Does Mobile Broadband Cause Economic Growth?

Shockingly, it might be a myth that mobile broadband contributes to economic growth. Perhaps even more shockingly, some argue mobile broadband could, in some instances, actually retard growth. 

Counter to common expectations, the relationship between expanded mobile broadband usage and economic growth is chaotic: it might help, it might have no effect, or it might, shockingly, harm economic growth. Some studies suggest relatively small effects, if we can indeed isolate broadband from all the other forces contributing to economic activity. Yet other studies interpreted as suggesting causation actually only show correlation. 

The reasons for such non-correlation (ignoring for the moment causation) are likely that economic growth is the result of many interacting forces. Broadband alone is hard to isolate. 

“Since broadband is an access technology for data communications, it only has an economic effect in combination with the adoption of information technology, and the implementation of organizational and process changes in enterprises,” the United Nations Broadband Commission has noted. “In other words, for broadband to have an impact on productivity, the ICT ecosystem has to be sufficiently developed.”

In other words, broadband alone does not explain very much, from an agency that believes broadband must be extended to increase economic benefits. 

You might well suppose that mobile broadband, and broadband generally, has the greatest impact where information work is most intensive. Conversely, you might expect clear impact to be least where that is not the case. That is what the U.N. study found. 

“This very surprising conclusion comes from Businessweek having a look at some recent UN numbers on broadband and telecoms more generally around the world,” says Forbes. “We get the highly counterintuitive result that an expansion of mobile broadband coverage leads to a reduction in the rate of economic growth.”

“Focusing on the top 20 leaders in the mobile group, we see there is actually a negative relationship between GDP growth and broadband penetration,” Forbes notes. “It’s not even fair to say that the fastest-growing economies are the fastest growers in broadband.”

That said, most observers instinctively believe more mobile broadband is helpful. Correlation is highest in developed countries; lower in developing countries. 

“Economic benefits to sub-Saharan Africa stemming from Facebook’s connectivity initiatives can exceed USD50 billion over the next five years (2020–2024) in nominal current GDP terms,” say analysts at Analysys Mason. Most of the impact comes from the value and impact of internet traffic on the wide area and local access infrastructure Facebook has put into place. 

source: Analysys Mason

Methodology and assumptions are everything in forecasts. Analysys Mason derives its estimates by applying a rule of thumb used by the International Telecommunications Union. 

“A 2019 study by the ITU used econometric analysis of data from the majority of countries in Africa to determine that a 10 percent increase in mobile broadband penetration (e.g. from 20 percent to 22 percent) in Africa would yield a 2.5 percent increase in GDP per capita in a given year, over and above the baseline growth projected for the country or region,” Analysys Mason says. 

Virtually nobody would disagree that having quality broadband is correlated with some amount of economic growth. The problem is that we have no certain way of knowing the full causal chain. 

Would gross domestic product grow even in the absence of more-ubiquitous broadband? Almost certainly. But does more-ubiquitous broadband access “cause” faster growth, or does faster growth lead to higher demand for broadband? It is a question we cannot answer. 

One must assume the ITU formula of “mobile broadband and mobile broadband adoption” illustrates a causal relationship and not merely an associative relationship. In other words, ubiquitous broadband somehow creates economic growth, rather than economic development driving demand for more broadband.

Though correlation is not causation, it might also be said that, in terms of the relationship between mobile broadband adoption and gross domestic product, the correlation might be positive, neutral or negative. 

That is not what people tend to believe, or want to believe. But neither does evidence necessarily support the notion that mobile broadband causes, or leads to, economic growth.

source: Yankee Group

"There are just too many other factors that affect GDP growth for mobile broadband to have any significant and measurable effect,” said Yankee Group Research VP Declan Lonergan. 

Still, it is fair to say virtually everyone wishes to believe that more-extensive mobile broadband does have a positive impact on economic and social development. We simply cannot say for sure when, and how much, mobile broadband might contribute. 

Most of us believe there is a correlation between widespread broadband access and economic growth or wealth. But there also is a clear correlation between education, income and age and supply or use of broadband and the internet. It’s hard to distinguish between chickens and eggs, in terms of “which came first?”

A Bit More Clarity on FCC's Net Neutrality Order

Following are key excerpts from the Report and Order adopted by the Commission to preserve the open Internet, released by the Federal Communications Commission. Though the language will be fleshed out when the formal order is issued, the language hints at the amount of work yet to be done to flesh out what it all means.

Rule 1: Transparency

A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

Rule 2: No Blocking

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.

A person engaged in the provision of mobile broadband Internet access service, insofar as such person is so engaged, shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider’s voice or video telephony services, subject to reasonable network

Rule 3: No Unreasonable Discrimination

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service.  Reasonable network management shall not constitute unreasonable discrimination.

Select Definitions

Broadband Internet access service:  A mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.  This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.

Reasonable network management.  A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. Legitimate network management purposes include: ensuring network security and integrity, including by addressing traffic that is harmful to the network; addressing traffic that is unwanted by users (including by premise operators), such as by providing services or capabilities consistent with a user’s choices regarding parental controls or security capabilities; and by reducing or mitigating the effects of congestion on the network. 

Pay for Priority Unlikely to Satisfy “No Unreasonable Discrimination” Rule

A commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider (i.e., “pay for priority”) would raise significant cause for concern.  First, pay for priority would represent a significant departure from historical and current practice.  Since the beginning of the Internet, Internet access providers have typically not charged particular content or application providers fees to reach the providers’ consumer retail service subscribers or struck pay-for-priority deals, and the record does not contain evidence that U.S. broadband providers currently engage in such arrangements.  Second this departure from longstanding norms could cause great harm to innovation and investment in and on the Internet.  As discussed above, pay-for-priority arrangements could raise barriers to entry on the Internet by requiring fees from edge providers, as well as transaction costs arising from the need to reach agreements with one or more broadband providers to access a critical mass of potential users.  Fees imposed on edge providers may be excessive because few edge providers have the ability to bargain for lesser fees, and because no broadband provider internalizes the full costs of reduced innovation and the exit of edge providers from the market.  Third, pay-for-priority arrangements may particularly harm non-commercial end users, including individual bloggers, libraries, schools, advocacy organizations, and other speakers, especially those who communicate through video or other content sensitive to network congestion.  Even open Internet skeptics acknowledge that pay for priority may disadvantage non-commercial uses of the network, which are typically less able to pay for priority, and for which the Internet is a uniquely important platform.  Fourth, broadband providers that sought to offer pay-for-priority services would have an incentive to limit the quality of service provided to non-prioritized traffic.  In light of each of these concerns, as a general matter, it is unlikely that pay for priority would satisfy the “no unreasonable discrimination” standard.  The practice of a broadband Internet access service provider prioritizing its own content, applications, or services, or those of its affiliates, would raise the same significant concerns and would be subject to the same standards and considerations in evaluating reasonableness as third-party pay-for-priority arrangements.

Measured Steps for Mobile Broadband

Mobile broadband presents special considerations that suggest differences in how and when open Internet protections should apply.  Mobile broadband is an earlier-stage platform than fixed broadband, and it is rapidly evolving.  For most of the history of the Internet, access has been predominantly through fixed platforms -- first dial-up, then cable modem and DSL services.  As of a few years ago, most consumers used their mobile phones primarily to make phone calls and send text messages, and most mobile providers offered Internet access only via “walled gardens” or stripped down websites.   Today, however, mobile broadband is an important Internet access platform that is helping drive broadband adoption, and data usage is growing rapidly.   The mobile ecosystem is experiencing very rapid innovation and change, including an expanding array of smartphones, aircard modems, and other devices that allow mobile broadband providers to enable Internet access; the emergence and rapid growth of dedicated-purpose mobile devices like e-readers; the development of mobile application (“app”) stores and hundreds of thousands of mobile apps; and the evolution of new business models for mobile broadband providers, including usage-based pricing.

Moreover, most consumers have more choices for mobile broadband than for fixed broadband.   Mobile broadband speeds, capacity, and penetration are typically much lower than for fixed broadband,  though some providers have begun offering 4G service that will enable offerings with higher speeds and capacity and lower latency than previous generations of mobile service.   In addition, existing mobile networks present operational constraints that fixed broadband networks do not typically encounter.   This puts greater pressure on the concept of “reasonable network management” for mobile providers, and creates additional challenges in applying a broader set of rules to mobile at this time.   Further, we recognize that there have been meaningful recent moves toward openness, including the introduction of open operating systems like Android.  In addition, we anticipate soon seeing the effects on the market of the openness conditions we imposed on mobile providers that operate on upper 700 MHz C-Block spectrum, which includes Verizon Wireless, one of the largest mobile wireless carriers in the U.S.  

In light of these considerations, we conclude it is appropriate to take measured steps at this time to protect the openness of the Internet when accessed through mobile broadband

Specialized Services

In the Open Internet NPRM, the Commission recognized that broadband providers offer services that share capacity with broadband Internet access service over providers’ last-mile facilities, and may develop and offer other such services in the future.  These “specialized services,” such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide consumers valued services, supplementing the benefits of the open Internet.  At the same time, specialized services may raise concerns regarding bypassing open Internet protections, supplanting the open Internet, and enabling anticompetitive conduct.  We note also that our rules define broadband Internet access service to encompass “any service that the Commission finds to be providing a functional equivalent of [broadband Internet access service], or that is used to evade the protections set forth in these rules.”

We will closely monitor the robustness and affordability of broadband Internet access services, with a particular focus on any signs that specialized services are in any way retarding the growth of or constricting capacity available for broadband Internet access service.  We fully expect that broadband providers will increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.  We would be concerned if capacity for broadband Internet access service did not keep pace.  We also expect broadband providers to disclose information about specialized services’ impact, if any, on last-mile capacity available for, and the performance of, broadband Internet access service.  We may consider additional disclosure requirements in this area in our related proceeding regarding consumer transparency and disclosure.  We would also be concerned by any marketing, advertising, or other messaging by broadband providers suggesting that one or more specialized services, taken alone or together, and not provided in accordance with our open Internet rules, is “Internet” service or a substitute for broadband Internet access service.  Finally, we will monitor the potential for anticompetitive or otherwise harmful effects from specialized services, including from any arrangements a broadband provider may seek to enter into with third parties to offer such services.   The Open Internet Advisory Committee will aid us in monitoring these issues.

Broadband is Demand--Not Supply--Constrained

Broadband access in the United States now is a demand-constrained "problem," not a supply-constrained issue, for the most part. That is not to deny there remain some homes too expensive to reach economically using wired networks. But it is hard to ignore existing satellite broadband, terrestrial wireless broadband and multiple mobile broadband networks in service, even when a wired connection is not available.

Indeed, a recent study by Connected Nation found that nearly one-half (44 percent) of those with no home broadband connection say "I don’t need broadband." That suggests availability is not the actual problem.

Likewise, the top barrier to computer ownership is also a perceived lack of need. Nearly two-thirds (62 percent) of those who do not own a computer say "I don’t need a computer," Connected Nation finds.

That isn't to say cost is not an issue at all. Nearly one-fourth (24 percent) of those who do not own a computer cite the up-front cost as a barrier. Similarly, nearly one-fourth of those without a home broadband connection say broadband is too expensive.

Four out of ten parents with children who are without a home computer see no need for having a computer in the home. And nearly one-third (30 percent) of parents with children who do not have a home broadband connection see no need for a broadband connection.

More than one-half (56 percent) of people with disabilities who do not own a computer see no need for having a computer in the home. Four out of ten people with disabilities who do not have a home broadband connection see no need for a broadband connection.

Predominantly, even in contexts with reliable supply of broadband, it is consumer demand for broadband that is the tallest barrier to adoption and represents America’s competitive vulnerability, Connected Nation argues.

For example, among residents with children at home but without a computer at home, 41 percent did not see a need for a computer at home and 30 percent did not see a need for a broadband connection.

So which segments are most commonly receptive to broadband and use of computers? Households with children who need Internet access for homework are a high-adopter segment. About 84 percent of households with children own a computer, compared to 74 percent computer ownership among all residents.

And 62 percent of households with children choose to subscribe to broadband services at the home, contrasting with the overall broadband adoption rate of 50 percent. Parents, therefore, generally recognize the importance of what broadband has to offer their children. However, even among these parents with children at home, 13 percent still do not own a computer and 38 percent do not have a broadband home.

According to consumers, the primary barrier to computer ownership and home broadband adoption is not expense or lack of available broadband service, but rather, a perceived lack of need. When asked why they don’t subscribe to broadband or why they don’t own a computer, consumers responded most often with, "I don’t need it."

Fixed Broadband Prices Have Dropped 82% Over 5 Years

Over the past five years, fixed broadband prices as a share of gross national income per capita have dropped by 82 percent, the ITU says.

In 2012, fixed broadband services remained expensive, though, accounting for 30.1 percent of annual monthly incomes in developing countries, compared to just 1.7 percent in developed countries), By the end of 2013, there will be more than three times as many mobile broadband connections as there are conventional fixed broadband subscriptions, according to the  International Telecommunications Union’s State of Broadband Report.

In 2012, the number of developing countries where broadband cost less than five percent of annual income remained the same as in 2011, at a total of 48.

In 22 developing countries, prices ranged up to two percent of average income, while in 26 countries prices were between two percent and five percent.

The point is that people can afford broadband when it costs less than five percent of their annual income. That implies that fixed broadband access is unaffordable for 3.9 billion people, and mobile broadband is unaffordable for over 2.6 billion people around the world.

The number of developing countries where broadband cost between five percent and 10 percent

of average income has increased from 15 in 2011 to 24 in 2012, the ITU says. In 18 developing countries annual cost is between five percent and eight percent of annual income, while in six countries broadband cost is between eight and 10 percent of annual income.

In 49 economies in the world, primarily developed economies, broadband access in 2010 cost less than two percent  of average income.

This compares to 32 economies in the world in 2010 where broadband access cost more than half of average national income.

In 2010, there were 35 developing economies (out of 118) where broadband access cost less than five percent of average monthly income, up from 21 two years earlier.

Current ITU development goals include a target of entry-level broadband services, available at less than five percent of average monthly income, in developing countries by 2015.

By the end of 2013, the number of broadband subscriptions in the developing parts of the world will exceed the number of broadband subscriptions in the developed regions of the planet for the first time, the ITU also notes.

Licensed spectrum has underpinned the growth of the mobile industry and remains essential, unlicensed spectrum (Wi-Fi, primarily) has become an important part of the way people get access to the Internet.

Other forms of spectrum sharing also are starting to get attention.

Mobile broadband also is the fastest growing technology in human history, according to the ITU.

By the end of 2013, the ITU predicts there will be 2.1 billion mobile broadband subscriptions in use, equivalent to one third of the total number of mobile cellular subscriptions in service globally. In 2011, mobile broadband was used by 20 percent of mobile customers.

Morgan Stanley estimates that the number of unique smart phone users is around 1.5

billion in 2013, with smart phone subscriptions estimated to exceed four billion by 2018. Mobile broadband is projected to reach seven billion subscriptions in 2018.

Mobile broadband subscriptions, which allow users access to the Internet from their smart phones, tablets and WiFi-connected laptops, are growing at a rate of 30 percent  per year, the ITU says.

Rural-Urban Broadband Customers Not so Different

Are rural broadband customers all that different from suburban or urban customers? Not so much, a new analysis by Parks Associations suggests.

The percentages of rural broadband households who are very satisfied and very dissatisfied with their broadband services are within the margin of error for all U.S. broadband households, Parks Asociates notes. In other words, they are no more inclined to be pleased or upset with their service and service provider.

Rural broadband consumers desire value-added services on par with all U.S. broadband households, with premium technical support services and online backup as the top-two desired value-added services.

And the overwhelming percentage of U.S. broadband consumers are highly satisfied with their access services, despite a small percentage that say they are highly dissatisfied.

Overall, the rural status of a household has little impact on level of satisfaction with its broadband service. The type of access service does seem to have some bearing on high and low satisfaction.

Households with fiber broadband services report high satisfaction ratings in larger numbers, and households receiving satellite and wireless broadband services exhibit lower satisfaction ratings. But there is an important caveat. Customers who buy bundles of service are happier than customers who do not buy bundles. So the key variable seems to be the ability to buy a bundle, more than the type fo access.

The business implications would seem to be clear enough. Bundles create higher satisfaction and higher satisfaction reduces churn.  A highly satisfied broadband subscriber is 46 percent less likely to churn from a current provider, whereas a highly dissatisfied customer is 384 percent more likely to leave a current broadband provider.

A subscriber to a triple play of access services (broadband, television, and home telephone)
 is 15 percent more likely to be a highly satisfied broadband customer.

More than 70 percent of cable broadband households subscribe to a bundle, about 25 percent of which buy a triple play. But most, about 66 percent, buy a dual-play bundle of video and broadband access.

DSL providers have 58 percent bundle penetration, with 25 percent of customers opting for a dual-play package of  broadband and video while 17 percent buy a triple-play bundle.

Fiber broadband providers have 78 percent bundle penetration, with 64 percent buying a dual-play broadband and video bundle and 49 percent buying a triple-play package.

Rural broadband customers are 10 percent to 20 percent less likely than broadband subscribers on a national level to subscribe to the most-common broadband bundles. One would therefore expect lower satisfaction in rural areas, since satisfaction and bundles seem to be directly related.

Mobile and Fixed Broadband Switch Roles, Fast

Something interesting has happened in the broadband access business, namely a huge reversal of market share in just several years. Consider that as recently as 2008, some estimates had fixed broadband connections outnumbering mobile broadband by about a four to one margin.

In 2012, the ratio was reversed, and there were four mobile broadband connections in use for every fixed connection. That sort of change--that fast--does not happen in the communications business very often.

The number of mobile broadband subscribers around the world surpassed that of fixed broadband at the end of 2010, in appears. So mobile broadband went from a 20 percent of market state to a 50 percent of market state in just two years, by some estimates.

After about another three years, mobile broadband grew to represent 80 percent of all broadband connections, by some measures. That is a breathtaking change, in terms of the speed of the change.

By 2015, it is anticipated that there will be 3.1 billion mobile broadband subscribers compared to 848 million fixed broadband subscribers.

Global fixed broadband subscriptions reached around 550 million in 2011, mainly boosted by strong growth of DSL in China.

China is the largest single country in terms of fixed broadband subscriptions with around 140 million, followed by the United States and Japan. DSL represents more than 60 percent of all fixed broadband subscriptions followed by cable and Fiber-To-The-Home/Building (FTTH/B). 

The high growth rate of mobile broadband means that mobile broadband, if it has not already grown to represent 80 percent of total broadband subscriptions, will have done so by 2015 or so.

In emerging markets, mobile broadband is expected to increase from 37 to 79 percent of all broadband subscriptions between 2010 and 2015.

The growth of mobile broadband is not news. But what might be more shocking is the growth rate and the size of the installed base. Rarely does mobile substitution for fixed services happen so fast.

Are Recession Driven Product Substitutions Permanent?

Whatever else one might say about it, a recession is a prime opportunity for product substitution whose immediate benefit might only be seen to be “saving money,” but which then might create a satisfying habit that leads to a permanent shift in demand, not just a temporary change of provider or service level.

In the U.S. market, the issue is whether the millions of customers who have opted for prepaid mobility will keep those plans even after the recession has past. Virtually nobody thinks consumers who have cut the landline voice cord in favor of mobility are likely to reverse course.

The poster child for substitution of mobile broadband for fixed broadband, for example,  is Austria, where  almost all broadband net adds have over the last year or two been mobile connections, rather than fixed connections.

And though the market in Austria and in the United States appear to have different structural characteristics, the danger of product substitution is amply highlighted in the Austrian market, where aggressive mobile providers, high fixed broadband prices and relatively low value of entertainment video create a sort of perfect storm for mobile broadband substitution.

And though it is not certain, past recessions were linked with, though perhaps not directly contributors to, the rise of disruptive new players in media or communications ecosystems.

Google was born in 1998, in the midst of the Asian financial crisis, while Skype was born in 2003, after the dot-com implosion, for example.

Changes in industry structure and the emergence of disruptive new industry leaders will not be ascertainable for some time. But churn is going to be easier to track, as we normally get reasonable trend data from any number of public companies every three months. We largely will have to guess at how product substitution might be occurring.

Some forms of substitution are now so commonplace as to be expected: cable companies and mobile providers gaining voice customers while telcos shed them; telcos gaining video customers while cable companies shed them while online viewing grows.

Other likely product substitutions are less visible. It is not clear there is any appreciable substitution of mobile wireless broadband for fixed broadband. But logic suggests that will become a greater opportunity and danger in several years, when fourth-generation services are more widely available.

Parks Associates research, for example, finds 80 percent of broadband users in key European markets prefer traditional video viewing to online viewing. Depending on how you want to spin it, that is a glass half empty or half full.

“Broadband has transformed video viewing habits in Western Europe, where over 20 percent of broadband households have watched a film or TV program online in the past six months,” say researchers at Parks Associates.

Mobile broadband and mobile broadband modems and dongles (including embedded devices) are growing dramatically. In several major European markets, including Austria, Ireland and Sweden, as many as 15 percent to 30 percent of broadband subscriptions are now over cellular networks, up from nearly zero a year ago, the International Telecommunications Union says.

Think about that for just a moment. From zero, mobile broadband jumps to 15 to 30 percent of total broadband accounts, in a single year.

That represents some mix of additional access accounts supplemental to fixed broadband, and some substitution. But it is significant that the ITU report believes the growth shows “mobile broadband can substitute for light-usage DSL.”

So the logical question is whether mobile broadband is to fixed broadband as mobile voice was to fixed voice.

Analysys Mason notes that one of the key success factors for the rapid take-up of HSPA (3G) has been the introduction of flat-rate pricing with either unlimited usage or very large inclusive data bundles.

So at least in some markets, the recession could be leading some significant number of consumers to trade off their fixed broadband connections in favor of mobile broadband.

The longer-term issue is more important. Once they have learned to live that way, will they continue when the recession ends?

That is the big danger on a number of fronts. And it is a bigger change than simple churn, as important as that is.

If a business customer picks another provider for one or more services, the danger for the original provider is that this particular customer never returns.

If a customer switches from cable to telco or satellite for video, does the cable company ever get that customer back? And if a customer abandons all landline service, does a telco have much of a shot at getting that customer back later?

Those issues are real enough. More challenging though is a fundamental new behavior pattern that changes the size and value of an entire market segment, application or service, not simply the market share various contenders can claim.

Sure, there will be important but temporary effects during the recession. What bears closer scrutiny are permanent changes in end user demand. The recession will provide incentive to try new things. Once that happens, we might see the behavior persist even after the recession-induced driver has passed.

We won’t know precisely how important all that is for some time. What does seem clear is that lots of people are going to try new things, maybe just to save money at first. There is no way all that behavior is going to stop once the recession is a memory.

Broadband Stimulus Won't Change Much, Firm Says

Some observers seem to have believed the "broadband stimulus" program, as helpful as it will be for some organizations and service providers, would somehow "fix" a "broadband" adoption problem in the rural and some other "underserved" areas of the country. It appears reality is setting in.

"The bottom line is that the stimulus money is going to change any of the access issues," says Robert Rosenberg, Insight Research Corp. president. "It is far to few dollars to make any impact."

But "access" is only part of the "problem." In fact, Insight Research says, there are four different kinds of households that must be considered when looking at broadband "adoption" and "availability," which are quite different issues.

There are households "unable to buy" broadband service, at least from a terrestrial provider (most analysts seem to forget that there are two national providers of satellite broadband). There are households that can buy broadband, but choose to buy dial-up service.

There are households that do not own computers and households that own computers but do not use the Internet.

"I don't want to over-play the 'I can't buy it' issue, says Rosenberge. "Yes there is some of that, but it is also the issue of 'no computers' or 'dial up is fine for me,'" he says.

Insight says 60 million U.S. homes buy broadband access service, while 12.6 million homes buy dial-up access, for a total of 72.6 milliion Internet access buyers.

Insight Research says that if one adds up the households without any broadband service at all, plus dial-up households, perhaps 58 million households, or 49 percent of all U.S. households, potentially are candidates for broadband service and have not yet bought it.

Insight Research estimates that at least 12 million rural and non-urban market households do not have access to any broadband service (terrestrial) due to the lack of supporting terrestrial infrastructure. Given a minimum cost of $1,500 per household, it is easy to see that the price tag for expanding broadband access to 12 million new households could exceed $18 billion.

By definition, the funding available under the broadband stimulus program is just a bit over $7 billion, and that includes funding for middle-mile projects, computing centers and other projects that do not directly add new broadband access capability. In fact, only a theoretical $6.4 billion actually is available for infrastructure.

Insight Research projects that non-governmental funding will provide the majority of the
growth in broadband penetration for the next five years.

With an estimated 40 million households still lacking broadband access by year-end 2014, the $6.4
billion in government funding would allow for an investment of $164 per household to provide broadband access to these non-broadband households.

The availability of such a small investment amount per household casts serious doubt that any significant expansion of broadband access will result from this government action, Insight Research says.

At the current estimate of $1,500 per household, at least $60 billion would be needed to deploy universal broadband access across the United States for 40 million households.

The broadband stimulus will not change much, it appears.

Historic Switch in Demand Drivers for Fixed Broadband is Occurring

Get ready for a historic shift in the relationship between devices and broadband access accounts. Traditionally, there were more PCs owned than users of the Internet, and more users of the Internet than buyers of household broadband service.

Soon, if not already, there might be more broadband accounts in service than PCs or notebooks that use those networks. That historic reversal would mean a change in the traditional reason for buying broadband access.

Traditionally, the reason for buying broadband access services was for fast Internet access for some sort of PC. These days, there are other reasons.

Some users might want a fixed connection, solely or in part, to offload data sessions from a mobile network to a fixed network, to get access to the Internet from some other devices, such as a tablet or iPod.

Some might want broadband access to support Internet access for game playing consoles or some other video device (Roku, for example) that displays Internet video on a TV. In other words, there are many more devices, other than PCs,  that derive value from a fixed network broadband connection.

In the past, some might have argued that broadband access penetration would approach 100 percent of homes for one simple reason, namely that some users would see video content as the reason to buy broadband, rather than PC access to the Internet.

But there now are all sorts of reasons to buy broadband, beyond connecting PCs to the Internet. Connections for tablets and smart phones are only the latest reasons.

Research firm Consumer Intelligence Research Partners released the results of a study it conducted of more than 1,000 iPad buyers between December 2011 and April 2012. CIRP asked those recent buyers what they're most likely to do with their tablet and found that 40 percent of respondents indicated they surf the Web on the iPad, leading all possible activities.

A separate study sponsored by Business Insider found similar results. That reader survey got 2,242 responses. The Results aren’t really all that different from the first and second surveys. Basically, people use tablets for browsing, web-based communications and other content consumption activities.

In fact, a larger percentage and absolute number of people might soon be finding that connecting devices other than PCs or notebooks to the Internet provides most of the reason for buying fixed network broadband.

Notably, the Business Insider poll suggests 45 percent of users are doing their browsing on a tablet, 24 percent on a notebook and 17 percent on desktop PCs. About 14 percent of browsing now is conducted on a smart phone.

So you might say that 59 percent of browsing activities now occur on devices that really are not the “best” devices for content creation.

Also, as new smart phones start to push towards larger screens, such as the five-inch screen on Samsung Note, there will start to be less difference between smart phones and seven-inch tablets. The point is that much of the use case for a “computing” device these days is Internet-based content consumption.

In the United Kingdom, for example, household Internet access rose to 80 percent in the first quarter of  2012, up three percentage points on the previous year, and for the first time exceeded the penetration of PCs and laptops, according to Ofcom.

Internet access through a broadband connection stood at 76 percent of households, up two percentage points from the first quarter of 2011 but with a different mix between fixed and mobile connections.

Mobile broadband through a dongle or connection built into a laptop declined four percentage points to 13 percent of households in the first quarter of 2012, while fixed broadband household take-up rose five percentage points to 72 percent.

Three-quarters of the mobile broadband decline was among mobile-broadband-only households, while households with fixed and mobile broadband connections fell by one percentage point.

The decline in mobile broadband internet access is likely to have been substituted by the rise in fixed take-up and the increased use of Internet on a mobile phone (up seven percentage points to 39 percent).

Where once it would have been possible to model broadband adoption by tracking “PCs in the home,” that methodology increasingly would be defective. Already, a significant percentage of users rely on mobile broadband, rather than fixed, because they rely on smart phones, rather than PCs, for most of their Internet activities.

More U.K. Mobile than Fixed Broadband Users in 2011?

More people will use mobile broadband rather than fixed line broadband by 2011, mobileSquared predicts. It's the sort of shocking prediction that makes for a great headline, but also is misleading. The forecast, for the U.K. market, might lead one to conclude that users are disconnecting fixed broadband lines and using mobile instead.

But that is not what the forecast assumes. Rather, it primarily assumes continued growth of smartphone connections.

By 2011 the number of active 3G "smartphone" type devices in the UK will be 36.3 million. There also will be 6.4 million dongles and embedded devices in use, taking the total number of mobile broadband connections to 42.7 million compared to a base of fixed broadband connections of 42.5 million, mobile Squared projects.

To be sure, over time there will be more Internet access occuring from broadband-capable smartphones.
The firm estimates that between one percent and 10 percent of enterprise Internet traffic is already being generated from a mobile device, for example.

But most observers, and most users, likely would say that mobile broadband and fixed broadband are complementary, more than substitutes.

That noted, the application profile for mobile broadband likely will be distinctive. “Mobile will become the primary access point for brands and businesses communicating with its consumers within two years,” says Nick Lane, mobileSquared chief analyst. “Mobile is always-on, and the average user carries their device for an average of 16 hours a day. So if a company or brand is not already considering how to use mobile, then they need to because their customers are.”

As the typical mobile "phone" becomes a multi-purpose broadband device, it will be used for Internet applications. That is not to say the typical smartphone will replace a PC, or a fixed broadband connection. The application profile and mode of use will start to overlap. But each mode will retain key advantages for the bulk of usage. People will talk more on their mobile phones than on their PCs.

They will engage in research, document, calculation or process intensive operations, plus most long-form TV, on a PC or a notebook equipped for broadband access. But people will rely increasingly on their mobiles for social networking updates, location-related apps, real-time information and brief entertainment episodes, and sometimes for long-form video.

The point is that mobile broadband now consists of two distinct segments: smartphones and PC dongles. And while both overlap at times with fixed broadband, they are distinct. Wireless broadband used to connect PCs generally is a complement to fixed broadband access, not a substitute, though that will happen at times.

So the mobileSqured forecast, which essentially lumps all smartphone data accounts with PC dongle accounts to reach the conclusion that mobile broadband will be a bigger business than fixed broadband, is correct in one sense, but wrong in another. In fact, all forms of broadband access are increasing.

Does Mobile Broadband "Cause" Economic Growth?

Though correlation is not causation, it might also be said that, in terms of the relationship between mobile broadband adoption and gross domestic product, the correlation might be positive, neutral or negative.

That is not what people tend to believe, or want to believe. But neither does evidence necessarily support the notion that mobile broadband causes, or leads to, economic growth.

Consider that a United Nation’s Broadband Commission report includes the standard view that broadband deployment leads to economic growth.

That is not to argue against robust adoption of mobile broadband. The point is that it is not clear broadband adoption, in and of itself, actually leads in a direct way to economic growth.

That is not what one typically hears. Ericsson sponsored a study conducted by Arthur d. Little and Chalmers University of Technology to quantify the economic impact of broadband speed upgrades, at both the country and household levels.

The main conclusion was that doubling the broadband speed for an economy can increase gross domestic product growth by 0.3 percent on average in Organization for Economic Cooperation and Development economies.

The average increase in household income for a broadband speed upgrade of 4 Mbps to 8 Mbps is US$120 per month in OECD countries.

Households in Brazil, Russia, India and China benefit most by upgrading from 0.5 Mbps to 4 Mbps, at US$46 per month.

For households in OECD countries, there is a threshold broadband access speed to increase in earnings, somewhere between 0.5 Mbps and 2 Mbps on average. The greatest expected increase in income is for the transition from being without broadband to gaining 4 mbps, the

difference being around US$2,100 per household per year (equivalent to US$182 per month).

In BRIC households, the threshold level seems to be 0.5 Mbps. Rround US$800 additional annual household income is expected to be gained by introducing 0.5 Mbps broadband

connection in BRI country households, equivalent to US$70 per month per household.

But other data suggests that, for the 20 countries with the highest mobile broadband penetration, there is actually a negative relationship between GDP growth and broadband penetration.

Some might facetiously argue that limiting mobile broadband use might promote economic growth.  Nor is it completely clear that economic growth and fixed network broadband are causally related. People tend to assume that is the case, but it is tough to prove.

The point is that although the conventional wisdom is that broadband availability--fixed or mobile--”must” lead to economic growth, statistics do not uniformly support that conclusion.

There is no one obvious factor predicting mobile broadband penetration in these major countries, or the relationship to economic growth, one might well argue.

"There are just too many other factors that affect GDP growth for mobile broadband to have any significant and measurable effect,” said Yankee Group Research VP Declan Lonergan.

Broadband is Partly an Availability Problem; Partly a Demand Problem

"Predominantly, even in contexts with reliable supply of broadband, it is consumer demand for broadband that is the tallest barrier to adoption and represents America’s competitive vulnerability," says Connected Nation.

It might be worth keeping that in mind as plans for the broadband stimulus program operated by the National Telecommunications & Administration and Agriculture Department's "broadband stimulus" rules are finalized.

There clearly is a physical access problem in rural areas (at least in terms of wired access: though some locations may not have clear line of sight, multiple providers of satellite access are available, and it is possible to supply speeds up to perhaps 5 Mbps using satellite), but broadband availability is not the same problem as lack of adoption. In fact, people have lots of reasons not to buy services they already have access to.

The largest barrier to broadband adoption is a lack of awareness about broadband’s benefits, Connected Nation says. Nearly one-half (44 percent) of those with no home broadband connection say “I don’t need broadband.”

Likewise, the top barrier to computer ownership is also a perceived lack of need. Nearly two-thirds

(62 percent) of those who do not own a computer say “I don’t need a computer,” Connected Nation says.

In other cases, perceived cost is an issue. Nearly one fourth (24 percent) of those who do not own a computer cite the up-front cost as a barrier. Similarly, nearly one-fourth of those without a home broadband connection say broadband is too expensive.

Four out of ten parents with children who are without a home computer see no need for having a computer in the home. And nearly one-third (30 percent) of parents with children who do not have a home broadband connection see no need for a broadband connection.

More than one half (56 percent) of people with disabilities who do not own a computer see no need for having a computer in the home. Four out of ten people with disabilities who do not have a home broadband connection see no need for a broadband connection, Connected Nation says.

Close to one half (42 percent) of rural residents without a home broadband connection say it is because they do not need broadband. This compares with 19 percent of these rural residents who say they do not subscribe because broadband service is not available in their area.

Additionally, 22 percent of these rural residents say broadband is too expensive.

http://www.nga.org/Files/pdf/0812BROADBANDCHALLENGE.PDF