Broadband Yields Paltry Economic Boost in Rural States

Broadband Yields Paltry Economic Boost in Rural States
August 1, 2005

The importance of affordably priced, widespread broadband telecommunications has sparked a huge amount of excitement among those who have glimpsed this technology’s potential for transforming both commercial activities and the quality of residential life. For some, ubiquitous availability of broadband service and competitively induced reductions in broadband prices cannot come quickly enough.

As a result, there are numerous proposals for government intervention, usually through the creation of a municipally owned network, aimed at hastening the extension of broadband to areas where it is currently unavailable or intensifying competition in places where broadband already exists.

Unfortunately, many policy discussions have been conducted amid a paucity of factual information describing the potential benefits attributable to broadband telecommunications. Recognizing the problem, the West Virginia Development Office commissioned an empirical investigation from the Center for Economic Research at Marshall University, the conclusions of which we summarize here.



Questionable Prospects

In terms of commerce, there is evidence that available broadband is important to certain business activities, specifically within the services and financial sectors, which depend more than other sectors on the speed of broadband Internet to perform multiple and frequent transactions essential to their operations. Moreover, firms within the industries where broadband access is viewed as a competitive advantage generally will not locate in areas where this access does not exist.

On a statewide basis, however, any extant lack of broadband access has not generated observable negative economic outcomes. This largely owes to the fact that broadband services in some form are already available to the vast majority of firms within the state. Moreover, while it is true that extending the current broadband networks might yield measurable benefits to additional commercial users, the magnitude of those incremental benefits pales when compared to the benefits already achieved without any policy intervention. Thus, while commercial interests within individual communities may stand to gain from further network extensions, the state economy, as a whole, would see few changes.

The current set of dial-up Internet users would appear to represent the set of users most likely to yield new broadband subscribers. Yet of this group nearly one-third of those surveyed for this report could not say definitively whether or not their household currently has access to broadband services, and the vast majority are making the decision to continue their dial-up services without exploring the prices of any available broadband alternatives. These findings certainly do not instill any sense of urgency for broadband.

While the effects of income on subscription rates could be quickly overcome through public policy, the impact of sheer unawareness of broadband alternatives will be much more difficult to remedy. Therefore, extending broadband networks into the most remote reaches of the state is likely to yield relatively few new users.



A Successful Marketplace

Barely 10 years ago, the Internet was little more than a novelty familiar only to the technologically elite. In fewer years than it takes a newborn child to reach kindergarten this technology emerged as one of the most powerful economic forces ever observed--largely without any public-sector guidance. Today, at least domestically, there are few, if any, lines of commerce that are not measurably different because of the emergence of Internet services.

Networks now support millions of users and thousands of new applications, and overall available capacity is plentiful. Increases in computational and communications capacities in the past decade have outstripped demand-side growth. Moreover, the breathtaking growth in technological capacity, combined with competition, has produced substantial declines in the price of equipment and services. In the final days of this nearly year-long study, SBC announced a suite of broadband services would be made available for as little as $14.95 a month.

While the current pace of technological progress may not be sustainable, there is little doubt myriad improvements to equipment, software, and services are still forthcoming. Care must be taken to avoid investment in technology that could become quickly outmoded. This cautionary note should be especially relevant to governments seeking investments that will constrain future choices without the discipline of markets.



State Is Not Left Out

Far from ignoring what amounts to a technological revolution, West Virginians have participated in it. There is no evidence that availability to commercial users within the state has been an impediment to the adoption of broadband. There is also no indication that the rollout of these services elsewhere has been more timely or less troublesome.

Broadband access in West Virginia is not as extensive as it is in more affluent, more densely populated states. Still, there is no substantive evidence of any widespread deficiency. There are, no doubt, isolated instances in which either commercial or residential users have unmet demands. The problem does not, however, appear to be widespread. Accordingly, the magnitude of the potential benefits from more extensive service offerings, particularly to residential users, appears to be relatively small and thus a questionable investment for local governments or other municipal operations.


Mark L. Burton and Michael J. Hicks (michael.hicks@afit.edu) are research professors at Marshall University. Burton is also director of transportation economics at the University of Tennessee-Knoxville. Hicks is associate professor of economics at Air Force Institute of Technology. This article is excerpted from “The Residential and Commercial Benefits of Rural Broadband: Evidence from Central Appalachia,” a report commissioned by the West Virginia Development Office.


For more information ...

The full text of the paper by Mark L. Burton and Michael J. Hicks is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #17398.