Thursday, August 28, 2008

Economics of broadband

(Serious) broadband is finally coming to Africa.  It is expected that the speed of connectivity will increase and the price of connectivity will drop.  This brings local infrastructural challenges, but on average is expected to increase business opportunities in especially the IT sector (See How Seacom will change SAs world).  A recent analysis by InfoDev and the World Bank highlighted the high prices of broadband in sub-Saharan Africa, highlighting the need for better service and more competition in broadband services in this part of the world.

A question worth asking is what the expected additional socio-economic gains of increased broadband will be, and whether there will be any clear winners and clear losers.  The academic literature for example points to the social benefits of national information infrastructures and the importance of information and knowledge as key business assets.

The message is that in an increasingly connected world the ability to manage these connections to the benefit of the enterprise becomes increasingly important.  Not only the private enterprise, but also society is expected to benefit. Not to be connected means to fall further and further behind relative to the rest of the world. One important question is by how much we will benefit, and whether everyone will be better of.

In an empirical study done by the Economic Development Administration in the US on the impacts of broadband on the economy, it was argued that "broadband access does enhance economic growth and performance, and that the assumed economic impacts are real and measurable". The study concluded that "...between 1998 and 2002, communities in which mass broadband was available by December 1999, experienced more rapid growth in employment, the number of businesses overall, and business in IT intensive sectors, relative to comparable communities without broadband at that time". The study hastens to point out that broadband have to be used and not only be available, making the case for broad-band related policy interventions also focussed on demand side issues such as training. Estimated tangible magnitudes for this study are as follows:
- Broadband added 1-1.4% in the employment growth rate
- Broadband added 0.5-1.2% in the number of business establishments 
- Housing rents are 6% higher in areas where broadband is available
- Broadband added 0.3-0.6% to the share of establishments in IT intensive sectors
- Broadband reduced the share of small (defined as <10>

Increased broadband is expected to bring benefits to private enterprise and to broader socio-economic development, but local negative effects on smaller industry sectors will have to be managed well.  The magnitude of the benefits will also differ from area to area. 

No comments: