As the U.S. economy struggles to recover from the worst recession since the 1930s with the unemployment rate hovering around 10 percent, the federal government is understandably focused on policies that could create jobs. At the same time, the Federal Communications Commission (FCC) is putting the final touches on a National Broadband Plan. Unfortunately, few policymakers understand how much the deployment of new telecommunications technologies that underlie the broadband revolution have contributed to employment in the private economy. The National Broadband Plan should be carefully designed so as not to reduce the investment in broadband technologies, which have averaged $30 billion per year since 2005.
During the 2008-09 recession, total private nonresidential capital spending declined by more than 18 percent, but spending by telcos, cable operators, and wireless firms on broadband remained steady, declining by a bare 3 percent. The massive investments made in mobile and wired Internet capacity by the major network providers has sustained hundreds of thousands of jobs over the past six years, and we project that capital investment in broadband over the next few years would create approximately 509,000 jobs relative to a world without such investment.
The impacts of the recent investments in broadband networks have been startling. Because of the intense, facilities-based competition among broadband providers, most U.S. households now have a choice of at least three broadband technologies and even more suppliers in most service areas. That has had the effect of driving down the price and dramatically increasing the speed of broadband access for the average household. It was not that long ago when a high-speed “Ethernet connection” to the Internet was the sole province of government, large corporations, and major academic institutions.
We last examined the economic impact of broadband on the economy and on employment in 2001 and 2003. As it turns out, many of our previous predictions were too pessimistic. We underestimated the growth of broadband – its reach, the applications that it made possible, and the reductions in price of access in the first decade of the 21st century. The increasing availability, improved speed, and lower price of high-speed Internet services that has resulted from the continuing massive investment in broadband infrastructure has had a predictable effect on household subscriptions. The Pew organization’s household surveys show that the share of households subscribing to broadband Internet services has risen from 47 percent in 2007 to nearly 65 percent at the end of 2009, substantially above our 2003 estimate.
The indirect benefits of broadband are perhaps even more significant: Smart young programmers creating new “apps” for smartphones; academic institutions utilizing ever faster broadband to enhance the educational experience; health care personnel being able to deliver world-class medical services to underserved regions domestically and globally; and, businesses being able to order, manufacture, market and distribute their products from anywhere to anywhere. We could not have anticipated many of these developments in 2003; we surely cannot foresee all of the benefits of continuing improvements in broadband services that will occur in the next few years as network companies continue to upgrade their infrastructure.
Despite these impressive benefits, some are proposing that the U.S. radically change course by requiring network providers to share their lines with competitors or by barring network providers from offering differentiated services to content providers. These proposals derive from a debate over the prospective sources of innovation in a world of rapid development of graphics-intensive web pages and new mobile broadband applications. Some argue, without empirical support, that the most important source of innovation will be at the “edge of the network” by content providers. In contrast, there is a clear track record of job and wealth creation associated with investment in broadband access technologies in the network itslef, suggesting that investment at the “core of the network” by network providers is equally, if not more important.
To ensure the steady increase in broadband’s reach, capabilities, and services that we have seen over the past seven years, the FCC should proceed with a minimum of government interference as it moves through the process of creating a National Broadband Policy. To do otherwise would risk a reduction in the incentives for investment in the nation’s broadband infrastructure and the hundreds of thousands of jobs that such investment supports.