and computer literacy.
Education, literacy, and access are all necessary to obtain the benefits that broadband offers. Small businesses also may not realize how broadband could work for them.
Broadband access does impact economic growth, and the impacts are real. An alternative explanation for the differences between communities with broadband and communities without is that broadband communities are sucking resources away from communities that do not have broadband access.
Policy makers should adopt a balanced strategy that addresses both availability and competency.
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