SOCIOECONOMIC EFFECTS OF BROADBAND SPEED - Research by Ericsson, Arthur D. Little and Chalmers University of Technology

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SOCIOECONOMIC
EFFECTS OF
BROADBAND SPEED
Research by Ericsson, Arthur D. Little and Chalmers University of Technology

In collaboration with:
Executive summary
Interest in the economic impact of Information and                 PART 2 – SOCIOECONOMIC EFFECTS OF BROADBAND
Communication Technology (ICT) investments is growing              SPEED: A MICROECONOMIC INVESTIGATION
worldwide as governments seek new ways to spur growth.             The second study in this report is a microeconomic (household)
Moreover, investment decisions must undergo extra scrutiny         level investigation which assesses the impacts of broadband
in the current tough economic conditions.                          access and upgrades on household income.

In 2010, Ericsson and Arthur D. Little conducted an in-depth       The microeconomic study analyzes data from eight OECD
study titled “Socioeconomic Impact of Broadband Network            countries, as well as Brazil, India and China (BIC), investigating
Investments,” which measured the economic effects of               the similarities and differences between them. The study
broadband penetration. It explored the latest understanding        used data from Ericsson ConsumerLab’s web-based survey
of the impact of fixed and mobile broadband investments.           conducted in 2010 with over 22,000 respondents.
The study was based on more than 120 academic reports
and business papers published between 2001 and 2010, and           Delving deeper than its macroeconomic counterpart, it
results showed that broadband penetration has positive effects     measures the impact of broadband speed on household
on society.                                                        income, by analyzing whether leveraging the benefits of faster
                                                                   broadband can improve competitiveness in the labor market
In 2011, Ericsson initiated a follow-up research project,
“Socioeconomic Effects of Broadband Speed,” comprising             The main findings of the microeconomic investigation can be
two studies: the first on a macroeconomic (national) level, and    summarized as follows:
the second on a microeconomic (household) level. This report
focuses on the results of these two studies.                       >> Broadband access affects development:

PART 1 – SOCIOECONOMIC EFFECTS OF BROADBAND                           –– In OECD countries, gaining 4 Mbps of broadband
SPEED: A MACROECONOMIC INVESTIGATION                                     increases household income by USD 2,100 per year
The first study featured in this report is on a macroeconomic         –– In BIC countries, introducing a 0.5 Mbps
(national) level, and investigates the impact of broadband               broadband connection increases household
speed on macroeconomic growth. Using panel data                          income by USD 800 per year
econometric methods, Ericsson, in co-operation with Arthur D.      >> Broadband speed upgrades affect development:
Little and Chalmers University of Technology, investigated the
                                                                      –– In OECD countries, upgrading from 0.5 Mbps to 4 Mbps
impact of broadband speed on the economy.
                                                                         increases income by around USD 322 per month
This study is a world first in quantifying the economic impact        –– In BIC countries, upgrading from 0.5 to 4 Mbps
of broadband speed upgrades using a comprehensive, best-                 increases income by USD 46 per month
practice, scientific method based on empirical data. Data has
been collected for 33 Organization for Economic Co-operation       Several key drivers of household income are believed to be
and Development (OECD) member countries, using publicly            linked to internet access speed:
available sources. Results show high statistical significance,
are robust to model changes and pass rigorous statistical          >> A faster broadband speed boosts personal productivity and
testing regarding the direction of causality.                         allows for more flexible work arrangements

The study was first presented at the Broadband World Forum in      >> A higher speed also opens up possibilities for more
Paris on September 27, 2011. It was significant in the debate on      advanced home-based businesses as a replacement, or
the benefits of broadband, being cited in more than 150 press         complement to, an ordinary job
articles worldwide as well as at several industry conferences.     >> Broadband speed enables people to be more informed,
The study is also published as an academic paper in the               better educated and socially and culturally enriched –
International Journal of Management and Network Economics             ultimately leading to a faster career path
(Rohman and Bohlin, 2012).
                                                                   The results from both the macroeconomic and microeconomic
The main result of the study can be summarized as follows:
                                                                   studies support the theory that both broadband availability
                                                                   and speed drive growth in an economy. Further investigation is
>> Doubling broadband speeds for an economy can add
                                                                   needed concerning the relationship between broadband speed
   0.3 percent to GDP growth, in a simulation relative to the
                                                                   and services used.
   base year 2008
>> The benefits of faster broadband can be categorized as:         To date, the full interplay between broadband coverage, speed,
  –– Economic effects, including increased                         benefits and the value of externalities has yet to be modeled.
     innovation and productivity in business                       Nevertheless, this research project into the socioeconomic
                                                                   effects of broadband scientifically confirms that speed is
  –– Social effects, including better access to                    a highly important factor in spurring economic growth, for
     services and improved healthcare                              individuals and the overall economy.
  –– Environmental effects, including more
     efficient energy consumption                                                                                                       2
CONTENTS
EXECUTIVE SUMMARY                                                                 2

INTRODUCTION
>> Background                                                                     5
>> Who should read this report                                                    5
>> The concept of broadband                                                       5
  –– Defining speed                                                               5
  –– Measuring speed                                                              6

PART 1 – SOCIOECONOMIC EFFECTS OF BROADBAND SPEED:
A MACROECONOMIC INVESTIGATION
>> Exploring the impact of broadband on GDP                                      10
>> Key sources                                                                   10
>> Why speed matters – a macroeconomic investigation                             10
  –– Economic effects                                                            11
  –– Social effects                                                              15
  –– Environmental effects                                                       17
  –– Empirical modeling for measuring the impact of broadband speed              18
>> Data used for analyzing the effect of broadband speed                         19
  –– OECD and the World Bank                                                     19
  –– Ookla                                                                       19
  –– Data treatment                                                              19
>> Regression analysis findings: Economic effects of increased broadband speed   20

PART 2 – SOCIOECONOMIC EFFECTS OF BROADBAND SPEED:
A MICROECONOMIC INVESTIGATION
>> Continuing to explore the socioeconomic impact of ICT                         21
>> Why speed matters – a microeconomic investigation                             21
>> Investigating the impact of broadband speed on the household                  21
>> Using Ericsson ConsumerLab global survey data                                 23
>> The impacts of broadband access and speed on household income                 25
>> The escalator effect of broadband investments                                 26

CONCLUSION
>> Implications for key stakeholders                                             28

                                                                                  3
APPENDICES

Macroeconomic appendices
>> Appendix A: Measuring the economic effects of broadband investments            29
  –– Variables in measuring the economic effects of broadband speed investments   29
  –– Selection method                                                             29

      >> Input-output method                                                      30
      >> Regression analysis                                                      31
      >> Cost-benefit analysis                                                    32
      >> Eclectic method                                                          32
      >> Choice of method: Regression analysis                                    33

>> Appendix B: Regression analysis framework for measuring
   the economic effects of broadband speed                                        34
  –– The concept of regression analysis                                           34
  –– On the concept of causality                                                  36
  –– Common challenges when conducting regression analysis                        37
  –– Empirical modeling for measuring the impact of broadband speed               38
>> Appendix C: Definitions                                                        39
>> Appendix D: Statistics glossary                                                41
>> Appendix E: Literature study overview                                          42
>> Appendix F: Case studies                                                       46
>> Appendix G: Descriptive statistics                                             47
>> Appendix H: Regression analysis output                                         53
>> Appendix I: Statistical tests used                                             54

Microeconomic appendices
>> Appendix J: References                                                         55
>> Appendix K: About Ericsson ConsumerLab                                         55
>> Appendix L: Data treatment                                                     55

                                                                                   4
INTRODUCTION
BACKGROUND
In 2010, Ericsson, in co-operation with Arthur D. Little,            A link may also be dedicated, which normally is the case for a
published the study “Socioeconomic Impact of Broadband               wired link between a home computer and the first aggregation
Network Investments,” which measured the economic                    node. However, if the computer is connected to the internet in
effects of broadband penetration. Following its success, they        a wireless manner, even the first link is typically shared.
launched a new research project, “Socioeconomic Effects of
Broadband Speed,” in spring 2011 comprising two studies:             Broadband connections use telephone lines, optical fibers,
macroeconomic and microeconomic. The purpose of the                  the cable TV network, power lines or mobile networks to
project was to isolate and quantify the economic effect of           reach the internet. A typical broadband connection and its
broadband capacity upgrades. The project aimed to explore            links are presented in Figure 1.
the latest global understanding of the economic effects of
increased broadband speed.
It also aimed to provide statistical
analyses on the relationship              The connection between
between broadband speed and                the computer and the
economic values using proven               modem may be wired
scientific methods.                             or wireless

This report represents unique
findings, as the impact of
broadband speed upgrades                     Home computer     Broadband access               Broadband
has previously not been                                            network                     provider                          The rest of
investigated and published                                                                     network                          the internet
on an empirical basis.
                                             Home modem        Aggregation node for                        Internet gateway
                                                                broadband provider
WHO SHOULD READ                                              (DSLAM, cable node, etc.)
THIS REPORT?
The results of this report are likely      Home network             Access network              Aggregation and core network
to be of interest to a number of
industry stakeholders, including                                   Links of the broadband connection
governments contemplating
investments in broadband
                                                                                              Figure 1: Schematic of a typical broadband connection
infrastructure, the European                                                                            Source: Ericsson, Bauer, Clark and Lehr, 2010
Union and Commission, NGOs
and industry organizations, operators and regulators.
                                                                     Defining speed
THE CONCEPT OF BROADBAND SPEED                                       The transmission rate of a data communications system is
The report examines the effects of broadband speed,                  commonly referred to as its “speed.” Clarity regarding the
which is a concept that must be clarified. However before            meaning of this is of great importance, as many different
investigating the concept of broadband speed, a few other            definitions exist. The transmission rate depends on the
terms should be explained.                                           characteristics of the dedicated links and how the shared
                                                                     resources are allocated and loaded. Broadband speed
Broadband internet access, often referred to as “broadband,”         depends on:
is defined as a high data transmission, which is always
connected to the internet, typically contrasted with temporary,      >> The physical characteristics of the connection links,
lower-rate, dial-up access. The internet consists of shared             for example distance and bandwidth
resources, to which anyone can have access through the use           >> Policies set for allocation of shared resources,
of a link – a data communications system – that is connected            for example priorities and queuing
to shared resources. The data communications system
                                                                     >> The behavior of other users loading the shared resources
transports information formatted as binary digits called “bits.”
These bits are grouped into delimited information packets
that are transported via communications links. Where there           Hence, the achieved broadband speed is not equal to the
is no information transfer, no information packets are being         bandwidth, as many parameters play a role here.
shipped over the link. In other words, the link lays idle. Most      Traditionally, dial-up connections were used to access
communication systems take advantage of the fact that not            the internet. These are still being used in many emerging
all users use the links at the same time. Links are shared           economies. A dial-up connection uses the telephone network
between many users. A user occupies transfer capacity when           to link the computer to the internet, and has a limited but
that particular user sends or receives information.                  predictable access capacity, normally restricted to 56 Kbps.

                                                                                                                                                   5
A broadband connection is – in                                       Occupied bandwidth
contrast to dial-up – capable of                                     Available (unused) bandwidth
always being on. Traditionally,
internet access speeds of
256 Kbps and above have been
considered broadband (OECD),
but recent definitions of basic/

                                         Bandwidth capacity
functional broadband set the
lower limit at 2–4 Mbps (EU, FCC).
The exact speed threshold that
defines broadband is not highly
important to this study, instead it is
the comparison between different                                                                                                                 The link with least amount
internet access speeds that serves                                                    6F6F6E                                                     of unused bandwidth
a purpose here.                                                                                                                                  along the path determines
                                                                                                                                                 the end-to-end available
A speed bottleneck can occur                                                                                                                     bandwidth — the “speed”
anywhere along the broadband                                                                                                       Links
connection. The link with the least                                           1.      2.                    3.
amount of unused bandwidth along                                            Home Broadband              Broadband
the path determines the end-to-end                                         network access            provider network
available bandwidth, see Figure 2.                                                 network

Here the difference between                                                                 Data transfer
capacity and the maximum
possible speed becomes clear.                                                                                        Figure 2: Capacity and available bandwidth of a network path
The capacity is the total bandwidth                                                                                             Source: Arthur D Little analysis, Bauer et al. 2010
of a link, whereas the maximum
possible speed for a user is the
amount of available bandwidth not
                                                              Current status of technology
currently used. Both capacity and
available bandwidth are measured                              Technology potential
in bits per second.
                                                                                             FTTH
                                                                                                FTTB
A link’s capacity is affected
                                                                        TELCO                               VDSL/2
by the technology used. Most
technologies today normally do                                                                      ADSL/2+
not exceed 100 Megabits per                                                                          DIAL-UP
second per connection, but there                                                                     EURODOCSIS 2.0
is potential to reach 1 Gigabit                                         CABLE
                                                                                                    EURODOCSIS 3.0
per second, particularly with
optical fiber technology. Figure 3                                                                        LTE
presents a snapshot of different                                       MOBILE                                   HSPA+
technologies’ capacities.                                                                             HSPA

                                                                                                           Mbps
                                                              1000           200      100      25 20 15 10 5     5     10 15 20 25         100         200                1000
                                                                                                 Uplink                 Downlink
                                                                                             Typical net bit rate by technology
                                                                                                                                       Figure 3: Typical net bit rate by technology
                                                                                                                                                  Source: Arthur D. Little analysis

Measuring speed
When discussing broadband speed, it is important to define                                  >> A header which contains the sender’s and the recipient’s
which bits are actually included. There are several ways of                                    IP addresses, the protocol governing the information, etc.
counting bits. Either gross bits or net bits are considered.                                >> The original information – the body
Gross bits are the total number of physically transferred
bits, including user data as well as control signals. Net bits                              >> A trailer which informs the receiver that the data packet
exclude basic control bits, but include some control signaling                                 is complete
(the protocol) and user data. Net bits form a net data packet,
which consists of three main parts:

                                                                                                                                                                                 6
Transfer direction
                                                                                                                                                                                                                                                                                                                                                                    Speed

Gross                                                                                                                                                                                                                                                                                                                                                       Gross bit
bits                                                                                                                                                                                                                                                                                                                                                            rate

                                                                                           Trailer                                                                    Body                                                                                     Header

Net bits                                                                                      T                                                                               I                                                                                    H                                                                                   Net bit rate

“User data”                                                                                                                                                                   I                                                                                                                                                          Data transfer rate

Figure 4: Breakdown of transfer rates
Source: Ericsson, Arthur D. Little analysis

Gross and net bits relate to speed measurements, as seen in                                                                                                                                                    In addition to these measured speeds, one may consider the
Figure 4. Lastly, data transfer rate can be referred to, which                                                                                                                                                 advertised speed communicated by the operators. Ideally,
is the achieved average net bit rate that is delivered to the                                                                                                                                                  when analyzing the effects of broadband speed, achieved
applications, excluding all protocol overhead and potential                                                                                                                                                    speed is preferable over advertised speed, since the latter
retransmissions. This is the actual useful data rate. For                                                                                                                                                      irregularly corresponds to the real speed experienced
instance, when downloading a file from the internet, the data                                                                                                                                                  by the user (Figure 5). Even disregarding outliers such
transfer rate is the file size (measured in bits) divided by the                                                                                                                                               as South Korea, Japan and France, these differences
file transfer time.                                                                                                                                                                                            are striking.

                                                                                                                                                                                                                                                                                                Average achieved download speed

                                                                                                                                                                                                                                                                                                Average advertised download speed
Download speed (Mbps)

                           South Korea
                                         Sweden
                                                  Japan
                                                          Netherlands
                                                                        France
                                                                                 Denmark
                                                                                            Germany
                                                                                                      Switzerland
                                                                                                                    Finland
                                                                                                                              Norway
                                                                                                                                       Portugal
                                                                                                                                                  Belgium
                                                                                                                                                            Slovak Republic
                                                                                                                                                                              United States
                                                                                                                                                                                              Czech Republic
                                                                                                                                                                                                               Austria
                                                                                                                                                                                                                         United Kingdom
                                                                                                                                                                                                                                          Canada
                                                                                                                                                                                                                                                   Australia
                                                                                                                                                                                                                                                               Spain
                                                                                                                                                                                                                                                                       Greece
                                                                                                                                                                                                                                                                                Hungary
                                                                                                                                                                                                                                                                                          Luxembourg
                                                                                                                                                                                                                                                                                                       Ireland
                                                                                                                                                                                                                                                                                                                 New Zealand
                                                                                                                                                                                                                                                                                                                               Iceland
                                                                                                                                                                                                                                                                                                                                          Italy
                                                                                                                                                                                                                                                                                                                                                  Poland
                                                                                                                                                                                                                                                                                                                                                           Turkey
                                                                                                                                                                                                                                                                                                                                                                    Mexico

                        Higher achieved speed                                                                                                                                                                                                                                                          Lower achieved speed

Figure 5: Comparing advertised speed and achieved speed in OECD countries (2009)
Source: OECD, Ookla speedtest.net

                                                                                                                                                                                                                                                                                                                                                                             7
Term                                      Definition                             Pros                                   Cons

  Advertised speed                          Typically the theoretically highest    > If correctly cited, the advertised   > Not real measured data
                                            possible downlink net bit rate           speed gives an indication of the
                                            that may be obtainable on a              theoretically highest possible
                                            subscribed to connection                 downlink speed
                                            in a broadband access network

  Achieved speed                            The average (downlink) net bit         > Measured data                        > Few reliable sources
                                            rate (or data transfer rate) that is
                                            obtained over a connection in a        > Takes into account the entire        > There are several ways to
                                            broadband access network,                connection line – end-to-end           measure speed over a
                                            caused by capacity limitations in                                               connection with different
                                            the total end-to-end broadband         > It is a speed measurement              methods giving different results
                                            network. This is the data rate           that is easily interpreted by          (Akamai uses mirror servers,
                                            typically measured by users              the general public                     which may – but are not aimed
                                            performing self-initiated                                                       to – bias the outcome)
                                            speed tests

  Peak speed                                The average highest achieved           > Measured data                        > Depends on the user's internet
                                            downlink net bit rate for a                                                     behavior, and does not always
                                            population of broadband users          > Takes into account the entire          correspond to the maximum
                                            measured from the server end in          connection line – end-to-end           possible speed
                                            a broadband network over a
                                            defined time span                                                             > Few reliable sources

                                                                                                                          > There are several ways to
                                                                                                                            measure speed over a
                                                                                                                            connection, different methods
                                                                                                                            giving different results

  Capacity                                  The average amount of                  > Measured data                        > The monthly data rate is not of
  consumption rate                          downloaded bytes over a                                                         high relevance when trying to
                                            broadband connection during            > Provides a measurement of              measure broadband speed,
                                            one month. Measured in                   the actual volume (bytes)              seconds matter to
                                            Mbyte/month or Gbyte/month               used per month                         internet users

Figure 6: Comparing measurements of speed

Taking into account the concerns expressed for the different
ways of measuring broadband speed, the pros and cons of
each “speed term” can be summarized and compared, as
seen in Figure 6. While advertised speed is readily available
and gives an indication of the theoretical maximum, which
may play a role in technology investment decisions, it
offers poor insights into the actual user experience and
risks biasing the data. Achieved speed on the other hand,
is based on actual data from speed testing institutes
(such as Ookla).

                                                                                                                                                              8
Akamai                                                            OECD                                      Ookla

      Top 3 countries with highest                                  Top 3 countries with highest                      Top 3 countries with highest
            Term
      achieved broadband speed                          Definition                  Pros
                                                               achieved broadband speed                                 achieved broadband speed
                (Mbps)                                                                 (Mbps)                                   (Mbps)

  No.1                                                         No.1                                               No.1
  South Korea          13.7                                    South Korea                        21              South Korea                             30.9

  No.2                                                         No.2                                               No.2
  Hong Kong     9.4                                            Hong Kong                15                        Hong Kong                        26.9

  No.3                                                         No.3                                               No.3
  Japan        8.3                                             Japan               13                             Japan                            26.6

0      5      10      15      20    25      30     35         0       5     10     15        20    25   30   35   0    5    10    15    20    25     30       35

    Akamai has servers placed worldwide in                        The statistics are based on data from           The statistics are based on millions of
    order to speed up downloads from the                          speedtest.net, which is a service provided      recent test results from Speedtest.net.
    internet.They also measure the                                by Ookla. The measurements were done            Top 10 countries require at least 100,000
    download speed from these servers,                            in 2009. The figures are indicative –           unique IP addresses for a given country.
    which forms the data on which these                           OECD does not provide exact numbers.            Speed measured between Nov 3, 2008
    figures are based.                                                                                            and May 5, 2011.

Figure 7: Measurements of achieved speed from three different sources
Source: Akamai (2010), Benkler (2009), Ookla’s netindex.con, accessed on May 6, 2011

As seen in Figure 7, three different, well respected
organizations have estimated different results in terms of top
three achieved broadband speed rates (Mbps). Results are
comparable in the ranking between the countries, yet differ
considerably between institutes for measuring the same
country. This illustrates the immaturity of broadband speed
measurement techniques and concepts.

Peak speed is also based on real data but is likely to be
closer to advertised speed since it counts the highest
achieved speed. This is heavily dependent on the user’s
internet behavior and is not representative of the speed
they experience over time. Finally, capacity consumption
rate takes into account not only the flow rate but the actual
volume of the flow. While this measurement adds an
additional dimension, it does not reflect the speed but
rather the consumption per time unit.

Keeping these considerations in mind, achieved speed
was the chosen measurement. This is due to its relatively
high accuracy in capturing the concept of speed and
its acceptable level of data availability compared to,
for example, peak speed measures.

                                                                                                                                                               9
PART 1
SOCIOECONOMIC EFFECTS OF BROADBAND SPEED:
A MACROECONOMIC INVESTIGATION
EXPLORING THE IMPACT
OF BROADBAND ON GDP                                        Source                           Type                                    Data
Previous 2010 research concluded
that increased broadband                                   OECD                             Dependent variable                      GDP per capita – USD Purchasing Power Parity (PPP)
penetration adds to economic
output (GDP). The study outlined                           Ookla                            Investigated variable                    Average achieved broadband speed
in this part of the report was
conducted as a follow-up                                                                                                             Fixed broadband penetration rate
investigation. It analyzes if, and to
what extent, increased broadband                                                                                                     Average broadband subscription price
speeds impact economic activity                            OECD                             Control variable
on a national level.                                                                                                                 Education level

KEY SOURCES                                                                                                                          Telecommunication revenue in USD (millions)
There are several key sources
                                                           World Bank                                                                Population density
to this study, of which statistical
data form the major part. For
                                                                                                                                                  Figure 8: Main sources used in the macroeconomic study
the analysis on the impact
on GDP, large data sets have
been obtained from well-
renowned sources including
                                                                                                                                  Increased
the Organization for Economic                                                            Faster communication
                                                                                                                                 productivity                               Increased
Co-operation and Development                                     New forms
                                                                                                                                                                               GDP

(OECD), the World Bank and                                        of sales          New forms of
                                                                                     organizing
                                                                                                                Reduced
                                                                                                                 costs                              Save time
Ookla. Figure 8 provides an                                                                                                   Salary
                                                                                                                           development
overview of the statistics’                                      Increased                                                                                                                          New jobs
                                                                innovation                                                                                             Building new
data sources.                                                                                         New types of             Broadband penetration                   infrastructure
                                                                                                                                                                                                                Old products
                                                                                                    computer programs                                                                                          become waste
                                                                                                   and network services        Incr eased br oadband                                   Less daily
As a complement to the                                                                                                               penetration
                                                                                                                                      and speed
                                                                                                                                                                                      commuting                  Negative
                                                                                                                                                                                                               environmental
quantitative analysis of the                                                                   E-health
                                                                                                                                  Broadband speed
                                                                                                                                                             More
                                                                                                                                                            working
                                                                                                                                                                             New computer and
                                                                                                                                                                             network products                     impact
                                                                   Improved
economic impact of broadband                                        welfare                                        Increased                                 online              (physical)
                                                                                                                automatization1)                                                        Less         Energy      Energy for
speed upgrades, qualitative                                                                                                   Increased quality                                       business       during     manufacturing
                                                                                                                                  of distant               Possibility to deal with    travels       usage
analysis has been conducted                                                                     Traffic
                                                                                               monitoring                      communication                 larger digital online
                                                                                                                                                           content (dematerialize)
using secondary sources. The                               Increased
                                                            political
                                                                                                                                                                                                         Reduced
                                                                                                                                                                                                       environmental
                                                                           E-learning
qualitative findings in this report                      transparency
                                                                                                                                                    Use many apps
                                                                                                                                                                                                           impact
                                                                                                                                                                                        Less need
derive from a literature study                                          Increased
                                                                        knowledge
                                                                                        On-demand
                                                                                         TV/ audio     Energy                  Consumer
                                                                                                                                                    simultaneously                      for paper
                                                                                                      monitoring                benefits                              Increased media
covering over 80 academic                                               spreading                                                                                       quality online

reports and business papers
published between 2002 and
                                                                                                             Note: 1) Increased automatization has a negative effect on number of jobs – however the net
2011, in which socioeconomic                                                                            effect o
                                                                                                                f increased broadband speed on number of jobs is positive, according to several studies.
effects of broadband upgrades                                                                                               Figure 9: Schematic of effects stemming from increased broadband speed
have been analyzed.1                                                                                            Note: This map is a simplification – in reality there are even more factors and linkages.

WHY SPEED MATTERS –
A MACROECONOMIC INVESTIGATION
This chapter describes the impacts on society from increasing                                               >> Environmental effects are impacts on the local or
the average broadband speed, as identified in previous                                                         global environment
research by Ericsson and Arthur D. Little. The effects are
classified as economic, social, and environmental.                                                          A detailed, yet incomplete, schematic of the effects
                                                                                                            stemming from increased broadband speed is presented in
>> Economic effects are measurable impacts on the                                                           Figure 9. As seen, these elements form a complex web of
   general economy                                                                                          interdependencies.
>> Social effects are behavioral changes among individuals,
   groups or society

1
For details of reviewed reports, please consult Appendix E: Literature study overview                                                                                                                                     10
Economic effects
 It is widely documented that investments in infrastructure                                              >> The ability to store large amounts of information online
 are important for economic growth, and influential political                                               means that more people can work from home more often,
 economists have incorporated infrastructure investments                                                    which saves commuting time. The amount of business
 in theories of growth.2 In other words, broadband upgrade                                                  trips can also be reduced, thanks to high-quality video
 investments cause certain economic effects, especially when                                                conferences (Ezell, Castro & Atkinson, 2009). The time saved
 evolving from one technology group to another, for example                                                 can then be used for more productive tasks.
 from dial-up to fiber.                                                                                  >> With increased broadband speed come new types of
                                                                                                            computer programs and network services, which may
 A large-scale infrastructure investment significantly increases                                            reduce firms’ hardware and software costs substantially.
 the economic activity in the specific region/city/country                                                  The money saved may be used for other investments
 as a result of increased employment and purchase of raw                                                    leading to higher demands for goods and services, and
 material. These are referred to as direct effects. In the long                                             thereby an increase in GDP.
 term, improved infrastructure, such as better roads, better
 flight connections, and higher broadband speed, stimulates
 productivity which is beneficial for the greater economy. This                                          It can also be argued that increased broadband speed will
 latter consequence is referred to as an indirect effect, and the                                        lead to more jobs. The main reason is the building of new
 more structural changes that take place (often in other sectors),                                       infrastructure. More jobs will be needed in the construction,
 are referred to as induced effects. This is a useful framework                                          telecommunications, and electronics sectors. In the long run,
 for discussing the impact of broadband investments, however it                                          there are indirect effects that create new jobs, triggered by,
 is not used by all studies investigated.                                                                for example, enhanced innovation resulting in new services.
                                                                                                         Despite the economic benefits coming from increased
 The economic effects of infrastructure investments are normally                                         broadband speed, the trade-off between increased penetration
 measured by the amount of increased economic activity, which                                            and increased speed must be discussed.
 applies to certain areas of the studies concerning broadband
 investments. Direct effects of the investment will add to GDP as                                        The Ingenious Consulting Network examined what is more
 a result of increased employment and purchase of raw material                                           advantageous – providing broadband to those without it, or
 when installing the upgrade of the broadband infrastructure.                                            increasing speed to those who already have it. The findings show
                                                                                                         that a penetration increase gives a greater return on investment.
 Higher electronic communication speeds are relevant in                                                  Figure 10 presents an example from the study. The numbers
 knowledge-based communities. This is because it spurs                                                   exclude externalities that may arise from the investment, which
 productivity, and hence increases competitiveness, which                                                means the rate of return is probably higher than that stated here.3
 gives GDP the ability to grow. The reasons for increased                                                The British example suggests there is an upgrade investment
 productivity include:                                                                                   opportunity, as 64 percent of British households have “fast”
                                                                                                         broadband. This provides a return of EUR 1.55 for every EUR
 >> Increased broadband speed means that larger packets of                                               1 invested. The study argues that authorities should aim for
    information can be transferred digitally. This saves time and                                        100 percent penetration before investing in higher speeds.
    forms the basis for greater productivity.
 >> Larger amounts of better quality information can be
    gathered and distributed than was previously possible,
    which opens up new creative and commercial opportunities,
    for example being able to reach customers worldwide.

                             2.5                                                                                                                                    Standard broadband
                                      2.25

                                                                                                                                                                    Fast broadband
Consumer surplus per EUR 1

                             2.0                     €23                  €37                 €64                                                          €220

                                                                                                        Incremental externalities per                               Super-fast broadband
                                                  1.55
                             1.5                                                                        household and month are required to
                                                                                                        bridge the gap between the consumer
                                                                       1.11
                                                                                                        surplus coming from 100 percent
                             1.0                                                                        penetration of standard broadband
                                                                                           0.72

                             0.5                                                                                                                        0.34       Type of broadband
                                                                                                                                                                   investment and its
                                                                                                               0.02                0.01
                             0.0                                                                                                                                   household penetration
                                      To           To                  To                   To                  To                  To                   To
                                     100%         64%                 74%                  92%                 16%                 38%                  64%

                                    Standard                        Fast                                                       Super-fast
                                   2–15 Mbps                     15–50 Mbps                                                    >50 Mbps

 Figure 10: Incremental consumer surplus per EUR of subsidy in UK 2015.
 Source: Meek, Kenny, Broughton, Thanki and Com, 2010 Note: It is assumed that 38 percent of households already deploy fast broadband

 2
            For example: Arrow & Kurz (1970), Weitzman (1970) and Barro (1991).
 3
            Externalities are positive effects in employment and economic output resulting from enhanced productivity, innovation and value chain decomposition.                      11
However, if the externality effects are big enough (each                                       Crandall & Singer (2010) analyzed the economic impact of
household spending an extra EUR 23 per month), then an                                         broadband investments (both penetration and upgrades)
investment in fast broadband of up to 64 percent of British                                    on consumer welfare, job creation, and economic impact.
households can be motivated, because the rate of return                                        Furthermore, they compared their prior predictions with the
would be as high as for maximum penetration. It must be                                        actual US broadband experience during the past decade.
pointed out that the study finds a positive economic return in                                 They concluded those US investments between 2003 and
investing in higher speeds, even though the rate of return is                                  2009 led to significant numbers of new jobs, as well as
lower than for penetration (again excluding externalities). There                              increased GDP. The numbers are specified in Figure 11, and
are also other studies showing that broadband penetration                                      are compared to the estimates made by the authors in 2003.
should be prioritized (Kenny & Kenny, 2011).                                                   The study shows that previous forecasts are likely to have
                                                                                               underestimated the economic impacts of the US broadband
                                                                                               investment. Estimating effects of new technologies is
                                                                                               difficult, since one cannot know beforehand how the
                                                                                               technology is going to influence users and society.

Jobs created                      600                                                                                         526
                                                                                                             500                             495
from broadband                                                                                                                                              475
                                  500                                                          431
investment
(thousands)                       400                                    329
                                                      282
                                  300
                                                                                                       164                             181
                                  200                                                                                   155                           149
                                                                   121                   129
                                                93
     2003 forecast                100

     Current estimates             0
                                                 2003                2004                 2005             2006          2007            2008           2009

                                                                                                              93               97
                                                                                                                                             90             87
Economic output                   100
                                                                                               81
from broadband
investment                        80
                                                                          61
(USD billions)                    60
                                                      53

                                                                                                                                        28
                                  40                                                                                    24                            23
                                                                   19                    20            21
     2003 forecast                             15
                                  20

     Current estimates             0
                                                 2003                2004                 2005             2006          2007            2008           2009

Figure 11: Previous forecasts of economic effects from broadband investments in the US
Source: Crandall et al. 2010

Annual investments                                New jobs created annually                                                   Figure 12 shows how authors
                                                                                                                              believe that upgrading to second
 USD 12.5 billion                                                                                                             generation technologies will result
 Wireline broadband                                            247,000                                                        in an average of more than half
 incl. FTTH and FTTN                                                                                                          a million US jobs sustained from
                                                                                                                              2010 to 2015, compared to a
 USD 14.0 billion
                                                                                                 205,000                      world without such investments.
 Wireless technologies

 USD 3.6 billion
 Cable broadband incl.                                                                                 52,000
 DOCSIS 3.0

 USD 0.3 billion                                                                                                4,000
 Satellite broadband

 USD 30.4 billion – total                                                          508,000

Figure 12: Estimated employment effects of broadband investments in the US 2010-2015
Source: Crandall et al. 2010

                                                                                                                                                                  12
GDP                               Innovation

            Scenario 1                                                        4.9 percent increase in GDP            18.8 percent increase in product and
                                                                              in 2020, of which:                     process innovation in 2013, of which:
2013 2010

                 9 Mbps                                                       > 4.1 percent applies to the effect    > 12.3 percent applies to the effect
                                                                                of speed increase                      of speed increase
                                                                              > 0.8 percent applies to the effect    > 6.5 percent applies to the effect
                                42 Mbps
                                                                                of new broadband users                 of new broadband users

            Broadband speed increase based on                                                                        In addition, the study concludes that
            Denmark’s High-Speed Committee’s vision                               Equivalent to DKK 114 billion      organization and sales innovation will
                                                                                                                     also take place.

                                                                              7.3 percent increased GDP in 2020,     The study does not cover innovation
            Scenario 2                                                        of which:                              effects of this particular speed.
                                                                                                                     However, even further broadband
                                                                              > 6.3 percent applies to the effect
                                                                                                                     speed increases should lead to at
2013 2010

                 9 Mbps                                                         of speed increase
                                                                                                                     least the effects presented above.
                                                                              > 1.0 percent applies to the effect
                                                       92 Mbps                  of new broadband users

            Broadband speed increase based on                                     Equivalent to DKK 170 billion
            Sweden’s vision for 2020

Figure 13: Estimated gains in GDP and innovation from increasing the average broadband speed in Denmark
Source: Jespersen and Hansen, 2010

The effect of speed is difficult to examine in detail. Most                                 The New Zealand study “The Need for Speed” by
studies, such as Crandall et al. 2010, discuss upgrades                                     Motu (2009) is a good example of where there have
in technologies, instead of precisely debating speed                                        been productivity gains from faster internet connection
differences. Deployments of new broadband technologies                                      speeds, in which empirical data has been used (Grimes,
often correspond to upgrades in speeds however these are                                    Ren & Stevens, 2009). Two scenarios are examined:
often not well-defined. A study by Copenhagen Economics,                                    upgrading from no broadband (dial-up or no internet
published in 2010, estimates the impact on GDP by                                           connection) to slow broadband (256 Kbps to some Mbps),
increasing the entire economy’s average broadband speed.                                    and from slow broadband to fast broadband (represents
It suggests that an increase in broadband speed from 5 to                                   speeds accomplished through fiber-optic cable network, for
10 Mbps leads to an approximate GDP gain of 1.9 percent.                                    example 10 Mbps). According to survey data from 2006, only
                                                                                            the first scenario showed an increase in firm productivity.
Furthermore, increasing from 25 to 30 Mbps corresponds                                      However, at the time, applications needing faster speeds
to a GDP gain of approximately 0.5 percent according                                        were not used as much (for example videoconferencing),
to the study. Those gains are not thought to be realized                                    which led to the conclusion that only an upgrade from very
immediately, but require around 10 years to come to fruition.                               low to low speed proved beneficial. Today, the results might
Moreover, the study examines two scenarios applied to the                                   be different. The results from the study are summarized
Danish economy. The first one concerns an upgrade of the                                    in Figure 14.
infrastructure so that the average Dane reaches 42 Mbps,
instead of the 9 Mbps it is today.                                                          Innovations in products and processes have been
                                                                                            mentioned as effects of increased broadband speed. This
The second scenario is more extreme – an increase of the                                    mainly stems from the capability of dealing with larger
average speed to 92 Mbps. Both scenarios are thought to                                     amounts of digital content online. It opens up possibilities
cause substantial gains in GDP. The study also discusses                                    for new creative commercial opportunities such as revising
gains in innovation from the first scenario, see Figure 13.                                 traditional processes, for example monitoring a factory
                                                                                            from another part of the world. Product/process innovation
Therefore, the study suggests there are economic benefits                                   also enables new kinds of products, for example the
both in upgrading from 9 to 42 Mbps, and from 42 to                                         development of online games, which has emerged as a huge
90 Mbps. However, the gain is smaller when the original                                     market in Japan and South Korea, with 3D graphics, virtual
speed is higher. Hence, the Copenhagen Economics study                                      reality features, multi-player platforms, etc. Such products
implies that the marginal effect decreases as the speed                                     and services are not possible without high communication
increases. This also conforms to other studies, for example,                                speeds, which are available in South Korea and Japan.
Meek et al. (2010).

                                                                                                                                                            13
Conclusions                                           Rationale

    Scenario 1                                                                    > Increased productivity                            > 2,688 firms that upgraded from
                                                                                                                                        having no internet or having dial-up
                                                                                      – Indicates a productivity gain
                                                                                                                                        to having slow broadband were
                                                                                        of 11.1 percent
                                                                                                                                        compared to 681 firms that did
                                                                                      – The figure seems to be similar                  not upgrade
                                                                                        to that of adoption of any
                                                                                                                                      > The conclusion is statistically
      128 Kbps                                1 Mbps                                    broadband type in general
                                                                                                                                        significant on a level of five percent
    Upgrade from no broadband or dial-up
    connection to slow broadband

                                                                                  > Indicates no impact on productivity               > 369 firms that upgraded from
    Scenario 2                                                                                                                          slow broadband to fast
                                                                                      – In other words, these
                                                                                                                                        broadband were compared to
                                                                                        estimates imply no average
                                                                                                                                        2,685 firms that did not upgrade
                                                                                        firm productivity improvement
                                                                                        as a result of a shift from                   > A “raw” productivity increase of
                                                                                        an ADSL connection to a                         4-5 percent was found, but is not
                                                                                        cable connection                                statistically significant
         1 Mbps                                10 Mbps
                                                                                                                                      > Further calculations (controlling
    Upgrade from slow broadband to fast broadband                                                                                       for firm characteristics) suggest
                                                                                                                                        that the non-difference comes
                                                                                                                                        from more productive firms
                                                                                                                                        adopting cable rather than a
                                                                                                                                        productivity-enhancing effect
                                                                                                                                        arising from cable adoption

Figure 14: Changes in firm productivity stemming from internet connection upgrades
in New Zealand. The study is partly based on surveys conducted in 2006.
Source: Grimes et al. 2009

Innovation within sales and organizations can also be                                            Indeed, analyzing socioeconomic effects is a challenging
enhanced. Faster digital communication leads to more                                             endeavor due to the complex web of interrelations that exist
innovative sales procedures and the ability to sell to                                           between society and the economy (Figure 9). Therefore, this
anyone connected to the internet worldwide. Sales can                                            study has been conducted based on actual reported data
also be made through new channels, for example via                                               from reliable sources using advanced regression analysis.
online social networks, or by providing more exciting sales                                      It is clearly stated that the findings presented below are
material to attract customers. An example of organizational                                      based on data within a speed interval of about 2-20 Mbps,
innovation could be to discard the physical office, and                                          calculated over 12 quarters from 2008 to 2010 using
develop an online office as a substitute, thanks to increased                                    measurements of achieved speed. The speed data used
broadband speed.                                                                                 from Ookla for this study includes cable and wireless,
                                                                                                 as well as mobile devices.
While a majority of the research on broadband penetration
and speed finds a positive effect on the economy, many                                           As is evident, the effects on broadband investments in
of these studies are forward looking, based on forecasts,                                        general, and of broadband penetration rate in particular,
scenarios and business cases. Thus, there may be an element                                      have been investigated previously by several leading
of inherent optimism regarding the magnitude of this impact.                                     research institutes. However, previous studies investigating
As highlighted by the report “Superfast: is it Really Worth                                      broadband speed using actual data to analyze a large
a Subsidy?” (Kenny & Kenny, 2011), there are challenges to                                       set of nations have not been found. In this regard, the
measuring the impact of broadband on wider society such                                          macroeconomic study in this report plays an important
as the economy.                                                                                  role in providing empirically founded results.

For example, the authors point to the problem of
generalizing from findings on basic broadband to superfast
broadband, given their different cost profiles.4 Moreover,
some previous studies have not incorporated cable and
wireless connections for investigating the impact of speed,
and several studies do not consider the incremental benefits
from higher speeds. Additionally, conclusions based on
methodologies that do not isolate the one-way impact of
speed are certainly open to interpretation with regards to the
direction of causality and the influence of other variables not
accounted for.

4
    Kenny et al. (2011) define basic broadband as around 2 Mbps. Although not explicitly defined, they mention 100 Mbps as one example of superfast broadband.                   14
Social effects
Social effects are behavioral changes among individuals,                                  In healthcare, increased broadband speed makes many new
groups or the society as a result of an infrastructure                                    services possible. The most intuitive one could be real-time
investment. Examples of social effects are:                                               doctor-to-patient communication, which is possible thanks
                                                                                          to decreased latency (delay of the data packets traversing
>> Improved access to mobility for disadvantaged people                                   a network). This is sometimes referred to as e-health. There
                                                                                          are additional advantages arising in the healthcare sector,
>> Better accessibility to basic services                                                 with some applications requiring especially high speeds of
   (education, government services, etc.)                                                 up to 1 Gbps, as seen in Figure 15. File transfer is one of
>> Achievements in terms of safety in traffic and security                                the most basic of application technologies in healthcare,
   in public space                                                                        yet it can be extremely important. In emergency medicine,
                                                                                          the transmission speed is crucial if images need to be
>> Improved health conditions
                                                                                          analyzed by someone who is not present where the patient
                                                                                          is. The report “Bringing America up to Speed” (Maynard,
The social effects induced from increased broadband speed                                 Cloke, Vock & Wilson, 2010) describes a case where a
can be classified into two groups: social benefits that apply                             woman was injured in a car crash, and the images could not
to the society as a whole, and social benefits applying                                   be transferred for treatment diagnosis in time due to slow
to the individual. Previously, enhanced productivity was                                  broadband speed, with tragic consequences.
discussed. All productivity-enhancing effects should also
be taking place in the welfare system. Therefore citizens can
benefit from better welfare services, for example healthcare
and education.

                                                 Application                                         Broadband speed
           Application
                                                 technology                     1 Mbps           10 Mbps           100 Mbps            1 Gbps

 High-quality, non-real-time                       File transfer               High quality      High quality      High quality       High quality
 video imaging for diagnosis

 Cardiology, neurology                             H.323 video                Low/medium         High quality      High quality       High quality
 and emergency room                                                             quality1
 consultations

 Cineo-angiography                                 H.323 video                Low/medium         High quality      High quality       High quality
 and echocardiograms                                                            quality1

 3D interactive brain                             SGI Vizserver             Unsupportable      Unsupportable         Medium           High quality
 imaging                                                                                                             quality

 Clinical decision                               Web browsing                  High quality      High quality      High quality       High quality
 support systems

 Advanced clinical decision                      Image transfer             Unsupportable        Low quality         Medium           High quality
 support system                                                                                                      quality

 Professional tele-education                     MPEG 1 video                  Low quality2      High quality      High quality       High quality

Note: 1) At least 10 Mbps is normally recommended for the H.323 video.
Note: 2) MPEG1 video typically 1.5 Mbps without excessive quality loss.

Figure 15: Healthcare applications and corresponding qualities in relation to speed
Source: Erick and Reynolds (2009), Arthur D. Little analysis

                                                                                                                                                     15
As stated previously, high
broadband speeds enable                                                                                    Study groups can meet
                                                                                        Increased          with members remotely
enhanced quality of content
                                                                                        quality of
sent over the internet. For                                                             real-time          Students who are absent due to
example, high-quality online                                                            online video       illness can follow lectures, give
                                                                   Increased                                                                                  Increased quality
communication enables extended                                                                             presentations, etc.
                                                                   broadband                                                                                  of real-time
distant e-learning for under-                                      speed                                                                                      online video
served populations. Figure                                                                                 Parents can confer with teachers
16 sums up the educational                                                              Improved
benefits deriving from increased                                                        data transfer
                                                                                                           Remote consulting with databases,
broadband speed.                                                                                           video libraries, computer simulations

                                                                                                                            Figure 16: Educational benefits of faster broadband speeds
                                                                                                               Source: Arthur D. Little analysis, grimes et al (2009), Atkinson et al (2009)

The two main reasons for these benefits are increased quality                                    In addition to improved welfare, there are individual benefits
of real-time online video, and improved data transfer. An                                        arising from using faster broadband speeds. These consumer
example of an educational benefit is that students who are                                       benefits are schematically provided in Figure 17. Enabling distant
absent due to illness can follow lectures, give presentations,                                   communication, increased media quality, time savings, and cost
etc. The benefits add to the overall value of the education.                                     savings are all valuable factors to the individual – and all stem
                                                                                                 from increased broadband speed.
Moreover, local, regional and national databases can be
linked for administrative purposes or supervision, through
which information can be transferred easily and quickly.
The private sector also contributes to improved welfare,
by taking advantage of higher broadband speeds. Good
examples are new bibliographic libraries available to the
public, such as Google Scholar or CiteSeer, with seemingly
infinite amounts of digital content.

                                                                                   Consumers benefits

    Distant communication                              Increased media quality                           Time savings                                 Reduced costs

> Facilitates collaboration                        > Higher quality of online media            > Increased downloading speed               > Increased speeds enable
  between people regardless                          content, including movies,                   often leads to time savings.               telemedicine and
  of distance, e.g. through                          music, images, etc.                          This is especially valuable for            telecommuting, which can
  social media                                                                                    media content, e.g. movies                 save consumers money in
                                                   > Faster download speeds                                                                  transportation costs,
      – Higher speeds allow these                    allow for streaming videos                    – At higher speeds it is                  particularly rural
        groups to provide                            and audio – this is becoming                    possible to directly stream             communities and the elderly
        improved services,                           more common with                                the content, e.g. listening
        e.g. video sharing                           on-demand episodes                              to the music directly from            > Smart electrical grids can
> Higher speeds enable more                                                                          a site without having to                provide consumers with a
  games to be played online,                                                                         download it before                      vision of their electricity
  including online communities                                                                                                               consumption in real time,
  where thousands of players                                                                                                                 allowing them to adjust
  can play on the same platform                                                                                                              consumption based on
  at once                                                                                                                                    price signals

> Higher speeds decrease                                                                                                                   > E-shopping may reduce
  latency, improving interaction                                                                                                             costs to consumers, both
  over communication networks1                                                                                                               through lower prices, but
                                                                                                                                             also from traveling to stores

Note: 1) Latency is a measure of the delay of data packets travelling a network.

Figure 17: Broadband speed benefits directly related to the consumer
Source: Crandall et al. (2010), Erick et al. (2009), Arthur D. Little analysis

                                                                                                                                                                                        16
Environmental effects                                                                                       Higher broadband speeds can reduce our environmental
Environmental effects are impacts on the local                                                              footprint, but there are also negative environmental
or global environment, including:                                                                           impacts. Figure 18 shows the environmental effects
                                                                                                            of broadband speed.
>> Increasing/decreasing CO2 emissions as a result
   of traveling and transportation
>> Change in waste production
>> Increased/decreased littering
>> Change in energy consumption
>> Reduced/increased need for fossil fuel
>> Change in traffic congestion leading to change
   in air quality and living conditions

                                                                              Environmental impacts

                                       Positive environmental impacts2                                                                         Negative environmental impacts

                                                                                                           New types of
             Capability of dealing with larger amounts                                                    computer and                           Energy use      Contribution
            of digital content online (dematerialization)                                                network services                                         to waste

                                                                                                        > Efficient smart     > Faster broadband              > New computer and
   Enabling video                        Less need                           Working                      electric grids        speeds lead to                  network products
    conferences                          for paper                         from home                      monitor real-time     new products,                   make the older
                                                                                                          energy consumption.   which require                   products obsolete.
                                                                                                          They reduce           energy during                   The Australian
 > Video conferences              > Emails will be used              > People will be able                unnecessary           manufacturing,                  Bureau of Statistics
   will replace                     more which will                    to work from home                  energy use and        often causing                   confirmed a
   meetings and                     save paper                         and reduce their                   give providers        emissions of                    growing stockpile
   reduce business                                                     use of transport                   the necessary         greenhouse gases                of domestic ICT
   travel, decreasing                                                                                     information to                                        equipment and
   CO2 emissions                                                                                          ration demand       > These products                  growth in e-waste1
                                                                                                          through flexible      also require energy
                                                                                                          pricing and ensure    during usage
                                                                                                          efficient supply

                                                                                                        > Smart electric grids
                                                                                                          require small to
                                                                                                          medium amounts of
                                                                                                          data to be collected
                                                                                                          with very low
                                                                                                          latency from
                                                                                                          multiple sources
                                                                                                          and in a reliable way.
                                                                                                          The capacity (bytes)
                                                                                                          is of moderate
                                                                                                          importance, but
                                                                                                          high speed is vital

                                                                                                        > Advanced real-time
                                                                                                          traffic flow models
                                                                                                          may inform drivers
                                                                                                          of faster routes, and
                                                                                                          reduce congestion

Note: 1) Based on a market research in 2005: Household Electrical and Electronic Waste Benchmark carried out by Australian Bureau of Statistics

Note: 2) If broadband upgrades imply the use of fiber optics instead of copper wires, it results in a ‘greener’ employment, since fiber dissipates
         a lot less energy than copper based cables and it saves a lot of materials, according to Bouras et al 2009.

Figure 18: Environmental impacts of increased broadband speeds
Source: Jesperson et al. (2010), Erick et al (2009), Roberts (2009), Bouras et al. (2009), Ericsson and Arthur D. Little analysis

                                                                                                                                                                                   17
Increased broadband speeds                                                                      Model for estimating GDP effect
enhance digital use of content, so                                                              of broadband speed upgrades
there is less of a need for paper
and therefore less energy is used        Model type                             Static panel data regression
and less waste is produced. It
also means there is a reduction          Source of framework                    Shiu and Lam (2008), Lehr et. al. (2005), Kontrompis (2005)
in greenhouse gas emissions.
This is due to a reduced need            Empirical framework                    Two-stage least squares
for traveling and physical
meetings, because people can             Number of observations                 33 OECD countries
work from home and use video
conferences. Also, new types             Time series                            3 years (12 quarters)
of computer programs and
network services can reduce              Dependent variable                     GDP/capita (OECD)
environmental impacts. One
example is smart electric grids                                                 Quarterly data on average achieved broadband downlink speed (Ookla)
                                         Independent variables
that can monitor real-time energy
consumption, and thereby reduce          Control variables (independent)        > GDP per capita (USD PPP)
unnecessary energy use. They
                                                                                > Fixed broadband penetration rate
also give electricity providers the
                                                                                > Average broadband subscription price (USD PPP)
necessary information to ration
demand through flexible pricing                                                 > Graduates from upper secondary education or higher

and to ensure efficient energy                                                  > Telecommunication revenue in millions of US dollars (PPP)
supply. High communication                                                      > Population density
speeds are crucial in smart
electric grids, because they                                                                                            Figure 19: Selected regression model
require small to medium amounts
of data to be collected with
very low latency from a multitude of sources and in a very                 Empirical modeling for measuring the impact
predictable manner. Hence the requirement of capacity                      of broadband speed
(bytes) is moderate, but the requirement on high speed                     The analysis conducted in this macroeconomic study is on a
(low latency) is significant.                                              national, GDP level and provides a comprehensive view
                                                                           on the economic impact of broadband speed, as well as
Also, increased communication speeds make it possible to                   novel insights in the field of research. The model used is a
use more advanced traffic flow models in real time. Such                   static multivariate panel regression analysis focusing on the
models may inform drivers of faster routes, and reduce                     macro level impacts of broadband speed. It investigates the
congestion – this is also beneficial for the environment                   economic impact of speed on economic output, measured
because of reduced greenhouse gas emissions.                               in GDP per capita. Figure 19 provides a concise conceptual
                                                                           overview on the model analyzed.
Despite these favorable environmental effects as seen in
Figure 18, the negative impacts must be pointed out. First,                Previous research (Koutroumpis, 2009; Lehr, Osorio, Gillett
increased broadband speeds lead to the development and                     & Sirbu, 2005, and Shiu & Lam, 2008), has been used in
production of new products (through innovation, technology                 combination with statistical testing to identify the one-way
requirements, etc.), which demand energy – often causing                   impact from broadband speed.
emission of greenhouse gases. In addition, these products
normally require energy during usage. Increased broadband                  Waverman et al. 2002, and Koutroumpis, 2009, have used a
speeds also require new computer and network programs,                     similar analysis to identify the impact of broadband penetration
which in many cases make the former products less useful.                  rate on GDP, assuming there is simultaneity problem. The
Most governments worldwide are aware of this challenge.                    authors employ a supply-demand model, similar to this study.
The Australian Bureau of Statistics recently confirmed a
growing stockpile of domestic ICT equipment – sometimes                    Lehr et al. 2005, estimated the effect of broadband
referred to as e-waste.                                                    penetration on a number of indicators of economic activity,
                                                                           including employment, wages, and industry mix, using
In conclusion, increased broadband speeds cause both                       a cross-sectional panel data set of communities (by zip
positive and negative impacts on the environment. It is likely             code) across the United States. They found support for
that the net impact will be positive, if society is careful about          the conclusion that broadband positively affects economic
consumption and usage.                                                     activity in ways that are consistent with the qualitative
                                                                           stories told by broadband advocates. The results presented
                                                                           suggest that the assumed economic impacts of broadband
                                                                           are both real and measurable.

                                                                           Shiu et al. 2008, studied the relationships between
                                                                           economic growth, telecommunications development and
                                                                           productivity growth of the telecommunications sector in
                                                                           different countries and regions of the world. They found that
                                                                           that there is a bidirectional relationship between real GDP
                                                                           and telecommunications development (as measured by
                                                                           teledensity) for European and high-income countries.
                                                                                                                                                        18
DATA USED FOR ANALYZING THE
EFFECT OF BROADBAND SPEED                    Source            Type                       Data
In order to investigate the effects
of speed on the overall economy              OECD              Dependent variable         GDP per capita (USD PPP)
using regression analysis,
appropriate high-quality panel
                                             Ookla             Investigated variable      Average achieved broadband speed
data on OECD countries for the
dependent variable (GDP/net new
                                                                                          Fixed broadband penetration rate
jobs created) is required, as well
as for relevant control variables.
                                                                                          Average broadband subscription price
                                             OECD              Control variable
Data has been collected from
                                                                                          Education level
the following sources:
                                                                                          Telecommunication revenue in USD (millions)
OECD and the World Bank
Two of the most trusted authorities          World Bank                                   Population density
on macroeconomic data, the
Organization for Economic                                                                                                     Figure 20: Main sources

Co-operation and Development
(OECD) and World Bank, provide
regularly updated figures for
numerous measurements
worldwide. Using these sources               Variable         Description                          Source      Comments
allows for high transparency, with
clearly defined indicators that are       GDP per capita                                           OECD        GDP per capita is obtained
                                                              GDP per capita in millions of
publicly available and possible to                            US dollars at constant prices                    as follows: GDP per capita =
track over time.                                              and constant PPPs                                GDP in USD/population

The OECD is an international              GDP (USD)           GDP (expenditure approach) in        OECD
economic organization of                                      millions of US dollars at constant
34 countries founded in 1961                                  prices and constant PPPs
to stimulate economic progress
and world trade. The OECD                 Total employment Total employment by                     OECD        France is not included in OECD
also provides a forum where                                number of people                                    statistics. Therefore, the data for
governments can work together                                                                                  France is collected from ILO
to share their experience and                                                                                  Labor statistics
seek solutions to common
problems. The OECD works with             Penetration rate    Fixed broadband penetration          OECD        Only Q2 and Q4 data is available
governments to understand what                                rate by percentage                               in the data set. Missing data for
drives economic, social and                                                                                    Q1 and Q3 is calculated by taking
environmental change, measuring                                                                                the average of values for the
                                                                                                               previous and following quarters
productivity and global flows
of trade and investment. It also
produces significant amounts              Broadband speed     Broadband download speed                 DataFigure
                                                                                                   Ookla          21: Data treatment
                                                                                                             is available            for the model
                                                                                                                             on a daily
of economic data analysis to                                  by kilobit per second (kbps)             basis. Monthly data is obtained
                                                                                                       by taking the data at the end of
provide insights and forecasts.
                                                                                                       the month. Quarterly data is
                                                                                                       calculated by taking the average
The World Bank, established in 1944, is an international                 Ookla provides data on achieved
                                                                                                       of speeds
                                                                                                          every three formonths.
                                                                                                                          all countries
financial institution that provides financing to developing              in the study based on the results from Speedtest.net. The
countries. It includes 187 member-countries, and provides low-           site is the most established source online for speed testing
interest loans, interest-free credits and grants to developing           and is available on numerous devices and platforms. The
countries for a wide array of purposes such as investments in            data from Ookla includes both mobile and fixed broadband
education, health, public administration, infrastructure, financial      speeds as blended data. Data is publicly available and
and private sector development, agriculture and environmental            updated continuously.
and natural resource management. In addition, the World
Bank compiles statistical data on a wide array of development            Data treatment
indicators including urban statistics.                                   Observations have been converted to comparable units, for
                                                                         example by converting GDP/capita to a single comparable
Ookla                                                                    currency, adjusted to PPP. The resultant common unit is
There are a few public sources available for measuring                   provided in USD PPP.
broadband speed, but they only feature short time series.
As a consequence, the best available measurement was                     Additionally, converted time series have been adapted to
chosen. At the time of production the best publicly available            equal intervals, in this case quarterly. Variables that were
data was from Ookla. Ookla is a global leader in broadband               not provided at a quarterly level were linearly interpolated,
testing and web-based network diagnostic applications.                   and thus include the penetration rate where OECD data
Over three million people a day use Ookla software. Its sites            was only available for Q2 and Q4 for each year investigated.
include Speedtest.net, Pingtest.net and Net Index.                       Quarterly speed data is calculated as the average per three
                                                                         months from Ookla data. See overview of variables and data
                                                                         treatment in Figure 21.                                       19
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