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Does Broadband Belong in the Economic Stimulus Package?

By Jack M. Balkin

The Senate and House versions of the economic stimulus package both call for a massive government expenditure in broadband internet infrastructure, with the Senate bill calling for an investment of $7 billion (down from $9 billion in the original legislation) and the House, $6 billion. Both versions allocate the bulk of those funds to bringing broadband internet to unserved and underserved rural areas. The legislation raises the question: ?Does the contemplated investment in broadband truly serve the needs of an immediate and short term economic stimulus? Or, rather, does the inclusion of broadband in the stimulus package really reflect other goals and policies, some arguably worthy ? maintaining the economic and cultural viability of rural America and promoting information exchange and economic efficiency over the long run, and some arguably not ? the model for investment in broadband in rural areas stems from the much touted work of Connected Nation, an organization established by Republican operatives in Kentucky and in the view of critics nothing more than a front group for AT&T, while the New York Times reports that telecommunications giant, Verizon, stands to gain more than $1 billion in tax credits thanks to the stimulus package? (Note that the House bill would at least impose an open access requirement, while the Senate bill would not.)

Some background: the United States ranks well behind other developed countries in broadband deployment and service. Studies consistently place the US somewhere between 14th and 20th, behind Canada, South Korea, and the countries of Scandanavia and northwestern Europe, along various metrics of broadband deployment, including the penetration rate among general population, household penetration, rate of broadband availability among all internet users, access speed where broadband access is available, and available technology. It also costs more for US consumers to get the slow available speed. See this June 2008 OECD study and this 2008 study of the Information Technology and Innovation Foundation. The relative backwardness of the US in broadband deployment can be explained only partly by the fact that the US is larger and less densely populated than broadband powerhouses like South Korea, the Netherlands, and Denmark. According to the OECD study, Iceland, Sweden and Canada have a lower population density than the US, but rank higher in broadband penetration rate, while Australia, with a much lower population density than US, ranks not far behind.

So from the perspective of telecommunications policy, it would seem to make a lot of sense for the Obama Administration to seek to spur broadband deployment in this country. But does telecommunications policy -- the goal of bringing the benefits of a powerful network for the high speech dissemination and exchange of information and expression to underserved areas in the United States -- correlate with that of the economic stimulus package? It is not at all clear.

The only immediate economic stimulus flowing from investment in broadband is job creation in the telecommunications industry for building out broadband internet. The question there is bang for the buck: does a dollar spent in broadband deployment yield the same number of jobs as investment in other projects and infrastructure? Is the building out of broadband internet as labor intensive as, say, construction and improvements in roads, bridges, and mass transit? I have not seen studies or figures. Perhaps some readers have.

The studies that I have seen suggest that providing broadband to underserved areas brings productivity gains and business cost savings generally and enhances job creation in telecommunications and information technology sectors in those communities once broadband is deployed. A 2006 MIT study, for example, found a statistically meaningful correlation between the availability of broadband in a community and that community's economic growth. Likewise, a 2005 Brookings Institute study found that nonfarm private employment in various manufacturing and service industries (especially finance, education, and health care) is positively related to broadband penetration. This study suggests, however, that it would take some time for the full spill-over economic effects of broadband to be realized. Finally, a World Bank-affiliated report issued in 2008 on broadband deployment in Asia cites broadband's benefits for business savings in time and transportation and boosts in e-commerce sales.

Yet there is room for skepticism regarding the fit between even broadband's long term economic benefits and the economic stimulus legislation soon to become law in the US. The primary reason is the heavy skew towards broadband deployment in rural areas in the US legislation. A 2004 report prepared by Price Waterhouse for the EC and European Space Agency found that the potential economic impact of broadband is very significant but that it varies between countries. The report found that broadband's positive economic impact depends no three primary factors, the number of subscribers, transportation costs saved, and value of time saved. The first and third factors are likely to be more pronounced in urban areas, where population density is greater and wages higher. Broadband might enable rural area residents to avoid longer distance travel than urban residents but it's not certain that longer distance travel in rural areas is always more expensive that traveling shorter distances in congested urban areas.

In addition, greater deployment of broadband infrastructure does not necessarily translate into greater broadband use. A May 2008 study by Pew Internet & American Life Project found significant price, interest, and technical capacity barriers to broadband internet use among dial-up users and non-internet users. An investment in broadband infrastructure that fails to address these barriers will not achieve the full benefits that building out broadband infrastructure promises.

Finally, a consideration of broadband deployment as economic stimulus and job creation must also account for the economic dislocation and job loss that broadband can wreak upon certain industries. Massive unlicensed and uncompensated trading of motion picture and TV program files, made increasingly easy and possible with high speed broadband, threatens to harm the movie and TV industry as internet trading of sound recordings has harmed the recording industry. The demise of newspapers, and the concomitant replacement of journalist jobs with exceedingly low paying or volunteer news production over the internet, also owes much to broadband deployment.

My point in this post is to provoke thought and pose questions. I welcome comments from those who know something about the issues I have raised.

Full post as published by Balkinization on February 11, 2009 (boomark / email).