How Much Did U.K. Benefit from "Superfast" Program?

A report by the U.K. Department for Digital, Culture, Media & Sport claims the program to increase U.K. internet access speeds to 30 Mbps “sparked a surge in home values of up to £3,500” between 2012 and 2019. 

The study also claims a causal and positive effect in any number of economic areas, including employment, sales, firm relocations, wages, home prices, the number of jobs and worker productivity. 

The issue is whether a causal relationship exists, or is simply a correlation, for any of those claimed changes. 

“The program led to an increase in house prices of 0.6 to 1.2 percent” over that period. Of course, the issue is whether house prices were growing during that period for other reasons, such as simple supply and demand. 

According to Statista, U.K. home prices increased dramatically--about 35 percent--between 2010 and 2020. A change of between half a percent to one percent might be considered statistical noise, in that regard. 

source: Office of National Statistics 

Those are impressive results indeed when it also is deemed  “premature to draw any conclusions in relation to the impact of the program on take-up” of faster broadband service. 

One might wonder why there is such confidence about the wider economic impact of the subsidy program if there still is uncertainty about the program’s impact on consumer purchasing of higher-speed internet access.

Also, the program also seems to have reduced speed upgrades in some cases.

“The evidence also suggested that nine percent of premises upgraded would have otherwise received superfast coverage one year earlier in the absence of the program,” the report notes. 

The report also notes inconclusive changes in the number of customers buying the higher-speed services. The program “led to a reduction in the number of premises with superfast connections (by 1.1 to 2.4 premises per postcode) by September 2019.”

In other words, the program delayed “the availability of superfast for some premises that would have otherwise benefitted from commercial deployments.”

The report also notes it is unclear whether the long-term advantages will persist. “It is assumed that the short-term effect of the program persists for the first two years following the upgrade, and thereafter decays at a rate of 13 percent per annum.”

Also, “there was no conclusive evidence that the program had a positive or negative effect on the average download speeds of connections by September 2019.”

In some cases the subsidy program seemed to reduce average download speeds by 2.1 Mbps, while in other cases the program seemed to increase download speeds by 2.2 Mbps.

The program “increased the average upload speeds of connections by 0.9 Mbps to 3.9 Mbps”  and maximum download speeds by 6.2 Mbps to 16.9 Mbps, the report says.

The report says the broadband program is “estimated to have increased employment in the areas benefiting from the program by 0.6 percent, leading to the creation of 17,600 local jobs by the end of 2018.”

Firm sales grew by almost 1.0 percent by 2018, increasing the annual turnover of local businesses by £1.9 billion a year, the report says. 

“The evidence indicated that a share of these local economic impacts were driven by the relocation of firms to the program area,” as faster broadband “increased the number of businesses located in the areas” by around 0.5 percent .

In other words, “the program may have encouraged the relocation of economic activity to rural areas.”

“There were also signals of efficiency gains,” as “turnover per worker of firms in the areas benefiting rose by 0.4 percent in response to subsidized coverage.” Keep in mind that the report argues firms that did not relocate saw annual “turnover per worker rose by just under £12 for each premise upgraded across spatially stable units.”

U.K. productivity rose an average of 0.45 percent between 2009 and 2018, the Office of National Statistics says. Again, it is hard to say what specific impact the broadband subsidy program might have had.  

Employees working for firms located in the areas benefiting from subsidized coverage saw their hourly earnings increase by 0.7 percent in response to the upgrade, the report claims. 

More jobs created also reduced unemployment, the report says. The number of unemployed claims fell by 32 for every 10,000 premises upgraded by 2018. 

“The program led to an increase in house prices (of between £1,700 and £3,500),” as well, the report says. The findings are based on a study conducted by Ipsos Mori. 

The point is that correlation is not causation. If total U.K. employment, sales, firm relocations, wages, home prices, the number of jobs and worker productivity grew during the study period, we do not know what impact the subsidy program might actually have had.

The report itself suggests rather modest changes in speeds and some delays in coverage and deployment caused by the program, even if coverage overall did increase. The claimed increases in productivity likewise are estimated to be modest, on the order of £12 per worker per year. 

The desire to claim a program worked is understandable. The evidence seems to show correlation, but perhaps not out of line with larger trends in the U.K. economy. Causation is likely another matter.