Broadband Economic Benefits: Why Invest in Broadband Infrastructure and Adoption?
The long-term economic benefits of providing broadband access to every rural community exceed the cost of building that infrastructure. And it isn’t even close.
Broadband applications are becoming more and more important for residents, businesses, and government as the digital age continues to unfold. The digital divide – defined as those that have access, can afford, and know how to use broadband versus those who don’t – should be a key issue to be addressed by policymakers at the national, state, and local level.
But how much is being lost in economic benefits considering fixed broadband connectivity is not ubiquitous?
A 2017 study by Ohio State University Swank Program on Rural-Urban Policy estimated the economic benefits of providing broadband access to unserved households in Ohio. To calculate these estimates, the Ohio State study used customer surplus– what a consumer is willing to pay for a service compared to what they are actually paying. In other words, consumer surplus is the average amount of value a consumer receives from Internet service above and beyond the price.
The Ohio State study used $1,850 as the average household benefits of broadband subscribers per year based on estimates of consumer surplus from past economic analysis that range from $1,500 per subscriber to over $3,000 per subscriber. This is a conservative amount since it assumes the consumer surplus remains constant over time disregarding an increase in the value of broadband service and decrease in cost.
To apply the method from the Ohio State University study to the entire U.S., we first consider the landscape of fixed broadband access using the FCC’s definition of 25 Mbps download speeds and 3 Mbps upload speeds (25/3). Next, it is important to visualize U.S. counties by metropolitan or non-metropolitan type. Figure 1 shows U.S. counties by type.
Gray counties are counties inside metropolitan areas while those in beige are counties outside metropolitan areas. A total of 1,139 counties were classified as metropolitan versus 1,965 classified as non-metropolitan. Keep in mind independent cities and counties were merged in Virginia resulting in 3,104 counties analyzed.
Data regarding the percent of people without access to 25/3 fixed broadband is available from FCC Form 477. Using the December 2015 broadband dataset and 2010 population, approximately 10 percent of the U.S. population, or 31 million people, did not have access to 25/3. Further, the percent of 2010 population without access to 25/3 was 5.9 percent in metro counties (gray in Figure 1) or 15.5 million, compared to 34.2 percent or 15.8 million in non-metropolitan counties. Since the measure of the economic benefits of broadband used by Ohio State researchers is based on household subscribers, the average household size is used to calculate an estimated number of households without access to 25/3 fixed broadband.
Results are shown in Table 1. It is unlikely that all unserved households would subscribe to 25/3 even if they had access. As Pew Research Internet has shown, broadband adoption is impacted by age, income, and educational attainment. For this reason, five different adoption scenarios are included at twenty percentage points increments where the upper figure of 100 percent denotes full coverage and adoption of currently unserved households while the lower figure of 20 percent denotes only that amount of currently unserved households subscribing to broadband when available. Important to note is that the FCC 2016 Broadband Progress Report identified 28 percent as the average rate of rural broadband adoption.
Since households receive the benefits of broadband as long as they have a subscription, we project these annual economic benefits over fifteen years. This projection includes a 7 percent discount rate to discount the value of future benefits accounting for opportunity costs and technological change that could make broadband investments today obsolete in the future.
As shown in Table 1, about 12.1 million households (10.4 percent) lack access to 25/3 fixed broadband in the U.S. This in turn is generating a missed opportunity of $22.5 billion dollars per year or $219 billion over fifteen years assuming full coverage and adoption.
In non-metropolitan counties, about 6.2 million households (35.4 percent) lack access to 25/3 fixed broadband. These rural residents are missing out on $11.6 billion per year in economic benefits or $113 billion over fifteen years assuming full coverage and adoption.
On the other hand, the most conservative of scenarios, which assumes full access but only 20 percent adoption, would generate an impact of $4.5 billion per year or $43.8 billion over fifteen years in the U.S. In non-metropolitan counties, this same scenario would yield $2.3 billion annually or $22.7 billion over fifteen years.
These are large economic gains, especially for non-metropolitan counties, which in 2015 had 22.8 percent of people 25 to 54 (prime working age) or 3.2 million not participating in the labor force and an individual poverty rate of 18 percent compared to 17.4 and 15.5 percent respectively in the nation. Remember that broadband is, many times, the only conduit to search and apply for jobs, not to mention the opportunity it provides to gain new skills.
Figure 2, top of the page, shows the distribution of the average economic benefits per county classified as non-metropolitan using the fifteen-year projection and a 20 percent adoption rate (the most conservative scenario).
Note that the average economic benefits across non-metropolitan counties vary. Many Midwest counties would receive less than $5 million in economic benefits by getting 20 percent of their currently unserved households to subscribe to broadband, due to lower population density. Yet, as precision agriculture expands, access to high speed broadband is likely to offer even greater benefits to these areas beyond the numbers calculated per household.
Several areas of “high benefit” counties (with economic benefits of $10 million or more) are shown in dark red in Figure 2. Counties in Northern Maine, most of Arkansas, Mississippi, east Texas, southeast Oklahoma, among others would receive economic benefits of at least $10 million over fifteen years by expanding access and getting 20 percent of their households to subscribe.
These “high benefit” non-metropolitan counties (dark red) had a 2010 population of 29.9 million of which 42.2 percent did not have access to 25/3 fixed broadband as of 2015. In addition, 23.6 percent of those ages 25 to 54 were not in the labor force and 7.8 percent were unemployed. Finally, the individual poverty rate of these high benefit counties was of 18.5 percent.
Ok, so what?
According to a recent Microsoft report, it would take about $10 billion to provide broadband access to all rural residents (not clear though how the report defined rural so we may be comparing apples to oranges) currently unserved using multiple broadband technologies, not only fiber-optic cable. Under our most conservative scenario of just 20 percent adoption, we estimate that the economic benefits to households gained by expanding broadband service to all unserved non-metro households over the next 15 years would greatly exceed Microsoft’s cost estimate for providing service.
Reducing the digital divide, both in terms of access and adoption, is a very complex issue. Regarding access, a coordinated effort between federal, state, and local governments, carriers, and co-ops is required. Nobody can do it alone. As shown here, the estimated economic benefits to households are likely to exceed the cost of providing service.
Regarding adoption, there are multiple organizations already involved in increasing digital literacy and exposing those non-users to the benefits of the technology. Unfortunately, this side of the equation is often overlooked. It should receive greater attention.
An efficient and effective digital inclusion strategy could help raise the broadband adoption rates in low adoption areas. As the adoption rate rises, the economic benefits of broadband expansion increase.
There is no doubt that broadband is critical infrastructure. Those on the wrong side of the digital divide are being left further and further behind and missing out on very significant economic benefits.
Hopefully these figures will help jumpstart critical conversation on how to ensure universal access to affordable broadband, allowing people and households to maximize the benefits that can be gained from broadband regardless of location and socioeconomic characteristics.
Dr. Roberto Gallardo is Assistant Director & Community & Regional Economics Specialist of the Purdue Center for Regional Development at Purdue University.
Dr. Mark Rembert is the Graduate Research Associate at the Swank Program on Rural-Urban Policy at the Ohio State University.