The Organisation for Economic Cooperation and Development has a new report about the potential for broadband networks to support innovation across the global economy. The report focuses on four areas of potential economic benefit from expanded broadband: electricity, health, transportation, and education. The opportunities for rural areas like South Dakota are particularly relevant, especially as SDN Communications gets one of the first stimulus grants aimed at expanding rural broadband.

Market Imperfection

The full report offers some passages that South Dakota policymakers may find instructive in building the case for government action to expand broadband access:

Just as electricity allowed businesses to re-arrange their productive segments within a factory, broadband networks allow businesses to rearrange production globally to take advantage of production efficiencies in different geographic locations. For example, high-speed data lines allow companies to place internal divisions in different geographic locations which are best suited to their factor needs. For example, corporations with large data storage requirements now can build data centres close to inexpensive renewable energy sources in remote areas to take advantage of the renewable energy resources. These remote data centres are then networked to other parts of the company via fibre-optic lines allowing for data to be retrieved from low cost processing areas and delivered anywhere in the world. The effects can be local as well in cases in cases such as teleworking where employees can work from home or local telecommuting centres and still access company resources [James Enck and Taylor Reynolds, “Network Developments in Support of Innovation and User Needs,” Organisation for Economic Cooperation and Development: Document DSTI/ICCP/CISP(2009)2/FINAL, p.10].

Broadband offers numerous potential benefits to rural America; the problem is that the benefits are spread out socially don’t translate directly into economic returns for the agency that installs the broadband infrastructure:

Currently, broadband networks are still built based on the potential private returns to telecommunication operators but the social impacts of broadband connectivity could be potentially much larger than the private returns the operator is able to internalise. This leads to situations where the total benefits of installing a new network outweigh its costs but the network is not built because the operators could not recoup their initial investment. Economists consider this a form of market imperfection that can lead to non-optimal provisioning of services (OECD, 2009b)(Farrell and Klempere, 2006). [p. 13]

Electricity

In electrical production, broadband is key to supporting the smart grid, which could reduce electrical consumption and costs. But the smart grid will rely on lots of data from lots of points: distributed energy generation sites, including home wind turbines and solar panels pumping excess electricity for sale elsewhere in the grid; smart appliances seeking real-time data on spot rates to avoid high peak-energy costs; plug-in hybrid vehicles seeking optimum charge times and opportunities to sell unused power. All that data will require more bandwidth. The more extensive and robust the broadband network, the more customers the utilities will be able to serve and the “smarter” the smart grid will be [pp. 16-20].

Health Care

In health care, broadband offers the chance for hospitals and other providers to develop innovations like remote consultations with patients at home and with specialists at other facilities. Many of those innovations will depend on the two-way “symmetric” connectivity that broadband can provide:

Since health interactions require communication in both directions it is important for the connections to accommodate high-bandwidth symmetric connectivity. High-definition video over broadband promises to improve the interaction between patients and remote doctors but the systems require more upload bandwidth than current DSL and cable broadband networks are generally able to provide. It is generally believed that health applications will require symmetric bandwidth (Tan, 2005). One of the key challenges facing e-health providers is that the remote centres which will be uploading many of the large files to specialists in larger cities are precisely the institutions which need the fastest upload bandwidth but in reality, often have the slowest available connections [p. 25].

Transportation

In transportation, broadband promises support for intelligent traffic management, an issue that is less relevant to the uncongested roads of rural South Dakota. However, the availability of broadband in rural areas is still important for applications like accident avoidance and shipment tracking. The OECD also includes telework in this section, noting that increased broadband access creates more opportunities to work at home instead of commuting to work every day [pp.29-30]. The more bandwidth rural residents have available, the more jobs they can do from their homes, and conceivably the less demand there will be on our transportation infrastructure.

Education

The theme of interaction comes up again in the OECD’s discussion of broadband and education. The report notes that “Lower speed Internet connections are likely sufficient for many types of online learning” [p. 35] that rely mostly on students accessing and downloading resources. But fully “Web 2.0” education has students interacting with teachers and with each other by audio and video, sharing documents and online whiteboard notes and diagrams, and in general producing as much data as they consume. Really engaging students in active learning requires a broadband connection over which students can give as much as they get.

Cost Savings

The OECD report gets particularly interesting when it rolls out the calculations for just how big cost savings would have to be to justify building a nationwide network of fiber-optic broadband cable to every home. The report breaks the numbers down by different estimates of per-household cost and take-up rate. Under the scenarios studied, a nationwide broadband installation would require 0.5% to 1.5% savings across the economy to justify the investment [p. 42]. In the U.S., we could get savings of that magnitude by reducing costs in the electricity, health, transportation, and energy sectors by between 0.41% and 1.04% [pp. 46, 50].

So put your innovative heads together: if you had broadband available everywhere, could you come up with enough ideas and applications to shave 1% off the cost of doing business in four key sectors of the economy? If so, you’ve built an economic case for running fiber to every house in the country.

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