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.