The report predicts those gains will increase as more people adopt broadband and more applications become available. Today, consumers use the Internet for buying and selling, accessing news and information, social networking and managing financial activities, among other pursuits. Future broadband-enabled technologies will dramatically increase health care applications and make election processes run smoother. Users will be able to access smart power grids via broadband, to help them monitor and reduce their energy usage.
Orszag’s research also showed that unemployed and retired households value broadband just as much as the employed and students.
Between 2001 and 2008, U.S. broadband households jumped from 10.4 million to 66.6 million, while dial-up users dropped from 44.2 million to 10.5 million. Homes with no Internet access at all numbered only about half that total, at 39.7 million.
And it’s only a matter of time before these households themselves discover the benefits of broadband.
Broadband as a household necessity: Data on households’ actual choices in the market are consistent with recent survey results
An April 2009 national survey by the Pew Research Center’s Social & Demographic Trends project asked what familiar household appliances Americans can’t live without. There were some striking re-evaluations, no doubt at least in part triggered by the belt-tightening effects of the recession. The proportion of Americans that considers a dishwasher or a cable or satellite TV as a necessity has dropped sharply since 2006, with dishwashers dropping 14 points with just 21 percent of Americans now rating it as a necessity, and cable or satellite TV dropping 10 points with just 23 percent rating it as a necessity. On the other hand, the public judgment about high-speed Internet actually increased, with 31 percent of Americans now considering it as a necessity, up from 29 percent in 2006.
This shift in consumer perceptions towards increasingly viewing broadband as a household necessity, based on what 1,003 Americans replied in telephone interviews, has now been confirmed and amplified by the Dutz-Orszag-Willig study, based on a much larger data set: the market choices of roughly 30,000 different heads of households, covering the type of Internet service (no home Internet, dial-up versus broadband connection) and the prices paid in the top 100 metropolitan regions across the U.S. over the period 2005 through 2008. Based on these data, the study finds that households are increasingly less willing to alter their broadband purchases in response to change in the broadband price. This is what economists refer to as the “own-price elasticity of broadband”, and it actually progressively declines over time, from -1.53 in 2005 to -0.69 in 2008. In other words, in 2005 a 10 percent rise in the overall price of broadband would have led to a 15.3 percent decline in the quantity demanded, but by 2008, a 10 percent rise in the price of broadband would lead to only a 6.9 percent decrease in the quantity of broadband demanded. This result indicates that broadband is progressively being perceived by those who are using it as a household necessity!
The full Orszag-Willig-Dutz study, “The Substantial Consumer Benefits of Broadband Connectivity for U.S. Households” is available here (PDF). Your can also read posts by study authors Jonathan Orszag and Robert Willig.
The Big Picture: Broadband’s Economy-wide Benefits
In our recent paper, “The Substantial Consumer Benefits of Broadband Connectivity for U.S. Households,” we find that household consumers receive roughly $32 billion of net benefits from the use of fixed-line broadband at home, up significantly from $20 billion in 2005. Since household broadband use has generated the majority of broadband revenues, focusing on household consumer surplus is certainly the most appropriate starting point for estimating the economy-wide benefits from broadband. Indeed, we are particularly proud of our use of both survey methods and demand estimation with different recent data sets to derive robust and consistent detailed measures of the contribution of home broadband to consumer welfare.
However, to fully understand the bigger picture, in terms of economy-wide welfare gains generated by broadband, it is important to take into account not just the impact of fixed-line broadband on household users but also the impact of wireless broadband services on all consumers, the impact on the economy from broadband use by businesses, and the impact on the economy from the business of providing broadband and broadband-related services. Taken together, it is clear that the overall benefits to the economy from broadband are significantly greater than the direct benefits experienced by households of $32 billion per year.
Wireless broadband, when used by both home-connected users and individuals with no home Internet connection, is valued because it facilitates similar benefits as those from home broadband, and also allows users to be mobile while offering extra services pertinent to mobile users. Without doubt, many Americans with mobile wireless service view it as a complement to home connectivity, adding value on top of that already received from their home connection. In addition, an increasing number of households with no home connection are using wireless broadband as a substitute for home broadband connectivity, thereby receiving all broadband value from their wireless connection. Certainly, these benefits of broadband to the economy are additional to the ones we have measured. For a recent discussion of some of these benefits, see “Accelerated Wireless Broadband Infrastructure Deployment: The Impact on GDP and Employment.”
Many business users of both fixed-line and wireless broadband services generate significant increases in productivity from the use of broadband. A portion of these productivity gains are net benefits that are additional to the ones we have measured. As business users compete against each other, the forces of competition impel the pass-along of a significant portion of these productivity gains to households, whether in the form of innovative new products or lower prices for existing products. The remainder of these benefits, in the form of producer surplus and profits, will accrue directly to the stakeholders of these firms.
Finally, the provision of broadband services and value-added services via broadband to all households and businesses (as opposed to their use) also generates benefits in the form of producer surplus and profits. These benefits do not accrue to households in their capacity as users, but rather to all the stakeholders of the companies that have invested to provide broadband and value-added services.
The full Orszag-Willig-Dutz study, “The Substantial Consumer Benefits of Broadband Connectivity for U.S. Households” is available here (PDF).
Broadband Adoption: New Study Sheds Additional Light on Existing Survey Findings
Our study of the consumer benefits from home broadband connectivity provides a detailed breakdown of the demographic characteristics of home broadband users. It is helpful to compare our results, based on roughly 30,000 households per year across the top 100 metropolitan regions across the United States, over the period 2005 through 2008, with the results of the periodic surveys of the Pew Research Center’s Internet & American Life Project (see here and here). The Pew results are based on telephone surveys of 2,253 adults in April 2009, and 2,251 adults in April-May 2008.
The results are broadly similar. The population subgroups that have below average broadband adoption rates are:
• Low-income Americans: According to the Pew surveys, respondents living in households with annual household income of $20,000 or less saw broadband adoption grow from 25 to 35% between 2008 and 2009. Our comparable 2008 figure for households with annual household income of $25,000 or less was 41%.
• Senior citizens: Broadband adoption grew from 19 to 30% among adults ages 65 or older. Our comparable 2008 figure was 43%, statistically significantly lower than boomers (ages 45-64) at 69%, and younger households at 81-84%.
• High-school graduates: Among adults whose highest level of education is a high school degree, adoption grew from 40 to 52%. Our comparable 2008 figure was 38% for adults with less than a high school diploma.
• African Americans: Broadband adoption grew at a below average rate, increasing from 43 to 46%. Our comparable 2008 figure was 57%, statistically significantly lower than Latino/Hispanics at 74% and whites/Caucasians at 70%.
What’s new in our findings on this topic?
• Given our larger sample size for each year, we separately break out Asians (South and South-East Asians) as a distinct race/ethnicity subgroup: 82% of Asians had adopted broadband by 2008.
• For employment, we find that the likelihood of adoption increases with employment, with retired households being below average, and with subsequent higher levels of connectivity for the unemployed and part-time employed, and the highest levels of adoption by the full-time employed. Interestingly, we also find that people appear unwilling to cut their broadband even when they lose their jobs, based on their need for connectivity. This is reflected in the significant jump upwards in the use of job board and career information sites during the economic downturn.
• Finally, we provide important comparisons between patterns of adoption and patterns of valuation of home broadband.
The full Orszag-Willig-Dutz study, “The Substantial Consumer Benefits of Broadband Connectivity for U.S. Households” is available here (PDF).
After more than five years helping to guide IIA as Co-Chairman, Larry Irving is moving on. His vision, energy, and ideas will definitely be missed, and we at IIA wish him nothing but the best as he starts his next chapter.
As the Obama administration’s call for electronic patient records is gearing up, the New York Times examines efforts already underway in the Lone Star State:
Cook Children’s Health Care System, based in Fort Worth, is taking a comprehensive step toward the digital future championed by the Obama administration. The pediatric provider, with 350 employed physicians, plans to install Web-based electronic health records and data integration technology at its 60 offices and clinics throughout Texas. It is also offering personal health records, controlled by the families of its young patients, that can follow them throughout their lifetimes.
The Web-based health records will be supplied by AthenaHealth, while the data integration software and personal health records will come from Microsoft.
Among households with an annual income of $50,000 or less—about half of the country—only 35% have broadband service.
Households with annual incomes above $50,000 are more than twice as likely to have broadband service.
“Bringing Broadband to the Urban Poor,” BusinessWeek, December 31, 2008
As the broadband stimulus train rolls on, worries are emerging that wording in the government’s NOFA may mean urban areas will be left out. At the heart of the problem is the definitions of “un-served” and “underserved.” Steve Ferguson, CIO of San Jose, California points out that
language in the ARRA passed by Congress in February listed “un-served” and “underserved” as acceptable eligibility qualifications, but didn’t rule out areas that lacked “underserved” or “un-served” status.
“If that inconsistency isn’t cleared up, it makes any attempt for stimulus money in an urban city a virtual impossibility,” Ferguson said, later adding, “We felt like we had a number of very good candidate projects that fit.”
Under the current wording, Ferguson says, a project to wire a fire station in downtown San Jose with fiber wouldn’t receive funding.
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