Valuing broadband

The Federal government claims its high speed broadband investment will add $12b – $30b to GDP per year for a mere investment outlay of $4.7b. Peter Martin exposed the dubious origins of that figure: basically, it is a scaled down version of a US number from 2001 for basic broadband. As we are talking about a move to high speed broadband, the incremental value would be expected to be lower.

A new paper from Shane Greenstein and Ryan McDevitt examines that original US figure and finds that the quoted broadband value (of US$300b) was way overstated. Take the number and divide by three.

[DDET Click for abstract]

How much economic value did the diffusion of broadband create? We provide benchmark estimates for 1999 to 2006. We observe $39 billion of total revenue in Internet access in 2006, with broadband accounting for $28 billion of this total. Depending on the estimate, households generated $20 to $22 billion of the broadband revenue. Approximately $8.3 to $10.6 billion was additional revenue created between 1999 and 2006. That replacement is associated with $4.8 to $6.7 billion in consumer surplus, which is not measured via Gross Domestic Product (GDP). An Internet-access Consumer Price Index (CPI) would have to decline by 1.6% to 2.2% per year for it to reflect the creation of value. These estimates both differ substantially from those typically quoted in Washington policy discussions, and they shed light on several broadband policy issues, such as why relying on private investment worked to diffuse broadband in many US urban locations at the start of the millennium.

[/DDET]

3 thoughts on “Valuing broadband”

  1. $12b – $30b divided by 1/3 is $36b – $90b. Holy double negative, Batman! Assume you meant $4b – $10b  to GDP from fixed line broadband.

    Concept Economics (PDF) say Telstra Next G will add $7.4b to GDP. Assuming Telstra have 75% mobile broadband market share and their competitors do equally useful stuff, that adds another $10b to GDP anually.

    The future looks bright. 

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  2. OK corrected.

    But remember that is a basic broadband number. Not sure what factor you would use to discount marginal contribution of high speed broadband. Maybe multiply by 0.05?

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  3. If I read the Concept Economics article correctly, they are saying the mobile broadband stimulus is a separate effect: it makes people more productive out of their offices, improves service response times, removes office IT overheads etc.  Therefore the amount mobile broadband adds to GDP should be additional to the amount fixed line broadband adds.

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