Nokia Siemens Networks

New study: broadband and productivity linked

The relationship between broadband connectivity and economic prosperity is at last being understood

Broadband is getting big media coverage these days. Barack Obama’s economic stimulus package for the United States has earmarked forty billion dollars for improving broadband infrastructure, and countries such as the UK have similar, if less grandiose, plans. 

"Super-fast broadband represents one of the most important developments in modern communications for many decades," said Ed Richards, chief executive of UK regulator Ofcom.

"It will deliver significant benefits to consumers and businesses with the prospect of new digital services delivered over the internet at high speed.”

The underlying assumption of all these stimulus packages is that improved broadband connectivity will help improve economic health. There is an implicit understanding among policymakers and the general public that broadband is good for jobs and good for business.

Increasing productivity in all parts of the world

The linkage between broadband connectivity and economic prosperity is also pointed out by those in emerging economies. Here is Willie Currie, of the Association for Progressive Communications, on the potential for broadband to help South Africa’s economy through the economic downturn:

“All sectors and stakeholders in South Africa will have to work closely together to turn the impending crisis into an opportunity. Not only is it necessary to mitigate the impact on jobs, our economy and society but it is also critical to stimulate recovery and address a number of development deficits, and job creation, at the same time. Broadband offers one of the ways forward to do this.”

And, says a report published for the United Nations, “Broadband networks are an increasingly integral part of the economy. As the technology evolves and bandwidth increases, the scope for broadband to act as an enabler of structural change in the economy expands as it affects an increasing number of sectors and activities.”

But what is the true nature of the connection between broadband connectivity and economic prosperity?

Economic Impact of Broadband: An Empirical Study, published by economic consulting group LECG, commissioned by Nokia Siemens Networks, describes this relationship in great detail.

According to the authors of the report:

The results from our study lend qualified support to the intuitive notion that broadband is a major contributor to productivity.  However, we find that the contribution of broadband to productivity is not universal and unambiguous.  Rather, the contribution of broadband depends on the diffusion level of other ICT assets in the economy.  Economies that have high levels of ICT diffusion (as measured through the diffusion of personal computers) do experience high benefits from broadband.  However, in economies such as Spain, Greece and Portugal that have low levels of general ICT diffusion, there does not appear to be any productivity benefit from broadband.  These results suggest that in order to be an effective enabler of productivity, broadband requires a well-developed “ICT ecosystem.”

Broadband cannot be considered by itself but rather as part of a bigger ecosystem of connectivity technologies. Some countries with high broadband connectivity, therefore, may not necessarily score as high as other countries with lower connectivity. Those countries who score well use broadband “better” (more productively) than others.

The work has some significant policy implications.  On the one hand, it suggests strongly that broadband has potentially significant benefits to productivity and economic growth, and thus the returns from broadband investment can be very high.  However, the results do not suggest an unqualified effect of broadband.  Rather, higher levels of general ICT diffusion and investment in assets and skills that complement broadband may be required in order to realise the full and substantial benefits of broadband.

Policymakers, argue the authors, should focus more on the users of broadband infrastructure. For broadband to become a more effective tool, countries need to invest in improving overall ICT skills and in lowering the costs to businesses of adopting technology and restructuring business models around technology.

Says Ilkka Lakaniemi, head of global political dialogue and initiatives at Nokia Siemens Networks and one of the sponsors of the Broadband Study, “In the face of the current economic crisis, we call on European policy makers to develop their own models that provide the right overall environment for investment in broadband to be economically effective. The models must take into account the digital divide between Northern and Southern Europe revealed in the Broadband Study.”

The study supports the findings of LECG’s earlier index of overall connectivity, the 2009 Connectivity Scorecard: “Useful connectivity”, according to the authors of the Scorecard, depends not just on the number of people connected to a network or infrastructure, but how well those connected people utilize the network or infrastructure.

Although it is convenient for governments and the telecommunications industry to focus on the supply-side of the broadband industry, ultimately policy makers cannot ignore the capability of business people and regular citizens to utilize this technology for overall economic benefit.

Other findings of the report include:

• If the US had around 5 more broadband lines per 100 individuals (around 15 million more lines), US GDP would increase by more than $50 billion
• With 10 more broadband lines per 100 individuals, productivity benefit would exceed $100 billion

With respect to the stimulus packages now being finalized in the US and elsewhere, the report’s authors conclude, “The goals of expanding the reach of infrastructure are laudable, but they would have significantly greater economic benefit if they were also accompanied by policies that boosted the ability and incentives of people and businesses to creatively use that infrastructure.”

In other words, broadband productivity is about more than simple broadband connectivity.

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