Beyond Broadband Access: Developing Data-Based Information Policy Strategies

CHAPTER 11 European Broadband Spending

189 CHAPTER 11 European Broadband Spending Implications of Input-Output Analysis and Opportunity Costs ibrahim kholilul rohman and erik bohlin Currently, many advanced countries have proposed broadband as part of the government’s responsibility to combat the digital divide. The idea is that government should increase the accessibility of broadband to people who have not yet been able to access it, especially in rural areas. A prime example has been the so-called Obama Package, a $787 billion stimulus bill signed into law on February 17, 2009, as the American Recovery and Reinvestment Act of 2009. This act included $7.2 billion to support a variety of broadbandrelated programs, including $4.7 billion for the build-out of broadband in unserved and underserved areas. Moreover, in Europe there have been initiatives to fund broadband as part of the European Economic Recovery Package. Decisions have been taken toward this end by the European Council, including the goal of 100 percent broadband coverage in Europe within the period 2010–2013 by spending 1 billion euro to stimulate broadband in rural areas in the European Recovery Plan. While these programs have received considerable public attention, several issues come to the fore. The immediate one is whether government is spending money wisely. More precisely, a recommendation for using government funds should consider the opportunity cost, that is, whether other alternatives for spending the available money will create greater or less benefit to society. This chapter will present a methodology to evaluate the opportunity cost of using government funds for broadband, with particular attention to the European proposal to publicly fund broadband infrastructures, and ask i. k. rohman and e. bohlin 190 whether such investments would be justified as improving welfare. More generally, the methodology will address whether any investment, private or public, improves welfare. In particular, this study will consider the opportunity costs of broadband policy using the input-output (IO) table methodology, especially the output multipliers derived from the IO table as a basis for the opportunity cost assessment. Applying the IO methodology in this way provides a counterfactual , as-if analysis to the question of investment impacts due to broadband . Therefore, this study is conducted as an exploratory as-if study based on the IO literature without necessarily striving to provide implications for decision makers. Despite IO having strong theoretical background, the IO method has to be treated carefully due to its limitations and simplifications. The chapter is structured as follows. First, a literature review of previous studies on the relationship between broadband and Information and Communication Technology (ICT) as well as the discussion on IO method will be presented. It will be followed by the opportunity cost concept from a macroeconomic point of view as a tool providing a common point of departure on this concept even though this study will not discuss the micro approach in a more detailed way. The next section will present the macro perspective of the opportunity cost using the IO methodology. Following this, an application of the method to selected European countries is conducted. Conclusions and implications for research follow. literature review This chapter investigates the impact of broadband represented by the ICT sectors, where the definition is derived from Organisation for Economic Cooperation and Development (OECD)1 . The analysis makes the assumption that there is a close relationship between the broadband and ICT sectors. This link can be seen from many previous studies which refer to the Internet—where broadband itself serves always-on and faster Internet connections—to exemplify the terminology of ICT for instance in Hollenstein,2 Bozinis3 , Franklin et al.,4 Martin,5 Cortés and Navarro,6 and Haller and Siedschlag.7 As other ICT products, broadband is also embedded with the general purpose technology (GPT). The pervasive use of broadband technology in a wide range of sectors, therefore, will generalize productivity gains transferred to the rest of economy. In this view, Majumdar8 identifies a greater impact of broadband to wages as the sector is associated with the need for a higher skill of labor. In a later study, Majumdar et al.9 find a positive relationship between broadband deployment and the carriers’ productivity and suggest to encourage the deployment of broadband technologies. Other studies also e uro pe an broad ban d s pe n d i n g 191 support the importance of broadband technology increasing employment and productivity level, for...