Broadband productivity gains questioned

A government-funded survey raises questions about the productivity gains to be made from providing fast internet access.

The survey by Motu Economic and Public Policy Research found a productivity effect of having broadband, compared to not having broadband, of about 10 percent across all firms.

The estimates indicated a marginally stronger impact on productivity for firms in rural relative to urban areas, but the differences were not significant.

"Our estimates show that all of these productivity gains can be attributed to adoption of slow relative to no broadband, with no discernable additional effect arising from a shift from slow to fast broadband," Motu said.

But the paper's authors cautioned that the finding that a move to fast broadband from any other form of broadband had no estimated impact should be interpreted with care.

At least four explanations could account for the result, they said.

Among those, the firms may have only recently adopted fast broadband and were yet to achieve the full productivity benefits. Also, the productivity benefits of moving to fast broadband may only be relevant to a small proportion of firms for now, so the full future benefits may not be apparent in the existing data.

The study comes out as the Government waits for applications from private providers interested in co-investing in its $1.5 billion ultra-fast broadband roll-out.

The Motu work was part funded by the Ministry of Economic Development, with funding also from the Foundation for Research, Science and Technology. Statistics New Zealand provided all the data used in the study.

Motu said the results of the study provided the first firm-level estimates internationally of the degree of productivity gains sourced from upgraded internet access.

Fast internet access was considered to be a productivity-enhancing factor, the working paper said.

As new technologies were introduced, calls were made to upgrade telecommunications networks that serviced firms and households lest the local community be left on the wrong side of the digital divide.

Despite well-articulated pleas for upgraded internet access, reference to rigorous research that quantified benefits actually accruing from network upgrades was generally absent in supporting materials, Motu said.

"A key reason for this conspicuous absence is that little rigorous research exists that measures the productivity impacts of a shift from one type of internet access to another."

Industry commentator Paul Budde said the outcome of the Motu study did not come as a surprise.

High-speed broadband linked to an open network would open the infrastructure to other sectors and it was those sectors that would provide improved productivity, Mr Budde said.

Most of these sectors were under government control and operated within closed silos.

In order to make productivity gains the government would first have to direct those sectors to use the new fibre network. That would activate those sectors to start building their own business models which would show what the real productivity gains were.

Plenty of high level data indicated a trans-sector approach to ultra-fast broadband would deliver such benefits as:

-Hospitalisation of older people could be reduced by 40-70 percent.
-Smart grids could save 30 percent of energy.
-E-education would deliver far more productive 1:1 education services.
-Smart cities, smart transport and smart infrastructure would greatly contribute to the environment and society at large.