Our business and personal lives are increasingly connected. From electronic health records, to online shopping, to social media, we spend large portions of our day online. That connectivity requires complex infrastructure that is difficult to understand and easy to take for granted. North Carolina government has tried to bring internet connectivity throughout the state for the last 20 years, and while we have come come a long way, there are still pockets of the state that lack the access to connectivity.
Last week, the North Carolina House passed House Bill 68, which is designed to close the gaps in broadband infrastructure, particularly in rural areas. In an era of partisan discord, the 109-8 vote count is noteworthy and suggests an opportunity for a productive policy initiative.
There are several key elements of the measure:
- The bill explicitly includes broadband infrastructure as part of the broad definition of infrastructure in several sections of the General Statutes. The expanded definition allows for broader access to funding and for the use of public private partnerships to fund broadband infrastructure service.
- It funds model programs in Stokes County and in Fayetteville and directs the Office of Science, Technology and Innovation (OSTI) to develop programs directed at funding broadband infrastructure.
- The bill clarifies uncertainty about what municipalities can do to pursue broadband projects by creating a mechanism for municipalities to help build infrastructure but should not provide service.
For additional information about the bill posted by advocates for the legislation, visit the NC Bright Future Project web site.
Incidentally, the bill represents an alternative approach to the false dichotomy that public economic development investments are either rural or urban focused. The broadband discussion provides a distinctively win-win scenario—one where direct investment in rural communities also provides support economic activity in urban areas.
Before we get there, a quick word about some of the technical aspects of broadband, as it is easy to get lost in discussions about bandwidth and bit transfer rates.
At its core, the broadband discussion is about the speed at which information flows to and from a user. Bandwidth, or the size of the pipe through which data is transferred, is a key component, but there are other components that have an equal effect on a user’s experience: (a) the distance between different network connection points, (b) the service provider’s policies for allowing access to the connection, and (c) the use patterns of others sharing a basic connection.
These factors can lead to dramatic differences between the “advertised speed,” which is the maximum potential speed, and the “achieved speed,” which represents the users’ actual experience when other components are taken into account.
In 2013, Ericsson produced a report called the “Socioeconomic Effects of Broadband Speed,” which provides an accessible overview of some of these technical aspects as well as some useful economics analysis.
A lot of the discussion surrounding HB 86 has been centered around rural equity. The basic argument being that a fast connection to the internet is now a utility, i.e., a requirement for a productive life in 21st century. The point is fair, but unlike the provision of clean water, electricity or even telephone service, broadband access is not a straightforward, “we have it or we don’t” sort of proposition. There are questions about what level of speed and connectivity is sufficient. In addition, mobile technologies, which rely upon a different infrastructure than fixed broadband, are increasingly becoming part of the connectivity experience.
The U.S. Federal Communications Commission (FCC) has set that the target connection speed at 25 mps for users downloads and 3 mps for user uploads. This benchmark was raised from 4-to-1 in 2015 due to an increase of the size of information files transferred via the internet and an increase in the number of users using a fixed connection point at one time.
South Korea is the most connected country in the world boasts an average achieved download speed of 26.1 mps, according to the Akamai’s State of the Internet Q4 2016 Report. Connection speeds in the U.S. vary greatly. The nationwide the average connection speed is 17.2 mps but the results are disparate between and within states.
Access vs. choice vs. adoption
There are different ways to assess broadband connectivity. The most basic measurement is the number of people who can or cannot connect at the desired speed.
The NC Broadband Infrastructure Office and the FCC report that 93 percent of North Carolinians have access to fixed broadband at the 25:3 speed target. Of the seven percent who do not, just more than 640,000 people are in the rural areas.
Next, there is the question about whether people have choices about who provides their coverage. Of the North Carolinians who have sufficient access to coverage, 1.5 million only have access to one provider.
Finally, there is the question about adoption. According to the FCC, only 16 percent of North Carolinians have chosen to adopt broadband coverage at the 25-to-3 target speed. Citing a Pew Research Center Report, the NC Broadband Infrastructure Office lists cost and the availability of smartphones as the primary reasons that people do not subscribe to the available broadband connection.
Two recent reports provide good overviews of the different connectivity factors in North Carolina along with some detailed policy recommendations, some of which are addressed with HB 68.
- Connecting North Carolina: State Broadband Plan by the North Carolina Broadband Infrastructure Office
- North Carolina Connectivity: The Good, The Bad and The Ugly by the Institute for Local Self-Reliance
Economic impact of speed
While the precise goals for speed may be a moving target, research seems to be conclusive that increases in connection speed have significant economic effects, especially in industries like health and education and with small businesses.
In his report, “The Impact of Broadband on the Economy“, Dr. Raul Katz describes the way that deployment of broadband resources flows through the economy, affecting consumers and businesses alike.
According to a report on the impact of broadband on productivity presented to the European Union, companies that adopt broadband-based processes can improve their labor productivity by 5-10 percent. E-commerce is one of the most important areas of potential.
The Hudson Institute estimates that 57.1 percent of all manufacturing shipments now rely on e-commerce, which is only possible through broadband infrastructure. Similarly, retail e-commerce grew 30 percent from 2013 to 2015, when it was valued at $340 billion. The Institute estimates that $100 billion of manufacturing sales and $9.2 billion of retail sales were attributable to rural sales and that those numbers would be a $1 billion higher with increased connectivity.
In addition, increased broadband speed has the potential for transformative effects in health and education in rural communities, where access to service providers and instructors often proves challenging.
Rural broadband serves in urban AND rural communities
Due to the nature of the telecommunications industry, rural broadband should be an economic driver in North Carolina’s rural and urban communities.
The Hudson Institute reports that rural broadband providers directly added $17.2 billion to the U.S. economy in 2015. In addition, the industry added $6.9 billion in indirect effects in the form of consumption that was a result of broadband access.
As one of the states with the largest rural populations, North Carolina ranked third in the economic impact of rural broadband. The state saw $1.2 billion of direct economic impact and $477 million of indirect impacts. In addition, rural broadband in North Carolina supported more than 5,240 jobs.
However, due to the structure of the telecommunications industry, $510 million of the broadband dollars generated went into rural areas, and the additional $1.2 billion went urban areas. The largest amount of broadband-generated funds went to pay excise-like taxes, and was thus redistributed by government. The next largest recipient of broadband-generated dollars was for advertising service, followed by architectural and engineering services, real estate, legal and banking services—all of which tend to be located in urban areas.
Inputs Used by Rural Broadband Providers, 2015
As a result, dollars invested rural broadband have a little bit for everyone: they facilitate the technology needs of citizens and businesses in rural parts of the state; they provide some service sector jobs in the rural areas; and they have a significant economic impact in the urban areas.
As HB 68 begins its way through the Senate, stay tuned for how the legislation fares.
Andrew Holton is a board member and contributor to the N.C. Center for Public Policy Research.