Broadband's impact on an economy

Accepted wisdom is that broadband is an important economic enabler. Certainly that is the argument of those promoting FTTH deployment in Europe. But is it true?

The findings of a 2005 study, by the Massachusetts Institute of Technology’s (MIT) Center for Technology, Policy and Industrial Development, suggests broadband does benefit an economy. But it is extremely difficult to measure, according to one of the work's authors.

Using U.S. national data, the MIT study showed communities experienced more rapid growth in employment and businesses once mass-deployment of broadband occurred between 1998 and 2002.

What the study didn't answer is whether the economic benefits are short lived once neighbouring regions catch up, or whether the benefits of getting broadband earlier compound into the future. Nor did it measure the relative economic impact of particular broadband technologies such as digital subscriber line (DSL) versus FTTH. But new data collected from late 2005, as mandated by U.S. regulator, the Federal Communications Commission (FCC), will enable such analysis in future.

"The big problem with determining the economic cost - benefits foregone, loss of competitive advantage - associated with slower broadband adoption is that it is very difficult to measure,” says William Lehr, research associate in the Center for Technology, Policy and Industrial Development at MIT. “It is difficult to measure the impact of any IT related input and even more difficult to measure the impact associated with a specific kind of IT”

"Qualitative: broadband seems to produce benefits," says Lehr. "Quantitative: in our study these were on the order of 1% higher job growth which is huge and increased share of firms in higher value IT-intensive sectors.

“However, we are not convinced we have adequately controlled for causality. Simply put, this is the question of whether broadband follows economic activity (communities with broadband are ones that had greatest growth prospects) or whether broadband produces economic activity. Our study used the best metrics available to control for causality but this remains an important question.”

Lehr continues:

“With respect to FTTH and who lags whom, there are no good empirical studies. Some will argue that early pioneers may be the ones with arrows in their backs. That is likely the case with some of the municipal broadband deployments. That said, it seems clear to me that FTTx is a good thing and more bandwidth in the last mile facilities will help promote growth across the value chain. But -- I do not have a number to say how important.

Also, catching up is relatively easier as systems become more modular and commoditised. So it is unclear whether communities that fail to adopt broadband will lose much in competitive advantage if they follow more closely.

Real issues are whether future global economy based on broadband will promote localism or accentuate the scale/ scope of the economies of the leaders. Will Hollywood become even more dominant or will French local content finally be able to reach a viable audience? Both equilibria are possible. I believe that broadband enhances opportunity for local content and local economies, but this is unproven.

Another obvious benefit of broadband sooner is you realize the consumption gains sooner. It has been estimated that the cost of delaying mobile telephone services in the US because of regulatory delays was on the order of $40 billion in foregone consumer surplus. These sorts of economic losses are sizable but again are difficult to estimate,” he says.


Does it matter that Europe lags in FTTH deployments?

Are equipment vendors right to raise concerns or should they be investing more effort to quantify the cost to Europe of its non- deployment?