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Fast broadband doesn’t add to business productivity, study finds

Chris Andrews

Even so, there’s more to life than productivity

A government funded study in New Zealand has determined that the increase in productivity to be made from providing fast internet access was questionable, with gains of only around 10 per cent for firms with broadband over those without.

The survey of some 6,000 New Zealand businesses by Motu Economic and Public Policy Research found that while there were positive impacts from adoption of broadband, there was no measurable impact from using higher-speed broadband which it defines as above 10Mbps.

"The estimates indicate a marginally stronger impact on firm productivity for firms in rural relative to urban areas, but the differences are not significantly different. Our estimates show that all of these productivity gains can be attributed to adoption of slow relative to no broadband, with no discernable additional effect arising from a shift from slow to fast broadband,” the report said. “Despite articulate pleas for network upgrades to accelerate internet access, there is little rigorous research quantifying benefits to individual firms that arise from upgraded internet connectivity.”

The report did say that hard conclusions could not yet be drawn from the results, notably because the adoption of high-speed broadband is relatively recent and its discernable performance benefits may not yet be apparent, and that these benefits may become more apparent when high speed broadband becomes more pervasive.

This paper is something of a kick in the teeth for the New Zealand government which, as FBTVN reported a couple weeks ago, has begun a huge broadband roll-out in which it will soak up the commercial risk of the fibre network build, in the hopes of recouping its investment over time. The government has put aside $1.5bn to pay for the upfront infrastructure work, with private companies than paying this money back as customers are connected.

Whether or not this paper should raise doubts for those potential investors, however, is very questionable. Straight productivity gains being achieved through fast broadband is only one aspect of the need for fast broadband; cloud computing, IPTV services, internet video, and other high bandwidth applications all make this necessary.

And these potential investors should take heart: Virgin Media recently reported

third-quarter revenue up by 1.3 per cent to £953 million. During the quarter it gained 39,000 broadband customers, with more than 20,000 of those customers taking its 50Mb product.

And according to research group iSuppli, new worldwide broadband subscribers are projected at 16.3 million in the third quarter of 2009, up 2% from 16 million during Q3 2008, while global spending on broadband equipment is forecast to rise to $3.2bn in the third quarter, up 6.3% from $3.1bn in the same quarter of 2008.

So productivity gains or not, there is an obvious customer demand for fast broadband, and New Zealand investors could stand to gain by getting in at the ground level.

Meanwhile in the UK, debate carries on over the £6 annual tax on fixed line telephone users to help fund fast broadband, particularly in rural areas. The Conservatives have said they would scrap the tax if and when they got into government, and now TalkTalk CEO Charles Dunstone, who last month came out saying, strangely, that mobile broadband had peaked, has put in his two pence. “This is an unjust and regressive tax on all phone customers which will subsidise mostly richer rural households that can afford high priced super fast broadband services,” he said.

“As well as being unfair, we estimate that the increase in price will mean that over 100,000 mostly low income homes will be forced to give up their broadband lines. This is wholly inconsistent with the government’s plans to tackle digital exclusion by increasing uptake and use of broadband.”

Eh? So less than the cost of a packet of cigarettes, for the year, will mean low income homes will have to give up their broadband lines? This sounds like madness.

The real concern is the possibility that the roll out of fast broadband to rural areas could be delayed by the tax plan as private sector investors wait for public funding to be made available. This is a valid point made by Talk Talk, though based on the assumption that private investors would bother with rural areas in the first place, which hasn’t thus far been the case; one can only guess at why they’ve attached these ridiculous figures on poverty to make the point.

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