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A lesson in broadband economics

In recent months several communities and economic development groups have asked about the economic impact of broadband.

This is partially in anticipation of President Biden’s proposed infrastructure legislation, but primarily the inquiries are related to what became obvious pre-COVID-19 and was made paramount during the pandemic.

Faster, more reliable and secure internet is the fundamental infrastructure of the knowledge economy. Faster connectivity and real-time data flows will dominate the 21st century.

The societal transformation will be radical, as major improvements in transportation and communications effectively reduce time and distance in the economy, thereby increasing the output of any one person on a given day.

Think about how your internet impacts your life. Many of you may remember the early days of “dial-up” connectivity where the sound of static indicated you were connected at an average speed of 56 Kbps which is 1% of the slowest broadband today. It’s hard to imagine we saw much value, but it was there. That’s when I began teaching online for Regis University and we began email correspondence. Internet searches were novel and fun as opposed to today when they are routine and expected.  

“Fast” broadband is relative. Before 2015, the Federal Communications Commission (FCC) defined broadband as internet service with download speed of at least 4 Mbps and upload speeds of at least 1 Mbps (4/1). Today, the FCC’s technical threshold is 25 Mbps download and 3 Mbps upload (25/3). In most of the developed world such a level of service is rapidly becoming inadequate with the growth of video, voice, big data transmission, artificial intelligence and critical real time connectivity. This is especially true with new approaches to work, education and health-care delivery. The need for faster speed is universal. Any dramatic improvement over current speeds will bring economic benefits. For most households the current need appears to be what the Digital Agenda for Europe defines as fast broadband with speeds from 30 to 100 Mbps. However, many businesses need speeds up to 1,000 Mbps. 

A good analogy for thinking about the impacts and investments required for broadband is to look at our expressway road systems. We routinely invest, through either the public or private sector, to expand our road capacity. These expansions stimulate greater demand and increase average speeds for going from place to place. But over time, greater demand fills the roads, and speeds slow down as congestion results. This congestion occurs when everyone in a household is online or when demand peaks for community-wide broadband cable or satellite transmission. The bottom line is successful and transformative technologies require almost perpetual investment to expand capacity.

There are sustainability issues resulting from broadband expansion. The first is socio-economic equity as market-driven broadband expansion migrates to those who can afford to pay. The poor, and even middle class in more rural locations, have far less access due to cost of providing them with broadband as compared to their ability to pay. As we saw with online learning during COVID-19, lower-income households experience serious setbacks with education. Applying for a job without internet is virtually impossible today. The equity issue also exists in the business sector when search results are dominated by those who pay for top of page positioning. It has become the same as food product companies paying slotting fees for the best shelf space in the store. And, if you cannot pay, it is tougher to play, which means small businesses are far more challenged in gaining market access.

The second issue centers on electricity consumption and the environment. In the last decade, data transmission has been increasing exponentially. According to PC Magazine, at the start of the quarantine in the first quarter of 2020, data usage increased by 47%. The rapid growth requires more data centers — the brains of the internet. A very large data center consumes the same amount of electricity as 80,000 homes (U.S. DOE, 2020). The good news with these and other challenges is that by reducing time and distance via faster internet, less concrete and transportation are needed. There is probably a net reduction in CO2 emissions as concrete production and all transportation combined account for more than one-third of man-made emissions. 

What we are experiencing now is only the beginning of the broadband transformation. There will be new opportunities and challenges in virtually every facet of our lives. My grandparents used to reminisce about their childhood travels by horse and buggy in the late 1890s. They never said they wanted to go back, but they missed the charm of the past. I imagine I will have similar stories about “simpler” times without the internet.