Bruce P. Mehlman
The Internet Innovation Alliance is a broad-based coalition of business and non-profit organizations that aim to ensure every American, regardless of race, income or geography, has access to the critical tool that is broadband Internet. The IIA seeks to promote public policies that support equal opportunity for universal broadband availability and adoption so that everyone, everywhere can seize the benefits of the Internet - from education to health care, employment to community building, civic engagement and beyond.
We no longer operate in a brick-and-mortar economy. For many Americans, jobs can be performed anywhere, anytime as long as they can get online.
Broadband also enables new job creation. It is essential that America continues to foster a climate that is conducive to creating and saving jobs through the use of broadband technology. Investing in Internet technology and infrastructure will benefit all business sectors.
That makes it vital for the future of America’s economy.
In this paper we analyze the economic impact of broadband deployment on consumer welfare, job creation, and economic output. This study represents an update of prior studies conducted in 2001 and 2003, in which we made several projections based on the best available data at the time. We begin by comparing those predictions against the actual U.S. broadband experience during the past decade. As it turns out, many of our predictions concerning economic welfare and employment/output effects were conservative because we could not envision the myriad applications made possible by broadband connections; nor could we envision the rate at which broadband access prices would fall. In a largely deregulatory climate, broadband penetration skyrocketed to nearly 65 percent penetration by the end of the decade as absolute and quality-adjusted prices fell, and first-generation technologies—cable modem, DSL, and 3G wireless—individually covered approximately 90 percent of all U.S. households and collectively covered even more.
In the second part of the paper, we analyze how much additional investment will naturally occur to wire the country with next-generation technologies. That new investment will expand domestic output and it will create jobs. We also estimate the output and job effects under an alternative scenario in which next-generation deployment is accelerated and is expanded in scope. Recognizing our limited ability to conceptualize next=generation applications, we attempt to estimate the spillover effect of next-generation technologies on other sectors of the economy. Finally, we briefly assess various policy options facing regulators. Given the amount of investment that continues to be deployed in this sector and the precarious current state of the U.S. economy, and given the linkage between that investment and jobs/output, regulators must diligently avoid taking any steps that might undermine the industry’s incentives to invest.
This policy memo brings together three important strands of current policy debate: jobs, innovation, and regulatory policy. Everyone these days is concerned about the slow pace of job creation coming out of the Great Meltdown. Over the past six months, the economy has generated less than 600,000 net new private sector jobs— hardly enough to make a dent in the 14.6 million unemployed.
A bigger issue, though, is that the job drought actually started well before the meltdown. In the last business cycle—running from 2000 to 2007—the private sector created 4.4 million net new jobs. But out of those, fully 74 percent were in the health/education sector. That is, most of the private-sector jobs were being created in places like hospitals, nursing homes, and universities that are heavily government-funded. In effect, the public sector has been keeping the job market a?oat since the beginning of the decade.
Most distressingly, America’s great strength—its innovative sector—actually lost jobs during the 2000-2007 business cycle. This sector includes everything from aerospace to pharmaceuticals to telecommunications to software (see Table 1). Some individual industries added employees, but collectively the innovative sector lost almost 700,000 jobs from 2000 to 2007, before the bust hit.
That performance was far worse than anyone expected: In 2001, the Bureau of Labor Statistics published projections implying that the innovative sector would create 1.7 million net new jobs by 2007. In other words, the innovative sector had a shortfall of 2.4 million jobs relative to expectations, even before the bust.
There are promising signs, however, of a rebound in one part of the innovation sector: communications. Internet companies, alongwith ?rms engaged in wireless telecom and computer systems design, seem to be emerging as “job leaders” in the next economic expansion. Unfortunately, these companies are also embroiledin struggles with federal agencies – and among themselves – over whether more regulation is required to police competition in communications.
With unemployment stuck at just under 10 percent, federal policy makers would be wise to take a countercyclical approach to regulatory policy as well as ?scal policy. No serious economist wants to clamp down on public spending or raise taxes until the economy starts creating jobs at a more rapid clip. By the same token, there should be no rush to regulate sectors of the economy that are ?nally beginning to reweave the severed connections between innovation and new jobs. For now, getting more Americans working is more important than regulating growing industries to ward off dangers that at this point remain more speculative than real.
This study addresses some unexplored investment and job impact implications of new Net Neutrality regulations recently proposed by the Federal Communications Commission. The rationale for doing so has consistently been cast in terms of maintaining open networks, preserving end-to-end principles, ensuring neutrality, and other equally vague and essentially irrebuttable objectives. In context of a weak economy and bleak jobs outlook, the widely recognized, but limited, ability of monetary and fiscal policies to create jobs, and the increasing economic and political costs of citizens without jobs, this study suggests a third path – regulatory forbearance toward broadband networks – as a means of stimulating investment and job creation. The study concludes:
• By eliminating business options successfully practiced by proponents of more regulation, the Commission’s proposals would dramatically increase market risk, lower expected growth, suppress network investment, and dampen opportunities for network providers to maintain and create jobs.
• The proposed change from Ex Post to Ex Ante regulation would create lengthy regulatory delays and increase regulatory risk for investors, while dampening prospects for new job creation in the Internet sector and in others it supports.
• These and other threats to investment incentives and job creation opportunities are out of line with both the emerging national broadband policy and the growing imperative to create more good, permanent jobs.
• Historical data suggest that for every $1 billion in revenue, “core” network companies provided 2,329 jobs, while non-network “edge” companies provided 1,199 (about half as many). This indicates that Net Neutrality rules that reduce revenues and growth for network companies, and transfer benefits (revenue or growth prospects) to non-network companies, are a barrier to job creation.
• In short, these regulations will shift risk, returns, growth and opportunity away from “core” network providers and in favor of “edge” applications and content providers. SEC data show that, historically, “core” companies earn at lower rates, invest more and create more jobs per dollar of value received in the market than do “edge” companies. Regulation that shifts value away from network providers to non-network providers will reduce investment in network infrastructure and citizen access to broadband while dampening creation and preservation of jobs. This conflicts with consensus requirements of a National Broadband Policy and with our macroeconomic policy goals.
In support of these conclusions, the study sets out financial and economic principles linking Net Neutrality style regulations, investment and jobs; it presents data (filed by firms with the Securities and Exchange Commission) depicting the record of broadband network providers and selected applications providers; and it projects those relationships into the future as guides to the potential responses of firms in the Internet Ecosystem to Net Neutrality type regulatory interventions.
Read more: Jobs_Study_Final_.pdf
Digital infrastructure, specifically broadband, supports jobs both within the broadband industry and throughout the economy. If capital expenditure falls, either through unfavorable market conditions or regulatory or other actions taken by government investment levels will decline and jobs will likely be lost, at least in the short term.
Over $7 billion has been earmarked for broadband expansion in the federal economic stimulus. The top priority for stimulus investments should be deployment of broadband to unserved areas.
Read more: IIA_Broadband_Stimulus_Overview.pdf
To paraphrase Mark Twain, for the past decade, there has been a lot of talk in Washington about broadband, but no one has done much about it. That changes today, as the Department of Commerce, the Department of Agriculture and the Federal Communications Commission will explain how the Obama administration intends to use the provisions of the stimulus bill to ensure that broadband technologies are available to, and affordable for, every American.
In the wake of November’s elections, following extensive growth in federal spending and compounded by the partial nationalization of our financial sector, many conservatives are in retreat. Fearing a new New Deal of liberal lawmaking, conservative stalwarts are girding for years in the policy wilderness. Yet all is not lost.
“The Economic Impact of Stimulating Broadband Nationally” details the potential state-by-state impact of legislation to accelerate broadband access and use. The report’s findings suggest that the U.S. could realize an economic impact of $134 billion annually by accelerating broadband availability and use across all states. The map above shows the potential for broadband that exists in every U.S…