Issue 10, November 16, 2009

“Measuring community the broadband community return on investment”

Research from SNG and others (as well as anecdotal experience) has convinced most decision makers that broadband is beneficial. This, along with federal funding and increased policy focus, is fueling a growing interest in taking this “broadband is beneficial” understanding to the next level of depth and practical value – including assessment of “return on investment.”

Here is how broadband contributes to economic growth – beyond “IT jobs”

The economic spill-over benefits from broadband are more far-reaching, although not as obvious, as the typically narrow “direct impacts” that are typically discussed, such as technology sectors, (e.g. “IT jobs”) and e-commerce activities related to B2C and B2B transactions. To understand the full impact of investing in broadband infrastructure and broadband adoption initiatives one needs to look deeper.

Business users quickly understand the broadband-enabled benefits of doing the same things faster: whatever the organization was doing before such as research, communication, or document transfers, etc. can be done more efficiently and reliably. However, the most significant benefits are generated from opportunities whereby businesses and organizations transform their business operations by using broadband-enabled applications to be creative and do things in new ways that were previously not possible, such as adopting new business models, or reaching-out to new markets.

Although it takes time for most businesses and organizations to determine what broadband-enabled changes makes sense for them and to implement the appropriate “e-solutions”. Enterprises that are motivated – by a need or opportunity – will move quickly to take these transformative steps and the others will follow, which is fundamental to productivity and competitiveness. The same dynamic occurs for organizations that may not be driven by revenues, or profits. All organizations that provide some kind of service have staff, internal processes, and interact with suppliers and clients. Organization growth may not be the first priority, however productivity and service delivery remain important drivers.

The three impact waves

• Direct impacts: The increased revenues and/or cost savings generated from the utilization of broadband and e-solutions. Examples are extending market reach by going online, or reducing long distance charges by using VoIP.
• Indirect impacts: The changes to production, employment, incomes etc. which occur up and down the supply chain from the businesses and organizations generating the direct impacts.
• Induced impacts: The effects of spending wages derived from direct and indirect activities. Households spend their income on goods and services, creating a further ripple effect of economic impact that started with businesses and organizations using broadband.

The net result of the direct impacts from broadband and the spill-over benefits (indirect and induced impacts) increase overall economic activity. Other positive spill-over effects occur, such as demand for new skills and its implications for the labor force. With increasing adoption of e-solutions the need grows for new skills to implement, maintain, and utilize technology and applications to their full benefits. For example, the use of broadband itself also opens up new possibilities for staff training through online resources that would otherwise be unavailable or costly. This important because of the strong linkage between skills development to productivity and innovation.

What impact on the community?

While some of the increased spending created by broadband will occur outside the community, much of it will stay within the community, increasing the overall strength of the local economy through business retention and expansion. Not only does this enable businesses to compete globally on a more level playing field, but also creates a positive business environment to attract new businesses. The creation of new jobs is not only good for those employed, but it also reduces the risk of population decline and can attract high-paying jobs to the community.

Introducing the “community return on investment”

Traditionally, and when left to the private sector, decisions to invest in broadband networks have been based on the typical business case of subscriber revenues generating an ongoing operating profit. We certainly cannot blame service providers for that decision-making criteria – it is their business to make a profit and to choose wisely where to make their investments. Unfortunately, this is also the reason that many communities still do not have sufficient broadband availability – sometimes the business case just does not work for the service provider. When we look beyond the traditional business case and examine the economic impacts from broadband investments we get a very different picture. SNG research has shown that the economic return can be up to 10 times the amount invested in broadband networks. The challenge is how to bridge the gap between the profit-driven decisions of those that build networks and the investments needed to achieve the economic impact potential of broadband.

Increasingly, the answer is coming through public policy interventions at various levels of government, often accompanied by funds to stimulate investment in broadband infrastructure. The underpinning of such public investments needs to be the belief and the confidence that broadband is essential for maintaining business competitiveness and productivity and for enabling economic growth, as well as the numerous social benefits such as enhanced delivery of health and education services. Governments of many countries and regions are taking the leadership to undertake or facilitate investments in broadband in recognition of its economic impact potential – which can actually be measured.

Recent example

Businesses and organizations do increase revenues, reduce costs, and create jobs as a result of using broadband, and they are able to tell us that. For example, in a recent study, we found an 11% average 12-month increase in employment across 221 US organizations directly as a result of using fiber access for their operations. Over 63% of businesses said that their use of fiber was important for increasing sales and 179 establishments generated a total of $3.3M in additional revenue through fiber use. The majority of these impacts occurred in the second and third year after using fiber, reflecting the reality that it takes some time for businesses to integrate new broadband applications into their operations and to see their impact. Such direct impacts create spin-off effects across the rest of the local economy, often at a factor of 2 to 3 times the direct impacts.

Where investments in broadband are made with the goal of stimulating economic activity it is both essential and possible to measure the outcomes from those investments. It is equally essential to invest not only in broadband infrastructure, but also in providing a support and learning infrastructure to assist organizations in effectively adopting and utilizing e-solutions. Combined, broadband infrastructure and skills development generate the direct impacts for their business and the spill-over benefits for their communities. It is only through broad and effective utilization of broadband that economic benefits can be realized.

By Gary Dunmore, SNG

Click here to download this SNG position paper

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