Saturday, September 19, 2015

Gigabit Internet Access Network Boosts City Economy $865 million to $1.3 Billion, Creates 2,800 to 5,200 New Jobs, Study Argues

A study of the economic impact of gigabit Internet access suggests the EPB Fiber Optics network generated $865.3-million to $1.3-billion in economic and social benefits while creating between 2,800 and 5,200 new jobs.

The study by University of Tennessee at Chattanooga Finance professor Bento Lobo suggests benefits have exceeded the projected benefits by at least 27 percent and, possibly, by as much as 95 percent.

These estimates translate into benefits of between $2,832 and $3,762 per Hamilton County resident.

"Because of our fiber optic infrastructure, we are creating economic development opportunities and good, middle-class jobs today as well as positioning Chattanooga to compete in the innovation economy of tomorrow,” said Chattanooga Mayor Andy Berke.

The fiber optic network serves as the backbone for Chattanooga’s smart grid, which has delivered $237-million in benefits that include avoiding power outages by 124,734,486 customer minutes of interruption as of August 31, 2015, the study also suggests.

The study also estimated new investments between $198 million and $461 million between 2011 and 2015 and a net 3,716 jobs. Of these, 3,595 were new jobs and 121 were avoided (hourly) job losses due to outage reduction benefits of a smart grid.

Over the period 2011-2015, the fiber infrastructure generated incremental economic and social benefits ranging from $865.3 million to $1.3 billion while additionally creating between 2,800 and 5,200 new jobs.

Chattanooga’s City Council approved EPB’s FTTH plan and the build out was completed roughly six years ahead of schedule, with the first business customers connected in the fall of 2009.

In September 2010, EPB made available residential symmetrical internet connection speeds of up to one gigabit per second - the fastest Internet in the western hemisphere.

By 2010, the utility saw a 150 percent increase in customers. As of March 2015, the utility serves 43 percent of the Chattanooga residential market, a total of roughly 66,180 customers. Moreover, the fiber optic division of EPB became profitable in 2012 and has contributed to lowering EPB’s overall operating costs and electric rates ever since.

By 2016, the division is expected to be debt-free.

Fiber optic system access fees and rents paid to the electric system in 2014 amounted to $10 million and are estimated to be over $12 million in fiscal 2015.

In 2008, plans to modernize the electric system took off with EPB making a bond offering to fund the construction of a Smart Grid, one of the first and largest in the United States.

In November 2009, in the wake of the deep recession of 2007-2008, EPB received a federal stimulus matching grant in the amount of $111.6 million from the Department of Energy to expedite the build-out and implementation of the fiber infrastructure and Smart Grid.

The fiber optic division was set up as an asset of the electric division of the utility and leases the fiber optic infrastructure from the electric division.

In 2010, Business Facilities Magazine ranked Chattanooga number one among all American metros for “Economic Growth Potential”.

That might cause some to ask questions. If the network was activated for business customers in 2009, and for residential customers in 2010, how likely is it that the fiber to premise network was solely, primarily or even largely responsible for the 2010 ranking?

True, a company called HomeServe hired 140 employees to launch a call center in the city. And the company did attribute some of its decision to the Internet access. The gigabit services was said to be “one of the reasons” the company decided to open its data-intensive facility.

The problem with these sorts of claims is that it literally is impossible to untangle what is correlated from what is “causal.” Fast high speed access often is correlated with higher-income or faster-growing cities and regions.

But it literally cannot be proven whether the high speed access “caused” the growth, or whether growth was already happening.

Many would argue it is the robustness of local economies, with the increase in prosperity and wealth, that leads to higher demand for all sorts of products, including higher speed Internet access.

Keep in mind the “fiberhood” method now used by Google Fiber and other gigabit Internet service providers.

The neighborhoods that get built are those where demand is highest, and those neighborhoods universally turn out to be neighborhoods with higher incomes and wealth. In other words, economic prosperity lead to higher speed Internet access. Gigabit service did not cause the wealth to exist.

Likewise, a study indicated that the Chatanooga was attracting people at a rate about 30 percent faster than the national average, especially baby boomers and members of the millennial generation, arguably the driving force behind new, innovative businesses.

So again, in-migration and growth trends were already in place.

That isn’t to discount the study findings. Economic growth and value undoubtedly have occurred. Few would argue that gigabit access “hurt.” Most sense it “helped.” What never can be determined without doubt is the causal relationship between economic benefits and the supply of Internet access.

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