Each time a country doubles its broadband speed, economic output increases by 0.3%. That may not sound like much, but for the club of rich countries known as the OECD that’s equivalent to $126 billion every year, or more than 14% of the average annual growth rate of those countries during the last decade.
The findings come from a new study conducted in 33 OECD countries that attempts to quantify the impact of broadband speed. One interpretation of the report is that broadband will become the interstate highways of the 21st century: infrastructure that radically improves the exchange of valuable goods (or services and ideas) leading to explosive economic growth over time.
Governments have certainly thrown their support behind it. The American Recovery and Reinvestment Act alone committed the U.S. to invest $7.2 billion, including a “National Broadband Plan” promoting universal access. Globally, the International Telecommunication Union reports about 70 countries have adopted plans to promote broadband Internet access.
But the path might not always be smooth. Patrik Regardh, head of strategic marketing for Ericsson, pointed out that broadband would have direct effects (infrastructure investments to build out the wires or wireless), as well as the far larger indirect effects by creating the foundation for new ways of doing business.
Broadband has already created new sectors and redefined (or destroyed) old ones. The music industry, which after years of sales decline as it adopted digital distribution models, is growing again with new players and entirely new ways to deliver and share music online. As broadband becomes ubiquitous, and faster, everything from retail to government services may find ways to reinvent itself, especially in knowledge-based sectors where such speed and efficiency can enhance competitiveness.
“Sectors of society will increasingly base value creation and stakeholder interactions on digital infrastructure [as] this opens up possibilities for more advanced online services, smarter utility services, e-health, telecommuting, and tele-presence,” says Regardh. “All [are] dependent on high-performing broadband networks.”
But this isn’t true for everyone right now. Developing countries, as well as industries less reliant on the digital economy, are unlikely to see the large jumps in productivity that are driving growth elsewhere. For now, simply expanding Internet access, rather than improving speed, gets better bang for the buck in terms of economic growth.
Still, the broadband connection is generally seen as an economic boom once it arrives. The Public Policy Institute of California also found a positive correlation between broadband expansion and economic growth. The strongest effects (verging on causation) were for information technology reliant industries and in sparsely populated regions.
Don’t expect to see your paycheck rise once broadband arrives. Most California residents did not see direct benefits from expanding broadband, as average wages and the employment rate were unaffected. But when looking economy wide, faster gigabytes do seem to give GDP a boost.
Ericsson, which would to build some of that hardware for the broadband future, sees the benefits only becoming clear in hindsight. “In 20 years, we are likely to see and fully comprehend the importance of digital highways as we currently understand the importance of the interstate highway system,” says Regardh.