IIA Guest Blog: Robert Willig

By IIA

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).