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Committed to Connecting the World
The Impact of Broadband
on the Economy:
Research to Date and
Policy Issues
Dr. Raúl L. Katz,
Adjunct Professor, Division of Finance and Economics, and Director, Business Strategy Research,
Columbia Institute of Tele-information
10th Global Symposium for Regulators“Enabling Tomorrow’s Digital World”“Enabling Tomorrow’s Digital World”Dakar, Senegal, 10 November 2010
The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its Membership.
2
Broadband has multiple economic impacts
Broadband
deployment
Direct
benefits
Investment in
infrastructure
deployment
Residential
penetration
Consumer
surplus
Household
income
Business
penetration
Total factor
productivity Contribution
to GDP
growth and
employment
BROADBAND ECONOMIC IMPACT
3
Research to date confirms the contribution to GDP growth but the
amount of impact varies widely
1.38
1.21
1.50
0.900.85 0.82
0.670.61
0.230.14
0.08
0.26 0.240.16
0.08 0.09
0.31
0.17
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Low-M
ed. I
ncom
e
High
Inco
me
OECD-H
igh
OECD-L
ow UK
US
Franc
e
Ger
man
y
OECD-H
igh
OECD-M
ed.
OECD-L
ow
Ger
man
y-High
Ger
man
y-Lo
w
L. A
mer
ica
Bra
zil
Chile
Indi
a
Mal
aysia
RESEARCH EVIDENCE OF BROADBAND IMPACT ON GDP GROWTH
Contribution to
GDP growth of
10% increase in
broadband
penetration
KatzKou-
troumpis
Waver-
manCzernichQiang
World Bank U. Munich LECG U. ColumbiaImperial C.
RESEARCHER
/INSTITUTION
4
However, these estimates are consistent with growing evidence of
increasing returns to broadband penetration
0
0.005
0.01
0.015
0.02
0.025
7% 14%
16%
17%
21%
22%
22%
24%
25%
30%
33%
Broadband Penetration (2007)
Co
un
try A
vera
ge %
Im
pact
of
BB
on
gro
wth
0
0.0005
0.001
0.0015
0.002
0.0025
0.003
0.0035
0.004
0.0045
Clu
ste
r avera
ge i
mp
act
on
gro
wth
Source: adapted from Koutroumpis (2009)
Low penetration•Greece, Portugal, Italy,
New Zealand, Austria,
Hungary, Spain, Ireland
•Average contribution to
GDP growth: 0.008
Medium penetration•Germany, France, Japan, Belgium, UK,
Australia, US, Canada, Luxemburg
•Average contribution to GDP growth: 0.014
High penetration•Denmark, Norway,
Netherlands, Sweden,
Switzerland
•Average contribution
to GDP growth: 0.023
INCREASING BROADBAND IMPACT ON GDP GROWTH
5
DEPLOYMENT OF
BROADBAND
IMPACT OF BROADBAND CONSTRUCTION
IMPACT OF BROADBAND EXTERNALITIES
Broadband impact on job creation comprises two effects
DIRECT JOBSEmployment
generated in the short
term in the course of
deployment of network
facilities
INDIRECT JOBSEmployment generated by
indirect spending (or
businesses buying and
selling to each other in
support of direct spending)
INDUCED JOBSEmployment generated
by household spending
based on the income
earned from the direct
and indirect effects
• Telecommunications
technicians
• Construction workers
• Civil and RF engineers
• Metal products workers
• Electrical equipment
workers
• Professional Services
• Consumer durables
• Retail trade
• Consumer services
PRODUCTIVITYEmployment
generated in the short
term in the course of
deployment of network
facilities
INNOVATIONEmployment generated
by indirect spending (or
businesses buying and
selling to each other in
support of direct
spending)
VALUE CHAIN
RECOMPOSITIONEmployment generated by
household spending based
on the income earned from
the direct and indirect effects
• Marketing of excess
inventories
• Optimization of supply
chains
•New applications and
services
•New forms of commerce
and financial intermediation
• Outsourcing of services
• Virtual call centers
• Core economic
development clusters
6
Estimates from several countries indicate that broadband network
construction effects and multipliers are significant
COUNTRY
RESEARCHER / INSTITUTION
STIMULUS INVEST.
(US$ million)
NETWORK DEPLOYMENT JOBS ESTIMATE
MULTIPLIERS
DIRECT INDIRECT INDUCED TOTAL TYPE I (*)
TYPE II (**)
UNITED STATES
Katz (Columbia)$ 6,390 37,300 31,000 59,500 127,800 1.83 3.42
Atkinson (ITIF)$ 10,000 63,660 165,815 229,475 2.58 3.60
SWITZERLAND Katz (Columbia)~$ 10,000 ~80,000 ~30,000 N.A. ~110,000 1.38 N.A.
GERMANY Katz (Columbia)$ 47,660 281,000 126,000 135,000 542,000 1.45 1.94
UNITED KINGDOM
Liebenau (LSE)$ 7,463 76,500 134,500 211,000 2.76
AUSTRALIA Government$ 31,340 ~200,000
6
(*) (Direct + indirect)/direct
(**) (Direct + indirect + induced)/direct
NETWORK CONSTRUCTION EFFECTS OF BROADBAND
77
The contribution of broadband externalities to employment
comprises three simultaneous effects
Incremental
broadband
penetration
e-business
impact on firm
productivity
Macro-
economic
productivity
Impact on
employment
Enhanced
innovation
Impact on
employment
Outsourcing of
servicesDisplacement to
service sector
Impact on
employment
+
+
+
+
+ +
+
-/+
-
-
Note: This causality chain was adapted from a model originally developed by Fornefeld et al., 2008 in a report for the
European Commission
+
8
These effects result in different output and employment impact
depending on broadband penetration
T+1 T+2 T+3 T+4
Ec
on
om
ic Im
pa
ct
HI
LO
GDP
Employment
T+1 T+2 T+3 T+4
Ec
on
om
ic Im
pa
ct
HI
LO
GDP
Employment
High Broadband Penetration Regions Low Broadband Penetration Regions
• High economic growth initially,
diminishing over time (“supply shock”
effect)
• New Economic Growth (innovation, new
services)
• High stable economic growth (“catch up”
effect)
•Capital/labor substitution limits employment
growth (“productivity effect”)
Increase in
BB
penetration
Increase in
BB
penetration
99
The importance of economic effects of broadband points to the
criticality of a policy tool kit aimed at maximizing adoption
● National broadband plans outline coverage and service targets, assign spectrum to maximize the impact of wireless broadband, focus on demand stimulation, define competition policy, and tackle any potential supply obstacles
– Articulate a vision and create awareness within polity and civil society
– Coordinate policies and involvement from public and private sector
– Develop state policies
– Build ownership and accountability at the highest level of government
● Competition policies aimed at stimulating private sector investment and innovation are critical
● At the same time, governments should acknowledge that they will need to intervene
– Address any market failures through universal service funds
– Alleviate investment constraints to stimulate private sector flows
– Potential entry as an investor of last resort
10
Coverage and service targets need to be defined on the basis of rigorous analysis of level of investment and social and economic returns
Coverage and service
targets
Existing
infrastructure
Infrastructure
gap
• Modernization of
existing lines to deliver
target service levels
• Deployment of new
lines to achieve
coverage targets
• Required technology by
zone
Cost per line
Total investment
requirement
Consumer
surplus
Economic
benefits
• Construction effect
(multipliers)
• Contribution to GDP
growth
• Job creation
• Spill over effects
(innovation, new
business creation)
• Access to public
services and
information
• Savings in transport
time
• Health and education
services
RETURN ON INVESTMENT
1010
11
A broadband policy should also address the demand gap: why are
there households that could buy broadband but do not?
BROADBAND DEMAND GAP
Country
Households
passed (*)
Households
connected
Demand
Gap
Australia 89 % 69 % 20 %
Denmark 96 % 76 % 20 %
France 100 % 77 % 23 %
Germany 98 % 58 % 40 %
Israel 100 % 83 % 17 %
Italy 95 % 55 % 40 %
Republic of Korea 100 % 93 % 7 %
Spain 93 % 61 % 32 %
Sweden 100 % 89 % 11 %
United Kingdom 100 % 68 % 32 %
United States 92 % 62 % 31 %
(*) Note: Household passed is defined as a residence where the broadband
network is deployed; this differs from connected, which means the residence
is linked to the network for provisioning the service.
Sources: Analysis by the author, based on data from EU; FCC; BMWi;
OECD; PTS - Sweden; and Israel Minister of Communication .
REASONS FOR NOT ACCESSING TO
THE INTERNET AT ALL
Reasons Percentage of
answers
United
States
United
Kingdom
Relevant ( lack of interest,
busy doing other tasks, other
reasons)
45 % 60 %
Price (the cost of broadband
is too high, does not have a
computer)
15 % 28 %
Service availability 16 % 14 %
Easy to use (difficulty – senior
citizen – physical handicap)
22 % 16 %
Sources: Horrigan, J. (2009); Ofcom (2008)
12
Finally, it is imperative that fiscal policies affecting broadband
adoption be coordinated with national objectives
Source: Adapted from Katz et al. (2010c)
0
5
10
15
20
25
30
35
40
45
50
1 3 5 7 9
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
49
51
Ta
x a
s a
pro
po
rtio
n o
f T
CM
O
Mexico
TAX PERCENTAGE OF TOTAL COST OF
OWNERSHIP OF MOBILE SERVICES
Malaysia
Brazil
South Africa
Zambia
Turkey
Tanzania
ArgentinaTunisia
• Taxation has a negative
impact on deployment of
mobile broadband: there is a
negative relation between
mobile taxes and 3G
handset penetration
• If taxes limit adoption of
wireless broadband, they
ultimately affect economic
growth
Country Distribution
1313
In summary…
● Research evidence is consistently pointing to the positive economic of broadband
● Data analysis also indicates that economic impact increases with broadband penetration
● Economic impact varies by region indicating that broadband deployment needs to be carefully coordinated with economic development policies (training, firm relocation, etc.) to maximize impact
● Broadband policies are critical to maximize the economic impact of technology (national broadband plans, competition policies, demand stimulation, alignment of taxation with development and technology objectives)
● Policy development needs to be based on rigorous economic analysis which requires an important effort in data generation
14
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