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Beyond Broadband Deployment: The Multiplier Effect

September 14, 2011 - 0 Comments

By Howard Baldwin, Contributing Columnist

Before he was the chairman of George H.W. Bush’s Council of Economic Advisors, Michael Boskin was my Econ 101 professor. It was from him that I learned about microeconomics, macroeconomics, and their famed multiplier effect — the latter being the theory that money spent creates economic benefits that have ongoing impact beyond the original investment.

In my previous post, Stimulating Economic Growth with Broadband, I talked about quantifying the benefits in terms of what businesses could expect — in essence, the microeconomic view.

Today, looking at a report from Deloitte on 4G deployment within the U.S. market (with applicability anywhere in the world), I’m turning to the more wide-ranging impacts that wireless broadband investment might have for business and the economy — essentially, the multiplier effect of broadband infrastructure investment.

(For more on this topic, see Broadband Impact: The Macroeconomic Benefits and Economic Incentive for Telecom Infrastructure Investment).

According to the Deloitte report, The Impact Of 4G Technology On Commercial Interactions, Economic Growth, and U.S. Competitiveness, broadband investment represents a rising tide for all economic strata. While it helps any company or country become more connected, it also extends that benefit to previously disconnected segments of the population.

For instance, smartphones are easier to use and less expensive than traditional computers, so that low-income populations and minority groups have a greater opportunity to participate economically. When broadband investment extends to rural communities, it eliminates distance as a disqualifying factor. The greater availability of technology, the bigger the potential contributors and the bigger the resulting market.

U.S. Entrepreneurial Ecosystem: the Growth Catalyst

Admittedly, the Deloitte report focuses specifically on the U.S., and postulates that its “entrepreneurial ecosystem” – the combination of business, venture capital, academic research, and other factors – gives the U.S. an ongoing advantage for rapid development of communications capabilities. One piece of evidence: the report notes that three of the five top smartphone operating systems are based in the U.S. (Apple’s iOS, Microsoft’s WindowsMobile, and Google’s Android) while the other two (from RIM and Nokia) have weakening growth.

While there’s no question that a greater presence of venture capital would help other countries, it’s also true that other countries have greater government support for carriers and infrastructure, which means this advantage may be leavened somewhat. However, the economic benefits that the Deloitte report forecasts apply across borders, simply by using broadband investment to create economic velocity.

The report notes, “The pace and magnitude of the investment influences the economic activity of the organizations, households, and individuals who use the new networks.” The sooner the investment occurs, the more it gives any country “a head start in reaping the benefits of this activity and thus reinforces the nation’s global lead in the mobile broadband space.”

In economics, the multiplier effect can have a theoretically perpetual impact, by creating a virtuous cycle that feeds on itself (though that rarely happens in real life). Still, Deloitte believes that “early deployment of 4G networks can stimulate a virtuous cycle of investment … coupled with cloud infrastructure and advances in areas such as displays, microsensors, processors, and chip manufacturing … which provide the basis for development of new devices and services.”

That in essence is the history of technology — the invention of one capability (e.g., the PC, the Web) triggers new, unforeseen opportunities. The same applies to broadband. Whether it’s the U.S. or any country that supports broadband, it will stay on the cutting edge of what’s possible, technologically and economically.

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