In Business Model, Internet Access, Mobile

Most observers spend way too much time worrying about which firm or country is ahead or behind in 5G. Ultimately, what matters is how much value any firm or nation can wring out of a platform. We have seen this before, in fixed network broadband generally.

“Is there a broad economic societal payoff from increasing broadband speeds from 10 Mbps to 25 Mbps, or are the benefits mostly private in nature (faster movie downloads)?” asks George Ford, Phoenix Center chief economist, who recently spoke at PTC’19.

“Do counties with mostly 25 Mbps broadband connections fare better economically than counties with mostly 10 Mbps broadband connections?” Ford rhetorically asks. “I find no evidence of such an effect here, at least with respect to the growth in jobs, personal income, or labor earnings between 2013 and 2015.”

“Broadband (and higher speed broadband) is not randomly distributed across geography, but rather is deployed in areas where the ratio of demand to costs is favorable, complicating the task of discovering broadband’s influence on economic outcomes,” Ford notes.

To cite just one example, “population density in counties with predominately 25 Mbps service averages 603 persons per square mile, but only 32 persons-per-square-mile for counties with predominately 10 Mbps broadband service,” Ford notes. That matters because infrastructure is cheaper to deploy in urban areas than rural areas. So population density alone might explain speed differences, as a matter of supply.

Average population for the treated counties (where 25 Mbps is a minimum speed) is 251,490, but a paltry 22,013 for the control group (10 Mbps service)—a 10-fold difference, says Ford. But there are other important differences.

The average number of jobs in the treated group is 150,288, while only 10,605 in the control group. If one assumes stronger economic activity also creates higher demand for faster broadband, the difference between areas with 25 Mbps and 10 Mbps is explainable.

Similar size differentials are observed for total earnings as well as personal income. In other words, higher-income consumers can afford to pay for more-expensive broadband.  Large differences are also seen in the share of persons with a college education (22 percent in 25-Mbps areas compared to 14 percent in 10-Mbps areas).

In a broad sense, the issue is whether economic growth is driven by something other than broadband speeds. In other words, faster broadband gets deployed where demand is highest, and those areas also tend to be areas of higher household income and higher economic growth generally.

What matters is the ability to wring value from broadband.

“Stated simply, merely counting broadband connections or penetration, without regard to any consideration of value, assumes that all types of broadband connections are equal and that all societies are equal and identical in how they value Internet access by speed and connection mode; that all users of broadband place equal value upon that connection and all such connections can be produced at equal cost,” notes George Ford, Phoenix Center chief economist.

That is not to say faster internet access is immaterial. Faster broadband might lead to technological advances that do much more than simply increase broadband speeds, Ford notes.

The point is that it is hard to identify the relationship between broadband and economic growth.

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