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Is broadband a general purpose technology?

September 28th, 2009 by Scott Wallsten - Economics Director

Scott Wallsten BBTruly transformational innovations are few and far between.  Economists call them "general purpose technologies," or GPTs, and they can affect nearly every aspect of the economy and the way people live.

One of the leading scholars on GPTs, Professor Timothy Bresnahan, wrote in 1996 that

"GPTs are characterized by pervasiveness (they are used as inputs by many downstream sectors), inherent potential for technical improvements, and innovational complementarities', meaning that the productivity of R&D in downstream sectors increases as a consequence of innovation in the GPT.  Thus, as GPTs improve they spread throughout the economy, bringing about generalized productivity gains."

Scholars generally agree that the list in modern history includes electricity, the steam engine, and perhaps the semiconductor.

What about broadband? Some have argued that information technology in general is a GPT, in which case broadband might be just an important component of a GPT.

But perhaps a better analogy would be the story of the steam engine.  Professor Manuel Trajtenberg argued in a 2001 paper that it was not the steam engine, per se, that revolutionized manufacturing.  Instead, it was the Corliss design, "with its vast improvements both in fuel efficiency and in key performance characteristics…[that] greatly contributed to tipping the balance in favor of steam" and away from waterpower (p.3)

In this analogy, then, broadband would be to information technology as the Corliss was to the steam engine.  It is the technology that makes IT a breakaway success.

Why does any of this matter?  For at least two reasons.

First, a GPT may have very large effects throughout the economy, but those effects can be exceedingly difficult to measure.  Thus, in addition to measuring the direct value of broadband, we may need to develop mechanisms to understand and measure the effects in other markets.  Those effects might be big or small, but we should try to measure them, especially to the extent that they would not be captured in a straight measure of willingness to pay for broadband.

Second, adoption of GPTs makes us much better off as a society, but we have to recognize that some groups lose out.  For example, local merchants might be hurt as more of their customers shop online.  Some merchants will be able to adjust and profit in the broadband world, but some won't.

Thus, if broadband is a GPT then we should expect continued radical change in our economy and in the way we live. The transition won't be comfortable for everyone, but among our tasks as we develop the national broadband plan is to understand how broadband affects the economy and society and how the country can take advantage of the opportunities it presents and make the transformation a positive one for sectors like health care, education, and energy.

How valuable is broadband to you?

September 18th, 2009 by Scott Wallsten - Economics Director

Scott Wallsten BBThe answer to that question is crucial for informing data-driven broadband policy.  While those of us who spend most of the day online in one form or another are tempted to respond that it's "invaluable," we're hoping to answer the question with a little more precision.

Knowing how much people value broadband would be necessary, for example, for designing an efficient subsidy program for low-income people or for predicting the number of subscribers to a new network in an unserved area.

Valuing broadband is complicated because people use it so differently and because it comes in so many flavors.  How much do people value different attributes of broadband, like speed, latency, or the simple "always on" aspect that was broadband's selling point in its early days?  For people who are already online, how much more do they value speeds beyond what they currently have?  Similar questions are relevant for content.  How much do people value different services and online content?  How do those answers differ among different groups of people?

The economics literature is surprisingly sparse on this question.  Some of the best work was done by Professors Scott Savage and Donald Waldman at the University of Colorado, Boulder.  Unfortunately, their work used data from 2002, meaning that the results aren't particularly useful to us anymore.  After all, the web was different then.  There was no YouTube or Facebook, and Wikipedia had only recently launched.  Only about 10 percent of American households subscribed to broadband, compared to more than 63 percent today.  In short, data from 2002 just won't do.

One of the many projects we're doing here is working to fill that gap in the economics research.  We're collecting new survey data that better captures what people value today, and will use that data to update the relevant economics research.  That updated research can, when combined with the many other projects underway at the task force, help contribute to a rational and effective broadband plan.



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