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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.

16 Responses to “How valuable is broadband to you?”

  1. Billy Shears says:

    What's the point Dr. Wallsten? Through your various writings with the right-wing "Progress and Freedom Foundation" or your current job, in your testimonies in Congress, and before state panels like in Minnesota, we already know your answer. You think there is no U.S. broadband problem. You think any intervention in the market is unwarranted. Your comments in the National Broadband Plan proceeding indicate this.

    Which begs the question: Why are you, an industry funded economist, working on the national plan? Why did the FCC hire you, but not people on the other side of these issues? Certainly there are dozens of capable economists already working for the FCC.

    In a recent article in the Hill, discussing concerns about your hiring, stated, "Wallsten said in an e-mail that he understands the concerns of the public interest groups, but his work at the FCC is rooted in economics, "focusing especially on trying to fill the gaps in the empirical economics literature necessary to informing the plan."

    That is frankly an insulting attitude. It's as if you are Moses come down from the Mount with "the" answer, simply because you have a PhD in economics. There have been numerous substantive critiques of your work, and other economist in your field (like those working for other Bell-funded think tanks) have taken contradictory positions on the same exact issue, simply because their funder (AT&T) went from being a CLEC to an ILEC.

    If the public is to have any confidence in this process, you should resign immediately.

  2. Guest says:

    Why don't you ask the South Koreans, the Japanese, the Germans, ........., you know, folk in Countries that are so far more advanced than the USA in matters of digital broadband communications. Why don't you ask the Australians who have now decided to provide broadband to 90 % of 'venues' (homes included) by the end of 2011.

    Plenty of data exists if you go to the places that have made the commitment and are steadily moving ahead of the US in broadband communications services for their Citizens.

    Of course, for what America spends in a month in Iraq and Afghanistan, every home in America could already have Corning ClearCurve installed along with an appropriate router and you could be collecting real data - and Americans could stop being second- or third-class netizens.

    But, of course, given that the US ranks 37th in the world in health care quailty and availability and in categories like 'infant mortality' it is obvious that the societal well-being of the vast majority of Americans is not, and has not been, a priority of government since the time of FDR and Truman.

    Good luck.

  3. Michael Gossman says:

    I use Broadband at home for my only telephone connection. I am also on all day at work. Broadband has become an essential part of my life. I am able to check my children's grades at school over Broadband every night. We are thus able to keep up with and study areas that we need to. I get paid via Broadband. I invest via Broadband. I pay bills via Broadband. I do research, read magazines and watch video over Broadband. I have even ordered food via Broadband. I am able to find better gas prices, better clothes prices, and who pays the best interest rate. About the only thing not affected are basic bodily functions. I can't wait for health related measurements via bluetooth and broadband.

  4. Ike Willis says:

    I agree with Billy Shears. The moment the FCC hired Wallsten, a known AT&T and Comcast funded economist to work on the broadband plan, was the moment the veil was lifted on this entire process. While American's think they voted for change, they are just getting more of the same corporate-controlled government we had under Bush.

    We all can't wait for your recommendation to "deregulate" in order to get these companies to do what the rest of the world figured out how to do 10 years ago. 80 percent profit margins on broadband aren't enough, they need more!

  5. Digital Fact Checker says:

    Seems some of the respondents are too lazy to check out the web sites of PFF or TPI...lets see what we see...who ...wait ...is that ...could it be...Google is listed...and what is this...Intel and Microsoft ...boy some one at TPI should fire Scott for not representing these companies' interests...or perhaps...just perhaps...he is doing independant work...what a novel idea...

  6. Guest says:

    This is a thinly veiled attempt to justify a radio frequency spectrum grab. The 'broadband' they are talking about uses radio frequencies which are a FINITE resource, there is only so much available. And the available resources are already in short supply. So if you add unlimited broadband, some users will have to give up their resources. How would you feel if they took your Fire Departments communication frequency? They could not respond to a fire at your house or business. This is just one possible scenario, there are plenty more. For you big city people, how about taxi's without communications?

    Another problem has been the interference generated on radio frequencies by 'broadband' producers, making normal radio communication by legal users impossible.

    The FCC is under US Federal Court order to settle these issues and they have done nothing to date. Unrestricted broadband is not the answer. The FCC must be provided appropriate information to provide the best service to ALL radio spectrum users in the US.

  7. Glen Salmon says:

    There are many ways to define and scope value but I'll take a different metric to traditional rhetoric on either side of the isle. I'll use $$$$.

    For me, the following "real" minimum broadband performance has the following acceptable cost:

    33Kb (dial-up) = $5/month 768Kb (good DSL) = $25/month 5Mb (good cable) = $50/month 10Mb (good WiMax) = $75/month 25Mb (OK fiber) = $100/month

    The justification I give for such value is how it would impact my ability to do certain jobs. At the good DSL rate with a minimum of 768Kb (this is the upload speed since it is typically the restricting factor) there are a number of jobs I could do and be affordable to prospective employers. As the "real" speed goes up, there are more jobs I could do effectively.

    The challenge is what is "real world" vs what is advertised. In my part of rural america, the local internet provider advertises 3MB down and 768Kb up. The reality is no one gets better than 1.2Mb - 1.5Mb down and 300Kb - 350Kb up. This costs about $40/month. In many less rural parts of the country, the same $40/month is advertised as 5Mb and yields real world performance of 3Mb down and 1.5Mb up.

    So, in addition to "value" there needs to be a realization that "true broadband" can not bve measured by those providing the service - they will always inflate their numbers.

  8. Spencer James says:

    I heard a story about Al Gore submitting legislation to Congress back in the 1980s providing for optic fiber to be install across the nation. Evidently, his proposal was shot down.

    However, in order to play catch up with the rest of the world now, the U.S. needs to jump even further ahead!

    There is no acceptable response to the question of The Internet other than the fastest / largest connections physically possible (not economically possible) to every citizen of the U.S. throughout the world at a rate so cheap it feels free.

    Anything short of that is FAIL.

  9. ThePutze says:

    I live in one of those "really really rural" areas. My internet connection is dial-up at a blazing 26.4 kbps ... it takes forever to download even simple updates. I use the internet to access Federal, State, and County Agency information, their rules and regulations, and Court Cases relating to the issues I will be addressing before those Federal, State, and County agencies. I could get a LOT more done with faster downloads using broadband (DSL). That being said, the internet provides isolated areas of the States access to information that directly affects people's lives. From banking to bill paying, and work, the internet keeps us connected in a way that would be impossible otherwise. "Time is of the essence" I'm told by Courts and Agencies. "Time" is not a luxury when you only have access to a very slow dial-up internet connection. We also pray to God that our connection won't break down during the download, and we must start all over again ... ad nauseum. All I ask is that those implementing this "new" system to not cut corners. Do not try to make a huge profit. And most of all, do it right.

  10. Pentagron says:

    I applaud the plans of the F.C.C. to enforce net nutrality. This is extremely important to consumers and to U.S. competitiveness in the global economy. Please do not repeat the mistakes made with monopoly cable television where there are 150 channels and nothing to watch. Network providers must not control content. Also, I strongly support universal wireless broadband deployed throught the country, which will empower all Americans.

  11. Mike Burazin says:

    I need high speed Internet for school. Don't get me wrong, all of my classes are at my local tech college and they do have high speed Internet (it's a 25 minute drive there so I don't go unless I have to), however all of my teachers insist on doing the homework on-line, and submitting the assignments on-line. I even have to take most of my tests/quizzes on-line. I live just a little too far for the cable companies like Verizon and Charter to care to give me or anyone in my neighborhood service, I'm not lying when I say Verizon's cable line stops less than 500 feet from my house. I am honestly falling behind in my classes just because I don't have high speed Internet. It shouldn't take me 20 minutes to upload an assignment to a teacher. Not to mention there are 4 home based businesses in my neighborhood. Also Charter claims that their services are in my neighborhood, (on their website, on the phone, and they even send me offers in the mail) if so then why did the cable guys find absolutely no cable line buried in the whole entire neighborhood? I still get offers from them to this day, they like to call about once a month and they send me offers in the mail every week. I need high speed Internet, but for that matter who doesn't?

  12. JZP says:

    To e personally, it is highly valuable because I am a knowledge worker in a technology that supports remote presence, so telecommuting is both more effective and more green. Just getting security updates -let alone feature upgrades- for operating systems and applications requires significant ongoing bandwidth, which makes useful broadband a serious baseline requirement for *any* modern computing.

    In my opinion, a USF-like funding model will not work. Telephony systems allocate static bandwidth with costs linear to the user population. All packet networks have elastic bandwidth demands which require costs relating to the usage behavior of the user population. End-user servicing broadband networks which can service large expanses of rural areas exacerbate this problem as they either require significant continual upkeep [many remote aggregation nodes which require continual grooming], or deliver sub-standard service, or have costs per-drop which far outweigh any recovery. USF-like funding makes sense ONLY for static-cost-model services.

    With respect to features, always-on is a basic requirement. Latency and bandwidth/speed are vital factors, but there is no sane way to set a simple measure. A service provider can only guarantee service on their network, and even that is constrained by costs and reasonable commercial practice. A standardized on-net measurement framework would be a reasonable thing to fund, but would need to be developed with industry partnerships to properly accommodate the multiple existing architectures and not overly-constrain future network design innovations. Again, a subsidy of the network infrastructure is only a piece of the picture as the ongoing costs for maintaining, growing and grooming the network outweigh the capital costs well within the life of the hardware.

    Further examination on these points will require to evaluate advertising regulation across many sectors of the economy. If the collective-we wish to maintain a competitive, commercial broadband infrastructure this will be a long and tricky process; many other countries have taken the tack that the network infrastructure (conduit, copper, fiber, pole access, etc) is part of the common good and segment the physical infrastructure (municipal-run or highly regulated or...) from the service provision (commercial voice, video and data). If we go this way, the model used for competitive DSL needs to be re-examined, tariffs would need to be open-ended, and provisions wpuld need to be put in place to allow continued innovations in the space, else all parties will be dragged to the lowest-common-denominator for a region.

  13. www.telecomstraightshooter.com says:

    Broadband importance isn't the issue. It's important and not at 768 kilobits.

    The government needs to enable broadband advancements by making funds available to "for-profit" companies with a track record that can demonstrate they can build, run and sustain on an operating basis a broadband network. I purposely exclude ILECs and large dominating Cable Companies from such eligibility - this can be done easily by requiring that a receiver of funds must provide an open access network of ALL their existing facilities plus new builds on a wholesales basis to others. This includes bandwidth and dark fiber. The "bottleneck" participants that already have infrastructure will by definition not participate as they will want to maintain their near monopoly positions. Even some CLECs won't go for the aforementioned open access provision covering capacity and existing infrastructure.

    What you end up funding are the real enablers of accelerated broadband deployments. When I see government entities and not-for-profits looking for $50mm to $100mm+ - you have to ask yourself some serious questions on viability, reality and risk.

    Funding not-for-profit entities with no success, no telecoms management, no existing infrastructure while having local tax payers as a back stop for operating failure is a waste of capital.

    Government should stay out of the telecom business as a direct participant. Broadband should be financially enabled with a minimum definition starting at 100 megabits with a goal of 1 gigabytes within 10 years. Stop the dominant focus on rural, rural, rural areas ... subsidize them with satellite connectivity like other smart countries do.

    America is losing its competitiveness the longer we keep copper loops alive and ignore the value of fiber access and fiber back haul of G$ wireless opportunity.

  14. Michael Locker, M.D. says:

    These are some very educated comments from folks far more versed in this than I, and I'd like to thank all of you. It's eye-opening!

    Thanks.

    Michael Locker MD

  15. Dan Hirsch says:

    I completely agree with www.telecomstraightshooter.com. Right now, I'm living a few blocks from UCLA; less than a mile, in fact, from the place that that very first ARPAnet connection was made on October 29, 1969. I am paying $50 a month for what works out to be 2 MBit down and 600 kbit upload. As seen above, there are people in the midwest that get 26.4 kbits per second.

    In the 70's, the inter-university links (the "backbone" of the internet) ran at 50 kbit/s.

    To put this in perspective, around the same time, computer memory was just dropping below 1 cent per bit, and 4 MB of ram was considered decadently large. Now, memory is now $56 for 4GB (roughly 1/585,000,000th of the cost). A PC comes with a minimum of 2GB of memory, 500x more than 70's era supercomputers.

    And we're allowing, much less aiming for, a measly 10x improvement in in communication speeds? (based on a broadband being defined as a minimum of 500kbps download speed) We should be aiming for a MINIMUM (to every single person in the nation) of 10-15 MBps. Anything less is a disgrace to our nation.

  16. Jim A says:

    Scott..

    The purpose of the Broadband Internet is for people to connect with other people.. cheaper, faster, better.. to access each others products and services.. it is all about learning about who people and places are and what they have to offer..

    The telegraph supported the railroads.. you rode on their schedule.. and destination..

    The telephone supported the automobile and you rode on your schedule to your destinations..

    Narrowband Internet supported the airline seat and email on their schedule..

    Broadband Internet is totally different.. it supports all access and content on your schedule and destinations..

    The local library with trained librarians is the place people go to access the Broadband Internet should they not have access where they work or live.. they are in local information access within the public domain.. I see them all the time.. and they are good..

    Broadband Internet access is about the integration of bandwidth, memory, storage, processing power with software.. all of which costs continue to drop rapidly..

    The installed base of fiber, coax, copper wire.. as well as towers and radio spectrum is available everywhere.. to implement Broadband Internet service for everyone rapidly.. minimum labor costs and time to deploy..

    Soon cable/telco triple play services will migrate and integrate into a single service across all transmission media enabling reduced costs to all subscribers with wider penetration..

    Been there.. done that.. and got the T-shirt.. it all works great.. go for it..

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