Measuring Broadband’s (Public) Return on Investment
In five rural Minnesota communities with excellent broadband service, the impact of connectivity is large and, in most cases, immediate. A Minnesota philanthropy seeks to put some numbers behind the notion that better broadband means better rural communities.
A new study commissioned by the Blandin Foundation may help small communities put some hard numbers behind broadband’s public benefit.
“Return on Investment: Measuring Impact of Broadband in Five Rural Minnesota Communities” looks at communities that have spent public funds on building out networks. The words “high speed” are critical. These communities have run fiber to homes and businesses or have plans to do so in the near future.
Ann Treacy, the editor of the blog “Blandin on Broadband,” produced the quantitative portion of the report, while Bill Coleman of Community Technology Advisors gathered stories in each of the communities that illustrate the numbers.
Treacy’s estimates were based on formulas developed by other researchers. The resulting numbers are big. For the five areas in the study (Beltrami, Crow Wing, Goodhue, Lake and Sibley counties) the study showed a community benefit of about $150 million annually and another $450 million in the increase in real estate values. The estimates varied widely among the five communities, and they are far from a comprehensive picture of the potential impact of high quality broadband. But for communities wondering whether broadband is a good investment of public money, the implications are clear.
I sat down with Treacy during a break at the 2018 Broadband Communities Summit in Austin. Holman and Bernadine Joselyn, their colleague from the Blandin Foundation, were also in the room and added to the conversation.
Here is an edited transcript of my conversation with Treacy.
Tim Marema: To calculate a public return on investment for very high-speed broadband, you considered many factors. What are some of the indicators you examined and how did you use them in your calculations?
Ann Treacy: The thing that I thought was the most valuable is the formula from The Ohio State University [C. William Swank Program in Rural-Urban Policy]. A number that they came up with was $1,850 a year to the good that the household with broadband will receive, the benefit that they will receive. …
A lot of what I’ve seen in terms of those formulas has been very urban centric. So, nobody is going make extra money in a rural area because they have broadband because they can do Uber. Nobody’s going to save a thousand dollars a month on their rent because they could find a cheaper place in a rural area.
But the number Ohio State came up with was, if anything, conservative but was practical and had the greatest, most rural focus.
So, what I did then is I took a look at each household that now has access to broadband [that] can recoup or recognize $1,850 per year in benefit. And then I looked at how many more homes have access to [high speed service like fiber to the home]. And that’s kind of where I came up with a per-household amount of what the community benefits from.
Marema: What else?
Treacy: The Fiber to the Home Council [now the Fiber Broadband Association] came up with [a formula that] households with broadband will sell for 3% more than households that don’t have broadband, everything else being equal. So I took a look at the average price per home in an area and then took a look at how many more have access to broadband now.
Marema: And what about the investment side?
Treacy: We were looking at public investment in the community. For Minnesota, some of it was foundation money. Some of it was whether they had gotten any money from the Blandin Foundation, although that was a small percentage. Otherwise, it was people who had gotten state grants, some of the Border to Border Minnesota state grants. And then some of it has been federal funds as well, from the old federal stimulus grant [the American Recovery and Reinvestment Act of 2009].
Marema: What’s NOT in your study?
Treacy: So the obvious gap is in business. It would be so difficult to put your arms around any kind of aggregate business benefit. One, it’s hard to get the business statistics. Two, when you have broadband, all of a sudden that gives birth to the garage businesses, the basement businesses. It’s really difficult to get any kind of numbers on that. So I’ve tried to conservative with that return on investments. Still, it’s an estimate, it’s not a real number by any perspective. I know that Roberto Gallardo has looked at some of implications of broadband in rural economics.
Marema: What interested me in this report is that someone could look at this for their own community and, in a rough and ready way, come up with a back-of-the-envelope estimate on what the public return on investment might be in high-speed fiber-to-the-home. Are the methods you used useful to other communities that are looking at broadband investment?
Treacy: I think it would be … Because all of a sudden if you’re having a conversation about how much tax money are we willing to put into a solution, well that factors in. I mean if it’s going to increase taxes by only $100 a year, and you know that you’re going to see an increase in value on your home, and an increase in economic benefit of $1,850 [on average for each house], well that $100 seems pretty minor.
Marema: In a smaller community, the types of investments that we use to spur business development are going to be modest. Nonetheless they are just as real: water, sewer, infrastructure, tax breaks, industrial parks … Do you have any sense that high speed fiber would be a better investment than any of those other choices?
Treacy: I remember specifically talking to AirCorps Aviation [a business in Bemidji, Minnesota, that sells parts for vintage aircraft]. They created a whole database of airplane parts that people can access all over the world. What they also ended up doing is if they couldn’t find the part, then they would build it. So it turns out that there’s a B-side to their business, and they’ve done very well with it. (Vintage airplane enthusiasts) have cash for “toys” like this, and they’re willing to spend anything. They also want to go to the town where this is happening, so there’s been some tourism. They do tours of their factory.
But once you have that database of airplane parts, once you can manufacture other parts, suddenly Boeing wants to know who you are. Now that they’ve found out what their real A-side is, working with Boeing, the guy is like, “Now we’re focusing on being $50 million company.” They said what really helps, and they’re putting up the CAD drawings, and people are downloading the CAD drawings, they said, “having the access to fiber has made a difference.” We asked them specifically about the difference between having [lower speed] broadband versus having fiber. And it was tenfold. The difference between $400,000 of sales and $4 million. They’ve got a few people who work all over the world, but for the most part, a lot of those people have come to Bemidji to work.