Quantifying the Benefits of Broadband

Economic development staff in almost every community I’ve ever worked with want to be able to quantify the benefits of broadband. It’s not hard to list the many benefits such as providing the ability for rural students to do homework, or the ability to start a home-based business after getting broadband. However, there has never been any way to put a dollar value to the community for these benefits.

Three economists from Purdue University have tackled the problem and took a stab at quantifying the benefits of bringing broadband to all of the areas served by Rural Electric Member Cooperatives (REMCs) in the state of Indiana. The work was done by looking in detail at the public benefits that would be generated at the Tipmont Cooperative and then extrapolating those results to the six other REMCs in the state.

The results are eye-catching and the study calculates a net present value of $24,293 to every cooperative household. I think most people’s first reaction is that amount seem too large, but when you look at the assumptions behind each component of that number, each assumption seems to be conservative.

Here are a few of the benefits measured by the study:

Medical. The study relied on recent studies that quantified the benefits of telemedicine. Several studies have shown that there is a significant decrease in Medicare costs once a region begins using telemedicine. The biggest savings comes from significantly reduced hospital stays and emergency room costs that come as a result of using telemedicine for preventive medicine – by checking up on patients regularly, resulting in small problems not escalating to severe ones.

Education. Numerous recent studies have shown that students without access to broadband don’t perform as well as students with broadband. Adults also benefit from online education through the ability to pursue college degrees online or to get training for new careers. It’s challenging to quantify the benefit of more education at the macro level, but it’s really easy to understand at the microlevel. We know that those who complete high school degree earn more over a lifetime than those who don’t. There have been numerous studies that quantify the increased lifetime earnings from various levels of post-high school education.

Economic Development. Recent studies have shown that there is a direct positive correlation between broadband adoption and economic development. The old economic model of communities thriving by attracting large employers is crumbling as the US continues to lose factories and factory jobs. But broadband helps existing businesses do better and can help keep an existing business to flee a market due to lack of broadband.

At the local level, better home broadband allows people to work at home, many of them finding higher-paying jobs than are available in the local economy. Good broadband also let’s some households bolster full-time earnings by engaging in ecommerce such as opening Etsy web stores. Numerous studies over the years have shown that anything that increases local wages benefits the local community with a multiplier effect as those extra earnings are spent on local goods and services.

Shopping. If you read my blog from last Monday, I discussed surveys we’ve done at CCG that listed the ability to shop online as one of the things most wanted in areas that have no broadband.

A recent Price Waterhouse Cooper study in England calculated the advantages of online shopping at US $754 per household annually – a combination of being able to buy goods at lower prices and the savings from not having to drive to buy things. That number has to be conservative when compared to rural areas in the US where households have longer drive times to reach retail shopping.

Farming Benefits. Much of the area covered by the study are agricultural and several studies have shown that good broadband can bolster farm incomes by as much as 6% annually – a number that is bound to increase as the benefits or smart-farming and outdoor IoT sensors improve crops and herd management.

Why the Study is Conservative. There are some obvious economic benefits that aren’t even included in the study. For example, there are several studies that show that lack of broadband depresses housing value. Anecdotally, I’ve been told in the last few years by rural real estate agents that they are starting to have trouble selling houses with no broadband – and it’s hard to put a value on the inability to sell a house.

The study pulls together studies done by others paint an overall picture of broadband benefits. looking at specific benefits of broadband – anybody that wants to understand this more should read the links to other studies. They step that made this study relevant to me was layering these impacts onto the specific area served by the Tipton Cooperative. One only has to travel to rural America these days to be able to see the differences between areas with and without broadband. Areas without broadband are unable to take part in things the rest of us take for granted like online shopping, easy access to do homework or pursue advanced degrees and the ability work from home and start new businesses. This is the first study I’ve seen that has tried to quantify all of these benefits for rural America, and the results are startling.

2 thoughts on “Quantifying the Benefits of Broadband

  1. Doug,

    Much as the beneficial aspects of the Purdue study are attractive to people like me who live in a small MN town which now does have fiber optic throughout, the executive summary has a caution that at least tempers the enthusiasm and perhaps negates it…

    “From a societal perspective, the rural broadband investment is clearly quite attractive. However, the anticipated revenue from customers would not be adequate to cover the total system costs, so some form of external assistance would be needed to incentivize the investments.”

    What think you about that part?

    From my conversations with our local rural electric coop CEO, the numbers aren’t there for them. Consequently, we have pockets of plenty interspersed into a region with too little access.

    Brian Thiel,
    LeRoy MN

    Like

    • Fiber projects in rural areas almost always need outside help. That either must come from grants or other government subsidies to help get these project off the ground. Unfortunately the benefits quantified by this study are what are called externalities, in that they accrue to the community and not the broadband provider. However, these kinds of numbers should help communities agree to dig deeper and help to fund the projects. I’m seeing a lot of rural counties that are willing to help chip in for the cost of building fiber – they understand these benefits even if they’ve never quantified them.

      Like

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