Broadband

The right national policy isn’t always hard to figure out. Take broadband. As broadband becomes increasingly important for most Americans seeking access to economic opportunities and public information, it’s obvious that universal broadband service is an appropriate goal for public policy. Not only are most job openings today posted only online, so is most information about health care, government services, education, and most personal services. Perhaps more important, the ability to do most jobs depends increasingly on a person’s knowledge and capacity to perform well in workplaces dense with broadband and information technologies, which in turn people can greatly facilitate when using broadband is part of their daily lives.

So, it matters that last year, for example, only 46 percent of African-American and 48 percent of Hispanic households had broadband service, compared to two-thirds of white households.  

It’s also not hard to figure out how to close those gaps and achieve universal broadband service by the end of the decade, the stated goal of President Obama and nearly everyone else. Start with what we know about how personal computers and dial-up Internet became ubiquitous. The key lay in two singular forces: Scientific advances increased the usefulness of these technologies, and those advances and market competition helped drive down their prices. These same forces already have driven the spread of broadband, in less than a decade, from essentially zero to nearly two-thirds of all American households.   

There’s often a hitch, of course, and this time it comes from recent technological advances which could sharply drive up broadband prices, especially the wild popularity of video applications which gobble up bandwidth at 100 to 1,000 times the rate of text applications such as email. Facing a quantum jump in demand for bandwidth, the nation’s Internet Service Providers (ISPs) find themselves with two choices: Increase their long-term investments in broadband infrastructure by huge amounts, which someone will have to pay for – $300 billion to $350 billion over 20 years, by the FCC’s reckoning – or let Internet congestion slow down everything in their customers’ online lives. Since the second option isn’t acceptable to almost anyone, the new public policy question at the heart of the drive to achieve universal broadband has become, how can the ISPs pay for the additional investments without hiking broadband prices so much that digital divides become permanent?

This problem is further complicated by outside efforts to convince the FCC and the Congress to set new rules directing how the ISPs should charge for broadband. Such rules could effectively require that the additional costs be added to the flat monthly fees everyone now pays for broadband service. But a new study out this week shows that the outcome of the fight over these rules will likely determine whether we achieve universal broadband anytime soon or, in the alternative, find ourselves stuck for a long time with digital divides that leave millions of lower-income Americans offline. The study, issued Monday by the Georgetown University Center for Public Policy and Business – and written by Kevin Hassett and myself – simulates a number of ways to pay for the additional investments and measures the impact of each on the path to universal broadband.

First, we asked what happens if the additional costs are passed through in the monthly flat fees that everyone currently pays.  Since broadband is already a nearly “mature market,” with new users joining at a slower pace than before, this approach would translate into monthly fees in the range of $70 per-month. While a number of factors affect whether people adopt broadband service, cost is the largest – and especially for lower-income people who unsurprisingly are most sensitive to cost increases. So, we can expect that a pricing system which forces ISPs to pass along their additional investment costs in higher fees for everyone would push universal broadband far into the future – and that’s just what our simulations found. By 2020, nearly one-fifth of African–American and Hispanic households would still be without broadband service. In fact, broadband fees would likely be so high that 15 percent of white households also would be offline at the end of the decade.

The alternative approach comes from another striking phenomenon seen here and around the world: A relatively small share of all broadband users – 10 to 20 percent, tops – account for the vast majority of the new pressures on bandwidth.  These are people who watch scores of videos online every day, spend hours in multi-player online game worlds, or use broadband to watch HD television shows and movies. This fact can shape a new pricing strategy: Pass along most of the additional costs to those who consume vast amounts of bandwidth or the content providers transmitting extremely high bandwidth offerings. There is no reason why broadband should remain an “all-you-can-eat for one price” facility, especially if it means raising prices so much that millions of people have to give it up.

We simulated what would happen if broadband providers passed along 80 percent of their additional investment costs in higher prices to the 20 percent high-bandwidth users and their content providers, with the remaining 20 percent of those costs borne by the rest of us. This approach puts the United States back on a rapid path to universal broadband: By 2019, all racial, ethnic and income groups should find themselves within one or two percentage points of universal adoption.

A word to the wise at the FCC:  Do not consider any rules which, however inadvertently, might force the nation’s broadband providers to stick to their current, “one-price (or two) fits-all” pricing approach. When it comes to promoting universal broadband and regulation, it turns out that less truly is more.

With the FCC preparing to issue new rules and policies to promote universal broadband access, Washington’s hive of think tanks and foundations (and lobbying shops that masquerade as one or the other) have issued a flurry of new studies on broadband’s impact on American jobs. It’s a marriage of two genuinely vital matters: Ensuring that every American has access to the wired world that increasingly permeates most people’s economic and social opportunities; and finding ways to restart job creation across the economy. Perhaps most important for the FCC’s deliberations, the new studies point to the different jobs impact of the network’s two principal parts, the companies that build the broadband infrastructure and those that provide its content.

In the most rigorous new study, Robert Crandall of the Brookings Institution and Hal Singer, a consultant, calculate the new jobs that arise directly from the tens of billions of dollars in new investments undertaken by broadband providers, laying cable, fiber and DSL lines, putting in place new connections, and building out wireless and satellite-based broadband networks. From 2003 to 2009, these direct investments created some 434,000 jobs; and over the next five years, the same process should produce more than 500,000 more jobs. And as we will see, these effects dwarf the job gains linked to the companies providing the content.

But the power of a market-based economy lies in the ways that a basic infrastructure such as broadband stimulates additional economic activity, much as highways and railroads once did. Building out these networks creates a platform for the development of thousands of new applications, and the combination creates new demand for the computers, software and other IT equipment needed to use the network and its applications.

Consider the iPhone cited in another new study from the Democratic Leadership Council. Without the broadband network, the iPhone would be just another cell phone. With it, Apple sold 43 million units in three years, its’ users downloaded 1 billion applications, and other mobile device makers scrambled to develop competing devices. And the people newly employed to produce these computers, software and other equipment earn wages and salaries, which enable them to buy more goods and services that yet more workers have to produce. Altogether, economists figure that these dynamics created another 430,000 jobs per-year from 2003 to 2009.

But there’s a big catch. As millions learned when the New Economy bubble burst in 2001, new technologies create enduring wealth and jobs only if they enable us to either do something entirely new or do more efficiently something we already do. Otherwise, the technology mainly moves around demand and the jobs linked to it: When we get our news from the Internet, it creates jobs on those sites while costing jobs at newspapers and magazines. This tradeoff happens especially when the economy is growing smartly and different companies and sectors have to compete for investment capital. So, we have to recognize that the cheering investment and job numbers for broadband don’t usually take account of the jobs that weren’t created when investment in other areas slowed — and that’s why economics is called the dismal science.

This caveat, however, also points to broadband’s real potential to create new efficiencies and new economic value — and the jobs that go with those gains. First, there are “spillovers” to other parts of the economy. So, as the use of broadband and its applications expand, other sectors from hotels and manufacturing to retail trade and educational services have to keep pace; and that requires that they increase their own investments in computers, software and so on. Those investments create new jobs not only to produce those technologies, but also to operate them once in place. One recent study estimated that for every one-percentage point increase in broadband penetration, several hundred thousand more new jobs are produced — and broadband access has been rising by several percentage-points per-year.

Combinations of broadband and advanced applications also can generate entirely new savings which allow people to spend more on other things, and so create additional jobs not counted in all of those studies. We see this happening in telecommuting, which saves transportation and other energy costs, as well as in telemedicine, which can not only reduce transportation and energy costs but also make the practice of certain areas of medicine more efficient and more effective. And if telemedicine saves people’s lives or reduces how long they’re sick, the economy gains all of the productivity which otherwise would have been lost.

There is one more catch in all of this good news: These various gains are not distributed evenly across the economy or equally across the society. It’s not just a matter of much of the gains going to workers in industries that develop and sell the fiber, cable, satellites, computers, cell phones, software, and so on. Beyond that, a recent study by the Public Policy Institute of California found that communities with new access to broadband — and parts of communities — experienced average job growth 6.4 percent greater than before they had broadband. To begin, much of those gains will be captured by workers with sound IT-related skills. Furthermore, this suggests that communities without such expanded access — and parts of cities where most residents remain not wired — will lag behind even more than before.

And within the broadband universe, the direct job gains associated with higher investments are also concentrated. Dividing that universe into the broadband providers such as AT&T or Verizon and the content providers such as Google and eBay, studies and SEC data show that, first, broadband providers invest three-to-four times as much as the content providers. Moreover, studies also find that each dollar invested by broadband providers creates about twice as many jobs as each dollar invested by the content providers.

These studies suggest several takeaways for the FCC. First, the FCC’s goal is the right one: Universal access to broadband is critical to promoting more job opportunities and economic growth across the economy. Second, the central element for job creation here are the investments required to ensure universal access — not only now, but also as broadband technologies continue to advance. The FCC should promote these investments in every way it can. At a minimum, the Commission should be extremely cautious about policy changes which could weaken the incentives for those investments — i.e., reduce their returns — or raise the price for people to access broadband.