Broadband Economics

Businesses are the main drivers for local economies and in an increasingly digital world it is ever more important for businesses to be competitive globally. The Internet opens tremendous opportunities for business growth while at the same time placing increasing pressures on businesses to compete outside the local community. Access to, and the effective use of, broadband enables businesses, and especially small businesses, to compete effectively while also enhancing their productivity and bottom line.

What you need to know

• Broadband can accelerate business growth when utilized
• Broadband speeds matter

Measured Impacts for Businesses

• 40% of small businesses[1] underutilize[2] (below average) the Internet for business practices.
• Small businesses that effectively utilize the Internet generate 33% more revenue through online practices compared to low-utilizing businesses.
• Small businesses that effectively utilize the Internet achieve 45% more cost savings through online practices compared to low-utilizing businesses.
• Over 50% of rural small businesses cite slow Internet speeds as a barrier to doing more online.
• Small businesses with 3 Mbps or higher upload speed utilize more online business practices and generate 19% more revenue online compared to those with less than 3 Mbps upload.

Typically over 85% of all firms in a community have fewer than 20 employees. In addition there are a large number of small firms with no more than one employee[3], which may include home businesses. Small businesses are a critical component of every municipality. The effective use of broadband for online business practices leads to measurable financial gains, but effective use also requires adequate broadband services to be available and adopted.

[1] Businesses with fewer than 20 employees.

[2] Business utilization refers the meaningful use of the Internet for online business practices, such as selling online, customer service, websites, social media, etc.

[3] In 2013 over 56% of firms that do not maintain an employee payroll, but may have a workforce which consists of contracted workers, family members or business owners. Data not reported for 2015.

Small and medium enterprises (SMEs) are the engine of employment growth in most municipalities. While large employee firms often get the most attention, by some estimates SMEs generate over 50% of job growth. Effective utilization of broadband leads to financial gains for businesses, stimulating and accelerating business growth. This naturally leads to positive employment impacts for the municipality as more businesses grow.

What you need to know

• Broadband can improve net employment growth
• Increased broadband utilization accelerates job creation

Measured Impacts on Jobs

• One in three new jobs created by small businesses is a result of growth through using online business practices.
• On average, for every 100 small businesses 50 new jobs are created annually through the use of online business practices
• Nine new jobs are created for every job lost through adopting online business practices.
• High utilizing small businesses create twice as many new jobs compared to low utilizing businesses.

The common myth that efficiencies from doing more online means lost jobs is dispelled by the reality of business experience and the positive impacts from business growth.

In addition to the direct job growth from businesses, the increased business activity and employment income has flow-through effects for the local economy, creating additional growth and employment for other businesses serving the municipality.

In addition to the daily lifestyle benefits that the Internet offers individuals (e.g. communication, entertainment, social media, etc.) broadband offers tangible and meaningful benefits to households through opportunities for education, health services, employment, and household income. This is especially important for smaller and more rural communities that may not have the same level of services locally that are available in more urban areas. High-speed broadband is essential for effectively delivering many services and for household to benefit from the opportunities offered.

What you need to know

Broadband really DOES help households to:

• Earn additional income
• Gain better employment
• Improve education
• Access health services

Measured Impacts for Households

• Over 15% of households have a member who teleworks at least one day per week.
• 53% of teleworkers would not have their present job without the ability to telework.
• 40% say that the ability to telework avoids relocation for employment.
• Over 15% of households operate a home-based business.
• Over 90% say that broadband is essential for operating their home business.
• One in four households uses the Internet to generate household income.
• 20% report increased household income of at least $5,000 per year from online activities.
• One in four households has a member who was able to gain higher skilled or higher wage employment through using the Internet.
• Approximately 10% of households use some form of telehealth service and another 50% are willing to explore this option when they have a need.
• Between 65% and 70% of households view broadband as important for providing access to more learning opportunities and more affordable learning.
• 50% say that using the Internet enabled the completion of a degree or certification

The needs and opportunities of broadband will vary with the composition of each household. Not everyone needs to telework and not every person is interested in or willing to start a home business, just as not everyone will need to take advantage of telehealth or online education. However, access to high-speed broadband allows for these opportunities that would not otherwise be available.

Given how widely used the Internet is and how much it impacts our daily lives virtually everyone is aware of broadband to some degree and the availability of high-speed broadband has become an important factor in decisions on where we live and work.

• For businesses access to high-speed broadband materially affects their ability to be competitive in an increasingly digital economy.
• Homeowners want to be able to access high-speed broadband for a broad range of quality of life benefits and not feel at a disadvantage based on their choice of living location.

For households in smaller and more rural communities, where the availability of services and opportunities, such as education, health, and employment, locally can be more limited, the need for broadband becomes even more important.   Access to a wider range of services online becomes a great equalizer for quality of life.

What you need to know

• Broadband is essential for attracting and retaining businesses and residents.
• Close to half will not locate or remain without access to quality broadband services.

How Broadband Influences Location

These realities are reflected in how both businesses and households view the importance of broadband for selecting their location as well as remaining in their location:

• 47% of SMEs[1] say that access to broadband is an essential factor in selecting their location.
• 61% of SMEs say that access to broadband is essential for remaining in their location.
• 44% of households say they would definitely or very likely relocate if they do not have access to broadband.
  • This increases to 59% in the 18-34 age group.

While there are many other factors that influence decisions for choosing a location, it is clear that the availability of good quality broadband is a major consideration. In addition, feedback from local economic development organizations confirms that broadband is a real factor in such decisions for businesses:

• 66% of economic development organizations[2] are frequently or occasionally asked by businesses about broadband service availability in their community.
• 32% of economic development organizations frequently or occasionally encounter businesses that choose not to locate in their community due to the current availability of broadband.
• 27% of economic development organizations frequently or occasionally encounter businesses that choose to leave the community due to the current availability of broadband.

Both businesses and homeowners are well aware of the importance of broadband and factor this into their decisions on where to locate and whether or not to remain in their location. Communities without adequate broadband fall behind competitively in terms of attraction and retention and risk losing businesses and population to better served communities.

[1] Research of 2,848 businesses with fewer than 100 employees and that have been in their present location less than 5 years. (Strategic Networks Group, Inc.)

[2] Research of 309 economic development organizations. (Strategic Networks Group, Inc.)

All of these benefits taken together means that communities have a healthier economy with more productivity, income, and a stronger workforce resulting in more stability, if not growth, in the local tax base, property values, and the local economy.

What you need to know

Broadband for more competitive communities

• Improved attraction and retention
• Local job growth
• Better local workforce
• Increased household income
• Maintain property values
• Increased tax base

The dynamics of improving the availability of high-speed broadband typically play out over time as follows:

• The municipality is more likely to attract and retain businesses and population by being competitive with other municipalities.
• Property values remain competitive or increase due to improved demand.
• Existing businesses will be more competitive and grow faster with effective use of broadband.
• New business start-ups, including home-based businesses, are more likely to occur in the municipality.
• New and existing businesses create more local jobs through business growth and spend more locally.
• Residents have greater opportunities to improve skills and education, improving the quality of the local workforce. This also contributes to business attraction.
• Residents find better employment through local job creation as well as teleworking opportunities.
• Household incomes improve, leading to higher retention of population and increased local spending.
• Increased local spending by households and businesses improves growth of other local businesses, further increasing employment opportunities.

These are critical factors for communities, but they are seldom considered by broadband service providers in deciding where and how to deliver broadband services. The socio-economic benefits of broadband are not factored into service provider business cases, so it is up to the municipality to take this into consideration when partnering with service providers to invest in improvements to broadband availability for a win-win outcome.

The counter side to this is that deficiencies in broadband availability and utilization cause missed opportunities for communities and their citizens, often resulting in the erosion of the business and employment base as well as population, especially in the younger demographics.