Broadband's Economic Impact Remains Unclear, Contested
The jury is still out; research urges careful consideration of both short- and long-term outcomes.
Internet access is a critical concern across the United States. Countless news reports chronicle a trend of states and local areas working to expand broadband Internet for unserved and underserved populations. One assumption driving these efforts is that improved broadband coverage will lead to better economic outcomes.
Here’s the complication: Research on broadband doesn’t necessarily confirm that assumption, even though certain pieces of research seem to suggest the case is closed. The literature on the relationship between broadband and the economy often focuses on two types of broadband: rural and municipal. Both types have distinct academic arguments associated with them, though observations about one type can sometimes be applied to the other.
At the beginning of this month, the American Action Forum (AAF) released a podcast titled “The Economics of Rural Broadband.” The podcast frames the issue by referencing billion-dollar plans from Democratic presidential candidates to increase rural broadband access. During this conversation, Will Rinehart, AAF technology and innovation policy director, shares a cautionary perspective about these plans.
“When you look at the data itself, it’s not as simple as just not having Internet access,” Rinehart said on the podcast, adding that he doesn’t believe anybody has a “very, very good sense” of how to implement rural broadband correctly on a wide scale.
The primary reason for this lack of clarity relates to data. Many studies about rural broadband’s positive economic associations use Federal Communications Commission (FCC) Form 477 data. This data, however, has been criticized by Microsoft and the U.S. Government Accountability Office, among others, for overestimating the reach of broadband. In response to this criticism, the FCC established in August a more “granular” method of data collection that “will collect geospatial broadband coverage maps from fixed broadband Internet service providers of areas where they make fixed service available.”
The more detailed FCC data, when it’s made available, should help researchers paint a more accurate picture about broadband. But that data measures the concept of broadband coverage. As suggested by Rinehart, the concept of broadband adoption is more strongly associated with economic benefits.
“Everyone has a better time, and the deployment is cheaper, if you have a higher amount of people that are actually going on and using the technology,” Rinehart said on the podcast. “So to me, that’s really the big missing step in all of these plans.”
But wouldn’t people surely use broadband if it were available to them? That’s not the story told by Census results.
“When you look at Census data, the vast majority of the people that are not currently connected to the Internet aren’t connected because they don’t think that it’s relevant in their lives,” Rinehart said on the podcast.
As stated by telecommunications policy analyst Rafi Goldberg, “The proportion of offline households citing lack of need or interest has increased from 39 percent in 2009 to 58 percent in 2017.” Furthermore, a 2019 Pew Research Center survey indicates that 80 percent of “non-broadband users say they are not interested in getting high-speed connections at home.”
Such findings reveal limitations in research that implies rural broadband projects will bring a good return on investment. For example, a 2018 Purdue Center for Regional Development study estimates that, over a 20-year period, “Indiana would receive about $12 billion in net benefits if the broadband investment were made statewide.” This projected figure relies on a number of factors, including the idea that residents across Indiana would indeed adopt broadband.
Alison Grant, lead author of the Purdue publication, said the study’s ultimate message is its finding of a 4-to-1 benefit-cost ratio, meaning that for every dollar invested in rural broadband, Indiana would receive four dollars in return. In regard to broadband adoption, Grant pointed out that farmers in Indiana would be very likely to adopt, as their scanning drones operate more efficiently with faster Internet. For other residents in Indiana, she believes adoption would come down to a simple variable.
“It all depends on the price,” she said.
The holes in rural broadband research have less to do with the researchers themselves and more to do with the relatively small number of studies, Rinehart said in a phone interview with Government Technology. One of the challenges with rural broadband deployment is that it must be “very contextual,” meaning that more research is needed to account for a wide variety of factors, especially in cases involving massive programs.
“I would hope that there’s more work on it, but there isn’t,” Rinehart said.
The potential economic benefits of rural broadband also depend on businesses and the workforce. If an area doesn’t have workers qualified to take jobs that involve high-speed Internet, businesses may have to get the talent they need by outsourcing. In other words, rural broadband is a necessary condition, not a sufficient condition.
“[Broadband] doesn’t solve the fundamental problems of education and workforce training,” Rinehart said on the podcast.
Municipal, or government-owned, broadband projects have received considerable attention from scholars because of their controversial nature, according to a 2016 State Government Leadership Foundation study written by George S. Ford. In the study, Ford said a municipal broadband project poses “an enormous financial risk,” but hundreds of cities have gone in that direction “out of desperation for modern communications services (i.e., very high-speed broadband) and the benefits they are believed to provide.”
Research on the assumed benefits of municipal broadband showcases the risk of such projects. In a 2014 study, author Brian Deignan, using a sample of 80 cities with municipal broadband, concluded that “[i]nstead of increasing private employment, networks increase local government employment by around 6 percent.” Deignan did add that more research is needed to fully understand these cases.
Just two months ago, a Technology Policy Institute study by Sarah Oh indicated that it could not “prove that municipal broadband yields any effect on changes in household broadband subscriptions, unemployment rates, or labor force participation rates.” However, Oh’s sample of places with municipal broadband was only 22. Moreover, the Technology Policy Institute is supported by a variety of private vendors, which, if nothing else, speaks to the tension involved in municipal broadband projects.
Ford’s 2016 piece mentioned several studies that link broadband to economic growth. Ford nonetheless suggested caution. For instance, in regard to the successful broadband system in Chattanooga, Tenn., Ford said the city gained businesses after establishing faster Internet, but many of them relocated from other places. Such industry gains are good news for Chattanooga but bad news for the cities that lost the businesses, which raises the question of whether a given municipal broadband project will lead to a better economic outlook for society as a whole.
HOW TO MOVE FORWARD?
Given the mixed results on the association between broadband and economic growth, what can leaders do as they plan to bring broadband to their communities?
In Grant’s opinion, governments must consider the number of people who would receive broadband in a given scenario versus the cost of the effort. Spending taxpayer dollars could be more difficult to justify when fewer people receive service.
“The cost per line per mile seems to be quite large when we move it up to rural areas,” she said.
Rinehart emphasized broadband adoption as a “key component” of any government initiative. He said it’s important to strategically use institutions to help increase broadband adoption numbers. Rinehart also believes governments should try to identify all of the potential paths to broadband and how feasible those paths are.
“A lot of times, local leaders don’t know what their options are,” Rinehart said.
Ford said he would caution governments not to believe most of the hype about the payoff of broadband to the economy. He also suggested that they work as closely as possible with existing providers to try to get expansion at the edge of existing networks. However, he said if a government does want to go into the broadband business, it should recognize that it’s going to be subsidizing the business forever.
“Go in with your eyes open,” he said.
Both Google and Community Networks have released best-practices checklists. While the FCC doesn’t appear to have released a similar best-practices document, its Broadband Deployment Advisory Committee has developed a number of recommendations, including model codes for both states and municipalities.