The economic impact of broadband?
By Tan Tze Meng June 20, 2014
- Same impact in digital economy that logistics infra had in old economy
- The direct value may be small, but there is a huge multiplier effect
WHY is there a question mark at the end of the heading above?
It’s because there are a lot of people who still don't see the connection, and they are asking that question in their heads. I get questions like “Why would anyone need more than 20 Mbps broadband?” and I get statements like “There is very little demand for broadband faster than 5 or 10 Mbps.”
To answer these people, I need to take a step back to talk about the conventional economy.
In the conventional economy, it is obvious that economic value comes from activities in human population centres: The villages, towns, cities. Each of these could be isolated and self-contained and still generate economic value.
However, there will be a natural limit to this, dictated by the availability of local resources and skills of the population.
Now let’s interconnect these population centres with roads, railways, waterways, ports, airports. These centres can now obtain resources not available locally through trade, and their populations can acquire new skills!
The logistics infrastructure makes it possible for these centres to increase their economic activities beyond the local skills and resource constraints. It allows economic activities to span multiple centres, and eventually take on global proportions.
While the direct economic value generated from logistics is relatively small, the impact on the greater economy has a multiplier effect. The multiplier effect is magnified by the speed and capacity of the logistic infrastructure.
This, everyone gets. I hope.
So let’s get back to the Digital Economy and broadband. Some of you already know what’s coming.
Let’s just look at the Digital Economy on its own and, just for the moment, ignore the interactions between the conventional and digital economies to look at it on its own – a digital world like that envisioned in the movie Tron.
So where are the centres of economic activity in a Digital Economy?
In featureless, windowless nondescript constructs called server closets, server rooms and data centres. These are the equivalent of the villages, towns and cities of the conventional economy.
It is within these buildings that digital activity happens, and they could be isolated and self-contained, just like what they were not so long ago before the Internet.
While isolated, economic activity is limited to the availability of local resources such as the servers, storage and applications contained within. Along came digital communications and, eventually, the Internet we know today.
All these centres of digital activity can now interact with each other, on a global scale. The multiplier effect is similar to that of logistics in the conventional economy. The faster and more capacious the connections, the greater the multiplier effect.
Similarly, the direct economic value from the communications is relatively small, but its multiplier effect is huge.
Now, let’s overlay the digital on top of the conventional. This adds yet another multiplier effect, the acceleration of economic activity in the conventional world by the digital world.
Imagine if all the highways were reduced to narrow, single-lane roads. Imagine if the toll charges on highways were too expensive and you were forced to use the side roads.
Imagine if your ‘broadband’ was 384Kbps. Imagine if the cost of 20 Mbps broadband was beyond the reach of all but the top 4% of households. Imagine if your data centres have less bandwidth than the households of some countries.
So where is the economic impact of broadband?
Tan Tze Meng is a 27-year veteran of the ICT industry, with a career spanning roles in data communications, electronics design, software development, data centre consulting and more. He is currently at MDeC where he looks into policy and regulatory changes affecting the digital ecosystem. This article first appeared on his Facebook page and is used here with his kind permission. These are his personal views and do not necessarily represent those of his employer.
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