Quantifying the Benefits of Fiber

Dr. Bento J. Lobo, an economist at the University of Tennessee at Chattanooga undertook a study to quantify the benefits of the municipally-owned fiber network in Chattanooga. Any citywide fiber network brings economic development to a community, but a municipally-owned system brings additional benefits because of the way that the business is more deeply integrated into the community.

The study estimates that the network has generated nearly $2.7 billion in benefits since the network was constructed a decade ago. I’ve always felt that you have to take the claims from economic benefit studies with a grain of salt. Many of the benefits are easily measurable, but other benefits rely on assumptions that are hard to prove or disprove. But the big story is that even a conservative economic analysis (and this analysis might already be conservative) would still demonstrate a huge benefit to the city from fiber.

Chattanooga is a bit of a unique case because it was one of the first municipally owned citywide fiber systems and is also the largest. Being first to market with fiber brought some benefits to Chattanooga that might not come in the same magnitude to other cities building fiber today. For example, EPB – the municipal utility, offered affordable gigabit broadband when the cable company still had speeds of 30 Mbps download.  With that said, here are some of the benefits that the fiber business brought to Chattanooga.

  • One of the most immediate benefits is a sizable saving to consumers. EPB charges $57.99 for a symmetrical 300 Mbps connection and $67.99 for a symmetrical gigabit. EPB charges $9.99 for a whole-house WiFi network. These prices are far lower than Comcast’s basic product in most markets that is $76 for up to 200/25 Mbps connection plus $14.95 for the WiFi modem. EPB also offers low-income broadband for qualifying homes at $26.99 per month. The study quantifies the benefit to consumers of over $144 million.
  • Chattanooga was one of the first places in the nation that touted the ability to bring an affordable gigabit to anybody. This resulted in attracting entrepreneurs to the city that were enticed by cheap and fast broadband. The study estimates that the fiber network has gained or saved over 9,500 jobs. The city has gained a reputation as a good incubator for start-ups and now has an innovative business community – where nothing like it existed before the network was built. Cities building fiber today are not going to duplicate this results, at least not to the extent seen in Chattanooga.
  • The study also credits the fiber network with attracting nearly $1 billion in new investments by businesses in the city – from start-up or existing corporations that moved to the city or expanded existing businesses.
  • There are a few direct benefits that come from operating a new municipal business. For example, the fiber business has paid around $60 million into the city coffers for in-lieu-of-tax payments (payments that mimic taxes). The fiber business has also absorbed $338 million in overhead costs that would have otherwise been charged to the electric utility – a saving that translates into lower electric rates.
  • The study assigns a $750 million benefit to an electric smart grid. Fiber allowed a number of beneficial changes to the operations of the electric business. This includes automated meter reading that significantly lowered labor and vehicle costs. The fiber network has been credited with reducing the duration of electrical outages. The use of automated electrical switching devices has shaved the peak load (the biggest cost of power is to satisfy the peak during heavy usage times). Smart metering has saved the city over $50 million in electricity theft.
  • The study calculated $74 million in benefits to businesses for having faster and lower latency broadband due to automation and increased efficiency. This is the kind of benefit that is clearly real, but difficult to quantify.
  • The study also took a stab at quantifying more esoteric, but real benefits. For example, it’s incredibly hard to quantify the impact of having good broadband on education both before and during the pandemic. The city has done more than most cities in getting broadband to low-income and student households. There are also significant societal benefits from telecommuting, which was booming in Chattanooga even before the pandemic. Chattanooga was also pioneering telemedicine before the pandemic.
  • Finally, the study even assigns a value to the publicity generated by the fiber network. The city went from obscurity to appear on nationwide lists of the best places to live and retire, all credited to the fiber network.

Again, Chattanooga is somewhat unique by being an early adapter to fiber. But the city has also done a lot more than just offering affordable broadband. New businesses didn’t just magically appear in the city and are the result of the hard effort of economic development folks – but such efforts would have gone nowhere without the fiber network. Chattanooga is ahead of most cities in adopting the benefits of smart grid – but again, because it decided to take maximum of advantage of the fiber network.

My guess is that this study is a little conservative. For example, what’s the benefit from higher property tax revenues due to having Chattanooga listed as one of the best places in the country to live? I can’t even begin to imagine quantifying the true long-term benefits that come from using fiber to reduce the number of students that drop out of school or fall through the cracks. What’s the value to society from a student who goes to college, but without home broadband wouldn’t have?

No other city is likely to see some of Chattanooga’s early adopter advantages, but most of the advantages realized by the city can be duplicated. There is also a big lesson to be learned from Chattanooga – building fiber is only part of the story and a community has to take the extra steps to make sure that all of the constituencies of a city see the advantages of fiber. Too often, cities analyze the feasibility of a fiber network by looking only at the financial performance of the fiber business. Chattanooga’s example shows that the biggest advantages to the community don’t appear on the books of the fiber business, but in the pocketbooks of the citizens and businesses in the community.

2 thoughts on “Quantifying the Benefits of Fiber

  1. Thank you so much for this blog about Chattanooga’s fiber network. I recall they were taking customers left and right from big telco several years ago, but I lost track due to a job change. Nice to see they have continued to do well.

  2. Look, I first want to be clear that I truly support and applaud the efforts and result in Chattanooga. That said I think it is important to temper, albeit moderately, all the heralding by at least recognizing that they seeded their project with a DOE grant of more than $110 million.

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