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Wednesday, April 26, 2006

Broadband's Economic Impact: Haves vs. Have-Nots

Today's broadband Internet question is: What is the economic impact of broadband availability and use in a community, whether publicly or privately provided?

Note: This article is the second in a series about municipal broadband systems, particularly AFCNet in American Fork, Utah. Here is the first article.

Previous Article: To Have or not to Have Municipal Broadband

There are two basic questions to consider, with respect to municipal broadband systems' economic impact.

The first question is today's topic: What is the economic impact of broadband availability and use in a community, whether publicly or privately provided?

The second question is the topic of the next article in this series: How does the economic impact of municipal broadband (provided by local government) compare to the economic impact of broadband in communities served only by providers from private industry?

Widespread broadband availability in communities is a relatively new phenomenon, so there is neither a wealth of useful data to analyze its effects nor an abundance of scientific studies of that data. Several years ago, some interesting predictive studies were made, projecting what was likely to happen in the future. In the last year or so econometric studies of the nation's and individual communities' actual experiences with broadband have begun to trickle in.

Such studies are complex and very technical -- two qualities I want to avoid in these articles as much as possible. But I cannot avoid them altogether, particularly in the matter of what the studies do and do not show. In case you want to digest the econometrics themselves, and because I need to give credit where credit is due, the study I most rely on here, a 2005 study by MIT and Carnegie Mellon scholars, is linked at the end of the article. It, in turn, cites a variety of other studies on which it depends.

First, some limitations.

• The studies I have read do not distinguish between "big" broadband, such as AFCNet or the fiber optic system in the Traverse Ridge developments in Lehi, and "little" broadband, such as DSL, which is only a few times faster than conventional dial-up service.
• The studies tend to focus on broadband availability, about which there is a modest amount of existing data, and not on actual broadband usage. The latter will become a more important distinguishing factor as broadband penetrates more communities. Once nearly everyone has access to broadband, the haves-versus-have-nots comparison will be less useful than the heavy-use-versus-light-use comparison, or the entertainment-use-versus-work-use-versus-educational-use comparison. But for now, there is little data to illuminate these other comparisons.
• Broadband has not yet been around long enough to allow economists to discern whether broadband's its economic effects are zero-sum -- meaning the "have" communities gain economic activity lost by the "have-nots," or whether the effect is actually to expand the economic pie.
• Broadband is only one cog in the high-tech machine. As the aforementioned MIT/Carnegie Mellon study puts it, "Broadband does not act on the economy by itself, but in conjunction with other IT [information technology] (primarily consisting of computers and software . . .) and associated organizational changes."

Now, some conclusions:

• Communities with widely-available broadband have experienced more rapid growth in employment, on the order of 1.0 to 1.5 percent more. That may not sound like a lot, but in an economy where the unemployment rate hovers around 3.0 to 5.0 percent, it's huge.
• Communities with widely-available broadband see faster growth in the number of businesses located in the communities, on the order of 0.5 to 1.2 percent faster. This is not huge, but measurable and significant -- and it compounds.
• In such communities, a higher percentage of businesses are IT-intensive.
• Contrary to expectations, the MIT study shows that broadband communities show a slightly higher ratio of larger companies (10 or more employees) to smaller companies (less than 10 employees). This may be related to higher employment rates, but I suspect it also is skewed by the fact that home-based (very small) businesses are difficult to count reliably, since many are unlicensed.
• Property values appear to be a few percent higher in "have" communities, in comparison to similar "have not" communities, as measured indirectly by average residential rental rates.

Overall, the conclusion is unsurprising: Widely-available broadband in a community has a significant positive effect on the local economy.

Here is a link to the 2005 MIT/Carnegie Mellon nationwide study, which cites and in some cases links to several other studies.

The next article will wonder: How does the economic impact of municipal broadband (provided by local government) compare to the economic impact of broadband in communities served only by providers from private industry?

Next Article: Broadband's Economic Impact: Public vs. Private

Copyright 2006 by David Rodeback.
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